YuLin Zhen, Photography Editor

Private equity-controlled hospitals often follow a troubling pattern of financial mismanagement, service cuts and jeopardized care for the communities that depend on them.

Prospect Medical Holdings, a private-equity-owned hospital system, is currently in a prolonged legal battle with the Yale New Haven Health system over acquiring three Connecticut hospitals. In a filed lawsuit, the healthcare system said it is hesitant to acquire Prospect’s liabilities.

As policymakers propose measures to increase transparency and protect community hospitals, the debate continues over how best to balance financial models with patient-first priorities. The News talked to healthcare professionals, policymakers and advocates about private equity involvement in healthcare. 

“These private equity groups are using hospitals as their personal piggy banks,” Sen. Richard Blumenthal told the News. “Private equity firms are putting profits over patient care. Their actions lead to postponed surgeries, inadequate staffing and diminished care.”

Nonprofit hospitals and private equity-owned hospitals represent distinct approaches to healthcare management, each with benefits and risks for the communities they serve.

Historically, hospitals in the United States have predominantly operated as nonprofits. Nonprofit hospitals are required to disclose financial information publicly, ensuring accountability to donors, patients and regulators.

For-profit hospitals, including those owned by private equity firms, are not subject to the same public reporting requirements as nonprofits.

While nonprofit hospitals aim to reinvest revenue into improving patient care and facility operations, for-profit hospitals often have a responsibility to investors and prioritize profitability. Private equity companies often extract resources from healthcare systems without much attention to long-term stability, experts say. 

When private equity in healthcare goes wrong

In May 2024, Steward Health Care filed for Chapter 11 bankruptcy, citing unsustainable debt levels and operational challenges. 

This bankruptcy led to the closure of facilities nationally, such as Carney Hospital in Boston and Nashoba Valley Medical Center in Ayer, Mass., disrupting services for thousands of Massachusetts patients and leaving many healthcare workers uncertain about their futures.

“Steward’s focus on profits and its desire to expand its empire nationally and internationally resulted in chronic short staffing, lack of maintenance of equipment and an ongoing shortage of supplies that delayed patient care,” said David Schildmeier of the Massachusetts Nurses Association. 

Schildmeier emphasized that these conditions “contributed to substandard care and preventable patient harm, including significant deaths.”

In Connecticut, Yale New Haven Health is in legal disputes with another private equity-owned hospital system. 

In 2022, the Yale New Haven Health system signed an agreement with Prospect Medical Holdings to acquire Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital. 

Since that initial agreement, the two parties have sued each other, with Yale New Haven Health alleging that Prospect’s financial mismanagement violated the 2022 acquisition agreement. In a counter-lawsuit and statements to the News, Prospect repeatedly has alleged that Yale New Haven Health is delaying the accusation to obtain a more favorable price.

In a lawsuit filed against Prospect, the YNHHS wrote that they are hesitant to acquire Prospect’s liabilities.

Yale New Haven Health alleges that Prospect’s financial practices saddled the hospitals with a $1.1 billion debt burden, paid at least $457 million in debt-financed dividends to shareholders and sold hospital properties worth $1.4 billion, leaving the hospitals to shoulder roughly $35 million annually in lease payments and diverting resources away from operational needs.

Prospect has also come under fire last month for failing to fund employee pensions. 

Financial mismanagement, like that which Yale New Haven Health alleges Prospect committed, is a common pattern for health systems run by private equity firms. 

According to Dr. Howard Forman, a professor of radiology and biomedical imaging at the School of Medicine, private equity firms often employ a “typical playbook.” 

“They choose poorly performing assets, acquire them with as little cash — and more debt — as they can, generally sell off the land and real estate — often to themselves in a separate real estate trust or other investment vehicle — leasing the property back to the operating entity, and then go to work on trimming operational budgets,” Forman said.

While occasionally private equity-owned healthcare companies survive such tactics, Forman emphasized that private equity often prioritizes short-term gains over long-term healthcare stability.

According to Forman, these financial strategies leave hospitals vulnerable to crises. The reliance on aggressive cost-cutting measures often results in operational instability, reduced staffing and degraded patient care.

Mark Schlesinger, a professor of public health at the School of Public Health, echoed Forman’s point.

“They take value out of organizations instead of maintaining them, which directly impacts care quality,” Schlesinger said.

Prospect declined to comment on how their management of Waterbury Hospital, Manchester Memorial Hospital and Rockville General Hospital impacted patient care and if there were significant changes to staffing, resources or service availability after they assumed control. 

The Health over Wealth Act

Private equity’s involvement in healthcare has drawn sharp criticism from policymakers, who see it as a primary driver of declining care quality and hospitals’ financial instability.

Blumenthal underscored these concerns, stating that “Patients at these hospitals are, in effect, bearing the burden of delayed care.” 

In July, Blumenthal co-sponsored the Health over Wealth Act, which he hopes will address the issue. 

The legislation seeks to increase transparency and accountability for private equity firms by mandating detailed reporting on debt, executive pay and reductions in patient services. It would also require private equity owners to establish escrow accounts to cover operational costs and prevent hospitals from going bankrupt.

As Blumenthal explained, “This legislation would ensure that the public interest is put over private equity profits, creating stronger accountability measures to reduce the impact of corporate greed.”

The act also addresses tax loopholes that enable real estate investment trusts to extract value from hospitals through sale-leaseback agreements. 

“We must ensure that our hospitals serve communities, not corporate greed. The health and well-being of millions depend on it,” Blumenthal told the News.

The Health over Wealth Act was co-sponsored by seven Senate Democrats and Vermont Sen. Bernie Sanders.