States Take Lead In Reining In Private Equity’s Investment In Healthcare

A proliferation of bad outcomes is prompting lawmakers to act.

By Glenn Daigon, The Progressive

The 2010 purchase of Prospect Medical Holdings by the private equity firm Leonard Green and Partners has proven to be a sweet deal—for the firm. In the ten years that followed, it was able to extract $400 million from the hospital chain in dividends and fees for itself and its investors.

But for patients and staff at this hospital chain, the deal has been a disaster. In March 2020, a Prospect hospital in East Orange, New Jersey, became the first in the nation to have an emergency room doctor die of COVID-19. Before his death, the physician told a friend he became sick after being forced to reuse a single mask for four days, due to the hospital’s shortage of personal protective equipment.

Meanwhile, at a Prospect Hospital in Rhode Island, a locked ward for elderly patients had to be evacuated after poor infection control spread the virus to nineteen of its twenty-one residents, six of whom died. Workers at Prospect facilities in California have also reported bedbugs in patient rooms, rampant water leaks from ceilings, and feces on walls.

A 2024 study by the National Institutes of Health directly linked the increasing investment by private equity in health care facilities to bad outcomes for health care patients and staff. This destructive impact has spurred action at the state level to either slow down or outright block private equity investment in that sector.

Private equity is an investment class described as “house flippers for companies.” Private equity firms raise capital to acquire and manage private companies or make public companies private that are not on the public market (i.e., the New York Stock Exchange) with the goal of ultimately selling them for a profit. Typically, private equity firms use investors’ money to buy private hospitals, then make changes in the hospitals’ operations to improve their efficiency and value before selling them.