Report Finds Nonprofit Joint Ventures Growing in Private Equity Sector

CHICAGO—A new report from the Private Equity Stakeholder Project (PESP) found that nonprofit joint ventures have become an increasingly important strategy for private equity-backed healthcare companies seeking to expand across hospitals, rehabilitation facilities, ambulatory surgery centers, hospice, home health, behavioral health and other sectors.

“Private equity’s healthcare playbook is evolving,” said Jim Baker, executive director of PESP. “Our research documents how private equity has increasingly relied on joint ventures with nonprofits to expand its presence in healthcare. These arrangements have received far less attention than traditional private equity buyouts, even as they become more common across hospitals and other healthcare sectors.”

The PESP research explores why nonprofit-private equity joint ventures have become increasingly common.

Among the report’s findings:

• Private equity-backed healthcare companies are increasingly using joint ventures with nonprofit health systems to expand across multiple healthcare sectors.
• Existing IRS guidance governing nonprofit-for-profit healthcare joint ventures largely dates to 1998 and 2004, before the emergence of many of today’s large private equity-backed healthcare platforms.

The report raised questions about whether existing oversight frameworks adequately account for joint ventures that may transfer significant management authority or operational control without a traditional change in ownership.

The report more closely examines joint ventures involving companies including Lifepoint Health, Compassus, Ardent Health Services and Ascension. For example, the report said LifePoint Health owns the majority (61%) of its hospitals through joint ventures with nonprofit and other healthcare providers. Its largest partnership, Duke LifePoint, owns 16 hospitals across four states and is 97% owned by Apollo-owned LifePoint Health despite carrying Duke name. PESP said these examples illustrate how nonprofit-private equity partnerships have become a significant part of healthcare expansion strategies while also showing how financial practices more commonly associated with traditional private equity ownership—including sale-leasebacks, management agreements and other financial arrangements—can extend into nonprofit health systems.

“Healthcare business models don’t stand still, and oversight frameworks shouldn’t either,” Baker said. “Policymakers should have a clear understanding of how these partnerships are structured, how they operate and whether current oversight reflects the current realities of private equity’s healthcare acquisition strategies.”

To access the full report, click here.