Private equity (PE) firms are targeting the U.S. health-care industry. Health care is a particularly popular sector for PE firms in particular medical technology, pharmaceuticals, and medical services (like hospitals, and nursing homes. Popular investment firms like Bain, Cerneris, Blackstone, Warburg Pincus and Kohlberg, and Kravis and Roberts operate in nearly every sector of the economy.
Growing PE interest in low profit or no profit sectors like hospitals is expanding. The PE firms take advantage and make their money from fees and dividends which are debt-financed by the acquired firm. Smaller hospitals tend to be desperate due to not being able to borrow and instead keep borrowing and make investments to keep up with the increasing costs and regulations. PE investors are betting on new profit opportunities from the growing needs of the baby-boomer generation and from the Affordable Care Act, which will dramatically expand health-insurance coverage.
The future of PE investments in hospitals depends on a number of factors, including the cost and availability of credit health care legislation and the public response to PE ownership. The only ideal way of preventing PE takeovers of hospitals is to publicly securitize their behavior. Also demand other forms of financial support for the hospital, Doctors, and Nurses struggling to provide affordable high- quality care.
Source: Nicole Aschoff, “Vultures in the E.R.,” Dollars & Sense, January/February 2013. Print only, no online source.
Student Researcher: Samaya Masjedi, Sonoma State University
Community Evaluator: Diana Hailey, San Ramon Regional Medical Center