By Karen Davenport and Kennah Watts
Non-public fairness buyers who buy well being care amenities, akin to hospitals and well being programs, 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 lately printed subject temporary, Hollowed Out: How Non-public 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 research 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 Jap Connecticut Hospital Community (ECHN)—which included Rockville Normal 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 fee incentives associated to ambulatory providers 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
Non-public-equity corporations’ profit-maximization methods usually goal a well being care entity’s major income. When private-equity buyers personal well being care suppliers who depend on public payers’ regulated fee charges, akin to nursing houses, they have an inclination to deal with 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 components of the well being care system, non-public fairness corporations purchase supplier practices that serve the next share of privately insured sufferers, akin to dermatology and anesthesiology practices, and make use of methods to construct market energy and negotiate larger charges2––methods which are broadly used within the supplier market, by each nonprofit and for-profit homeowners.
Hospitals can exist on the intersection of those two approaches. Inpatient care income is carefully tied to public fee charges, as practically two-thirds of hospital discharges are coated by Medicare and Medicaid, and practically all hospitals (94 p.c) have at the very least half of their inpatient days coated by public payers3. Outpatient care, alternatively, gives extra alternative to maximise revenue by means of negotiated fee charges. The latest progress in outpatient utilization4, notably for worthwhile providers5, has made outpatient providers a wealthy income stream for a lot of sorts of hospitals. In hospitals, the place supplier and facility income is dependent upon each inpatient and outpatient care, non-public fairness buyers might concurrently search to maximise income from outpatient charges whereas extracting belongings from inpatient amenities.
Background on Outpatient Facility Charge Billing
When a affected person receives care at a HOPD, the service can incur two separate payments: an expert price, which seeks fee for the treating clinician’s time and labor, and a facility price, which is ostensibly supposed to cowl the power’s overhead prices. In distinction, when a affected person receives care at an unbiased 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 might face these prices each straight and not directly, by means of larger out-of-pocket spending and/or larger premiums as insurers cross down their elevated prices7.
In latest a long time, facility price funds for outpatient providers 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 providers9. To be clear, hospitals and well being programs can personal doctor practices with out changing them to HOPDs, however underneath Medicare guidelines, these amenities shouldn’t be billing facility charges until the system converts them to HOPDs. As hospitals and well being programs increase their footprint, additionally they acquire larger negotiating energy to cost larger costs to business payers throughout providers10.
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 larger charges then creates additional incentives for consolidation and integration in a self-reinforcing cycle12. Much 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 robust incentive to maximise HOPD providers. 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 amenities skilled vital income progress 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 amenities in Media, Havertown, Broomall, and Glen Mills, Pennsylvania. These properties have been fairly worthwhile—with all-payer working margins starting from 23 p.c to 57 p.c in 2021—because the inpatient amenities throughout the Crozer system struggled financially13. Though some suppliers declare to want outpatient facility charges to offset the upper prices of inpatient amenities14, within the Crozer case, the inpatient hospitals shuttered regardless of the income pulled from the outpatient amenities.
As Prospect moved by means of chapter court docket, these outpatient amenities attracted potential consumers, together with ChristianaCare, Most important Line Well being, and Penn Well being. In 2025, ChristianaCare finally gained a “extremely aggressive” chapter public sale for the 5 outpatient amenities, paying $50.3 million15. ChristianaCare has additionally introduced plans so as to add extra outpatient providers in Glen Mills and Havertown16.
This bid from ChristianaCare got here after the group had beforehand tried to buy your entire Crozer system––the truth is, 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 amenities was clear and promising although: Prospect was capable of promote these HOPDs individually from different Crozer properties based mostly on the potential consumers’ plans to increase their service areas and due to the profitability of HOPDs’ outpatient facility price billing. As a hospital system, ChristianaCare can combine these amenities as HOPDs and proceed to cost facility charges18.
Equally, a few of Prospect’s Connecticut hospitals generated giant and quickly rising facility price income. By 2023, Connecticut’s Waterbury, Manchester Memorial, and Rockville Normal hospitals have been experiencing vital monetary misery19. Nevertheless, the hospitals’ outpatient clinics offered one brilliant 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 almost $15 million, regardless that the quantity of visits with facility price costs had declined by 42 p.c20. 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 providers, as this comparatively slender ban nonetheless allowed facility price billing for a lot of outpatient providers.
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 providers. When OHS accredited UConn’s buy of Waterbury Hospital, and Hartford Well being System’s buy of ECHN, the company required the brand new homeowners to chorus from changing current outpatient, non-hospital doctor workplaces––or any newly-acquired workplaces––to HOPD standing for 3 years. OHS famous that this situation was designed to guard sufferers from facility price costs and be sure that costs weren’t merely elevated as the results of hospital possession, at the very least 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 personal 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 providers. As seen in Pennsylvania, these worthwhile outpatient facilities could also be extra engaging to potential consumers as a stand-alone funding, somewhat than as a part of the financially fragile hospitals or well being programs that personal fairness buyers use as sources of monetary extraction. When this occurs, sufferers can lose entry to important hospital providers and face larger costs for outpatient care. State regulators should concentrate on these subtle, multifaceted ways––in addition to non-public fairness’s rising funding in different outpatient settings–– to guard affected person care.
Learn the total subject temporary right here.
This work was made doable with help from Arnold Ventures and West Well being.