In the middle of the COVID-19 pandemic, the well-funded healthcare startup Noble Health looked like exactly like the lifeline two rural Missouri hospitals needed. Instead, what followed was a story increasingly seen across rural communities throughout the country. Private investors stepped in, squeezed the hospitals for short term profits, and thanked the community by shuttering the two facilities with little warning or explanation. This is simply one recent example where private equity is no lifeline for rural hospitals.
At this point you may have read some of our prior pieces on private equity investing in healthcare. The goal of private equity is to buy cheap and generate high returns on a short turn around. Investors look for underperforming businesses and, in theory, turn them profitable. The US Healthcare system has seen an explosion of investment in the past twenty years, especially in specialty clinics like dermatology or plastic surgery.
The question gets asked every week across the country, though: should short-term return for shareholders supersede patient health and safety?
Perhaps it is a function of unscrupulous investors, or perhaps it is due to their lack of experience in healthcare. But the pattern repeats, and patients suffer, particularly in small communities. “In rural hospitals,” said Eileen O’Grady, a private equity researcher, “there are very few ways” to boost revenue and cut expenses “without having an impact on patient care.” Rural hospitals are often providing a need in far flung communities where the alternative for, say, a chemo infusion is an hour away.
Once Noble took ownership of the two hospitals, despite little experience managing healthcare, serious problems started. The hospitals stopped paying their bills and CMS inspections turned up 135 pages of deficiencies that put patients at risk. Noble corrected some deficiencies, but remained unwilling – or unable – to staff an overnight Emergency Room doctor. Through greed or mismanagement, Noble was very obviously putting members of the community at risk.
Rural hospitals are by no means cash cows – many struggle financially year after year. Still, private equity is there finding revenue streams – all too often by stripping the facility of valuable assets, paying high administrative costs, closing the facility, and moving on. Physicians and patients reported that after Noble moved in, drugs and supplies were suddenly unavailable, and much needed COVID funds were in part diverted to suddenly substantial administrative costs (paid to Noble and investors). The hospitals both closed in March, 2022. There has been no public announcement about a future reopening.
