Investors’ Impact on Health Care Investigated

There is growing alarm that Wall Street actors are increasingly buying up hospitals, nursing homes and other providers to make “outsized returns.” These investors have little or no knowledge of health care, many say, and treat it simply as a financial asset to be bought and sold, not a social good.

These findings are documented in research by ILR Professor Rosemary Batt and Eileen Appelbaum, co-director of the Center for Economic and Policy Research.

In their new study, Batt and Appelbaum describe how investors are undermining the financial stability of hospitals and nursing homes by selling off their real estate and pocketing the proceeds for themselves, rather than reinvesting the money to improve patient care. The study was published Aug. 1 by the Institute for New Economic Thinking and the Center for Economic and Policy Research.

The perpetrators, the researchers say, are private equity firms in partnership with “real estate investment trusts,” known as “REITs.” Both are Wall Street investment funds that most people have never heard of, but that have increasingly penetrated the health care industry.

Their tactic is known as a sale-leaseback. Private equity firms buy out health care providers, load them with debt and plan to exit them in a four- to five-year window. REITs are their handmaidens, Batt said. The REITs buy the real estate and lease it back to hospitals or nursing homes in long-term leases that typically increase at 3% annually. Sale-leasebacks provide quick returns for private equity firms and stable long-term returns for the REITs.

Batt, the ILR School’s Alice H. Cook Professor of Women and Work, provides an example: “Take the Steward Health Care System. Cerberus Capital, a private equity firm, bought six Catholic hospitals in the Boston area in 2011. The Massachusetts attorney general oversaw the conversion of the hospitals from non-profit to for-profit status, and monitored Cerberus’ compliance with requirements for charity care and investment for five years. As soon as the attorney general’s oversight expired, Cerberus sold the hospital property for $1.25 billion to a health care REIT, Medical Properties Trust. But the hospitals were left in shambles.”

“The hospitals were suddenly paying inflated rents on property they had owned for over 100 years. To pay the rent on prime city properties, the private equity owners required deep cuts in staffing, supplies and equipment. Even so, the Steward system was deeply in the red – the worst financial performer of all hospitals in Massachusetts in 2019 – before the pandemic hit.”

REITs control over $3.5 trillion in assets in the U.S., but pay no taxes because the law defines them as passive investors. “However, their actions are anything but that – their aggressive actions and costly rents undermine the ability of health care providers to survive and serve patient needs, according to Batt. Appelbaum said, “We shouldn’t be subsidizing financial actors who make outsized profits at the expense of patients and workers. Policymakers need to revisit their tax-exempt status and rein in their behavior.”