Hahnemann University Hospital in Philadelphia closed in 2019, a year and a half after it was acquired along with St. Christopher’s Hospital for Children by private equity (PE) firm Paladin Healthcare Capital for 170 million dollars. Of that total, 120 million dollars were new loans taken out against the assets of the hospitals with interest rates around 10 percent.¹ Immediately after the purchase, the real estate holdings of the hospitals were spun off into a separate company owned by Paladin and other PE investors.² Former employees and administrators described the period that followed as chaos: it included diminished staffing levels, delayed equipment and building maintenance, closures of entire departments, and a hastily-executed emergency department renovation designed to increase volume that quickly stalled due to poor design and a failure to obtain permits.^1,3

Executives had been persuaded not to close the residency and fellowship programs at the hospital, only to have the program’s 550 training spots liquidated for 55 million dollars in bankruptcy proceedings.⁴ St. Christopher’s was able to find a buyer prior to bankruptcy but Hahnemann could not. Its real estate, exempt from bankruptcy filings and valued around 120 million dollars, remains held separately by the original private equity investors, who have sought buyers for the valuable downtown property.

Prior to its closure, Hahnemann had served primarily low-income patients from the surrounding Philadelphia community and had struggled to break even under the ownership of the for-profit Tenet Healthcare Corporation. This story has become increasingly common in the health care industry, as hospitals and physician groups flounder in an increasingly complex reimbursement environment and private equity firms have stepped in to infuse capital. Private equity investment in health care has increased more than 20-fold since 2000, with 70 percent of this activity since 2010. From 200 billion dollars that year, the firms that make up the Healthcare Private Equity Association now have over 2 trillion dollars in assets under management.² While widespread, these investments have also begun to saturate local markets: a recent study found that, through physician group acquisitions, the majority of physician market share is controlled by a single private equity firm in 13 percent of metropolitan markets.⁵

Private equity follows a fundamentally different business model from other forms of investment, such as publicly-traded or privately-owned companies. PE firms manage funds in which only large-scale institutional investors and high-net-worth individuals accredited by the Securities and Exchange Commission may invest. These funds are permitted to use high levels of debt to purchase companies in leveraged buyouts in which typically 60 percent to 80 percent of the purchase price comes from new loans against the value or assets of the acquisition. Between 2 to 10 percent comes from the private equity firm itself; the remainder comes from the fund’s investors including accredited individuals, endowments, and pension funds.^2,6 As with Hahnemann, the PE firm and its investors do not remain liable for debts incurred during the purchase. These stakeholders are similarly shielded in court when adverse patient outcomes, such as negligent deaths, occur under their management or when the bought-out companies are challenged for anticompetitive business practices overseen by the PE firm.^7-9