By Karen Davenport and Kennah Watts
Personal fairness buyers who buy well being care services, equivalent to hospitals and well being methods, continuously deploy monetary and administration ways that prioritize short-term revenue over long-term investments in affected person care, institutional monetary stability, and neighborhood wants. In a just lately revealed problem temporary, Hollowed Out: How Personal Fairness Destabilized Security-Internet Hospitals in Pennsylvania, Connecticut, and Rhode Island, we study the “non-public fairness playbook”—a set of extractive monetary methods together with debt loading, sale-leasebacks, and dividend recapitalization that may hole out a facility’s belongings to the purpose of collapse. Particularly, this case examine examines how the non-public fairness agency Leonard Inexperienced & Companions (LGP) and Prospect Medical Holdings (Prospect) hollowed out numerous safety-net numerous hospitals:
- Pennsylvania’s Crozer-Keystone Well being System (Crozer);
- Connecticut’s Japanese Connecticut Hospital Community (ECHN)—which included Rockville Basic and Manchester Memorial—and Waterbury hospital; and
- Rhode Island’s CharterCARE System.
Right here we current an excerpt of the temporary that focuses on outpatient profit-maximization methods. This part highlights how Prospect, like many different hospitals, responded to the cost incentives associated to ambulatory companies delivered in hospital outpatient departments (HOPDs) by maximizing outpatient facility price income at a number of of their hospitals.
To learn extra in regards to the particular playbook Prospect employed throughout these states and the way the states responded to Prospect’s financialization ways, see the full temporary.
The Outpatient Pivot
Personal-equity firms’ profit-maximization methods typically goal a well being care entity’s main income. When private-equity buyers personal well being care suppliers who depend on public payers’ regulated cost charges, equivalent to nursing houses, they have an inclination to give attention to asset extraction and debt loading1. Although these methods can theoretically be used no matter proprietor, these practices have traditionally, if not solely, been deployed by non-public fairness buyers. In different elements of the well being care system, non-public fairness firms purchase supplier practices that serve a better share of privately insured sufferers, equivalent to dermatology and anesthesiology practices, and make use of methods to construct market energy and negotiate greater charges2––methods which are extensively used within the supplier market, by each nonprofit and for-profit house owners.
Hospitals can exist on the intersection of those two approaches. Inpatient care income is intently tied to public cost charges, as almost two-thirds of hospital discharges are lined by Medicare and Medicaid, and almost all hospitals (94 %) have a minimum of half of their inpatient days lined by public payers3. Outpatient care, however, presents extra alternative to maximise revenue by means of negotiated cost charges. The latest development in outpatient utilization4, notably for worthwhile companies5, has made outpatient companies a wealthy income stream for a lot of forms of hospitals. In hospitals, the place supplier and facility income is determined by each inpatient and outpatient care, non-public fairness buyers could concurrently search to maximise income from outpatient charges whereas extracting belongings from inpatient services.
Background on Outpatient Facility Price Billing
When a affected person receives care at a HOPD, the service can incur two separate payments: knowledgeable price, which seeks cost for the treating clinician’s time and labor, and a facility price, which is ostensibly meant to cowl the ability’s overhead prices. In distinction, when a affected person receives care at an impartial doctor’s workplace, the doctor points a single invoice that covers each their skilled time and an overhead cost; this single invoice is commonly considerably decrease than the sum of the 2 payments for care in an HOPD6. Sufferers could face these prices each instantly and not directly, by means of greater out-of-pocket spending and/or greater premiums as insurers go down their elevated prices7.
In latest many years, facility price funds for outpatient companies at hospitals and hospital-affiliated clinics have elevated in frequency and quantity8. This improve is primarily attributable to vertical integration: as hospitals purchase doctor practices and different supplier teams, the hospital can convert these suppliers to HOPDs, which, for billing functions, allows the hospital to cost facility charges for his or her companies9. To be clear, hospitals and well being methods can personal doctor practices with out changing them to HOPDs, however underneath Medicare guidelines, these services shouldn’t be billing facility charges until the system converts them to HOPDs. As hospitals and well being methods develop their footprint, additionally they acquire higher negotiating energy to cost greater costs to industrial payers throughout companies10.
As a result of outpatient facility price will increase have persistently outpaced skilled price will increase, hospitals’ incentive to buy doctor practices has grown over time11. The potential for greater charges then creates additional incentives for consolidation and integration in a self-reinforcing cycle12. Just like different hospitals, non-public equity-owned hospitals act on these incentives and maximize income from outpatient facility charges.
The Function of Outpatient Facility Charges within the Prospect Saga
Given the potential for vital income from outpatient facility charges, non-public fairness buyers have a powerful incentive to maximise HOPD companies. So, whereas Prospect centered on extracting hospital belongings by means of debt loading, sale-leasebacks, and different extractive methods, it additionally superior revenue-rich enterprise strains associated to outpatient care.
In Pennsylvania, for instance, Crozer’s outpatient services skilled vital income development even whereas the bigger system incurred unsustainable losses. When Prospect filed for chapter in January 2025, the primary hospital within the Crozer system, Crozer-Chester, had 5 outpatient services in Media, Havertown, Broomall, and Glen Mills, Pennsylvania. These properties have been fairly worthwhile—with all-payer working margins starting from 23 % to 57 % in 2021—because the inpatient services inside the Crozer system struggled financially13. Though some suppliers declare to wish outpatient facility charges to offset the upper prices of inpatient services14, within the Crozer case, the inpatient hospitals shuttered regardless of the income pulled from the outpatient services.
As Prospect moved by means of chapter courtroom, these outpatient services attracted potential consumers, together with ChristianaCare, Foremost Line Well being, and Penn Well being. In 2025, ChristianaCare in the end received a “extremely aggressive” chapter public sale for the 5 outpatient services, paying $50.3 million15. ChristianaCare has additionally introduced plans so as to add extra outpatient companies in Glen Mills and Havertown16.
This bid from ChristianaCare got here after the group had beforehand tried to buy the whole Crozer system––actually, ChristianaCare had even signed a letter of intent to buy the hospitals––however the deal dissolved as a result of ChristianaCare claimed the “financial panorama [had] considerably modified.”17 The outlook for the outpatient services was clear and promising although: Prospect was capable of promote these HOPDs individually from different Crozer properties primarily based on the potential consumers’ plans to develop their service areas and due to the profitability of HOPDs’ outpatient facility price billing. As a hospital system, ChristianaCare can combine these services as HOPDs and proceed to cost facility charges18.
Equally, a few of Prospect’s Connecticut hospitals generated massive and quickly rising facility price income. By 2023, Connecticut’s Waterbury, Manchester Memorial, and Rockville Basic hospitals have been experiencing vital monetary misery19. Nevertheless, the hospitals’ outpatient clinics supplied one shiny spot of their dismal backside strains. In line with facility price income studies collected by the state’s Workplace of Well being Technique (OHS), the three hospitals reported facility price costs of $9 million, $13.7 million, and $785,000, respectively, for on-campus outpatient care in 2022. As of 2024, Waterbury Hospital’s facility price income had grown to just about $15 million, regardless that the quantity of visits with facility price costs had declined by 42 %20. Throughout the identical time interval, Manchester Memorial additionally skilled a modest improve in facility price revenues21. These hospitals reaped income from facility charges even because the state carried out a brand new prohibition on facility charges for analysis and administration companies, as this comparatively slim ban nonetheless allowed facility price billing for a lot of outpatient companies.
When reviewing the chapter sale of Prospect’s Connecticut hospitals, Connecticut regulators sought to reduce the monetary incentives associated to facility price billing and to guard rational pricing for outpatient companies. When OHS accepted UConn’s buy of Waterbury Hospital, and Hartford Well being System’s buy of ECHN, the company required the brand new house owners to chorus from changing present outpatient, non-hospital doctor places of work––or any newly-acquired places of work––to HOPD standing for 3 years. OHS famous that this situation was designed to guard sufferers from facility price costs and make sure that costs weren’t merely elevated as the results of hospital possession, a minimum of within the close to time period.
The expansion in outpatient and facility price income in Pennsylvania and Connecticut point out how non-public fairness buyers undertake industry-wide income maximization methods along with ways extra typical to non-public fairness––asset stripping, dividend recapitalization, and different non-public equity-specific ways. Whereas Prospect utilized debt loading and sale-leasebacks to hole out the monetary core of those safety-net hospitals, they concurrently superior revenue-rich outpatient enterprise strains that remained shielded from the operational decay affecting inpatient companies. As seen in Pennsylvania, these worthwhile outpatient facilities could also be extra enticing to potential consumers as a stand-alone funding, fairly than as a part of the financially fragile hospitals or well being methods that non-public fairness buyers use as sources of economic extraction. When this occurs, sufferers can lose entry to crucial hospital companies and face greater costs for outpatient care. State regulators should concentrate on these refined, multifaceted ways––in addition to non-public fairness’s rising funding in different outpatient settings–– to guard affected person care.
Learn the complete problem temporary right here.
This work was made doable with assist from Arnold Ventures and West Well being.
