Rural Hospitals Struggle Under Private Equity Ownership

Original article on Electronic Health Reporter

By David L. Schreiner, Ph.D., FACHE

Private equity ownership of rural hospitals is growing, but so are concerns about the effects private equity firms can have on quality of care in small, community hospitals.

A new study reveals that care is riskier for patients at hospitals that are owned by private equity firms. Patients are more likely to fall, get new infections, or experience other forms of harm during their stay at a hospital acquired by a private equity firm. Researchers in the aforementioned study found the findings were alarming because they indicated an inference that financial incentives were deemed more important than patient care. There are at least 130 rural hospitals under the ownership of private equity.

Financial factors

Private equity ownership prioritizes short-term financial returns over long-term community needs. This can threaten services like obstetrics that lose money but are important to access.

When private equity-owned imaging centers and ambulatory surgery centers open near rural hospitals, it creates financial challenges. Private equity may restrict the number of Medicaid patients they accept, taking those patients with commercial insurance away from rural hospitals that accept all patients regardless of insurance status or ability to pay. This is problematic for rural hospitals, as Medicaid patients make up around 30% of their patient population. Examples include outpatient imaging centers and ambulatory surgery centers.

Studies have also found that patients experience worse clinical outcomes at hospitals owned by private equity. This could be due to reduced staffing levels that occur under private equity ownership. Private equity firms are known to cut costs through measures like decreasing nurse-to-patient ratios. For rural hospitals, which already operate on thin margins, competition for talented staff can be challenging.

The value of local relationships

Healthcare, like politics, is local. While many hospitals offer similar services, these offerings are tailored to the local population they serve based on various factors, including religion, culture, key employers and, yes, even weather. And the smaller the hospital and its service area (imagine a map of a rural hospital’s primary service area), the more tailored services are for the population they serve.

The rural hospital where I work, Katherine Shaw Bethea Hospital in Dixon, Ill., prioritizes keeping physicians and providers local. Having doctors and nurses who live in the community allows for personalized care tailored to each patient’s individual needs. This level of personal attention may be lost at larger hospitals with absentee ownership.

Rural patients value the relationships and familiarity they have with providers who are their neighbors. In rural areas, we know our patients on a more personal level. Team members in our clinics often know that Mrs. Smith is a talker and needs a 20-minute appointment, while Mrs. Jones wants to be in and out as quickly as possible. This knowledge might also have a clinical impact when providers see behaviors atypical for that individual.

Independent rural hospitals as economic drivers

Local ownership is often the largest economic driver in the community. Rural hospitals provide jobs and support local businesses, leading to improved living conditions for many in the region.

While private equity can provide needed capital for facility upgrades, I’m concerned about rural hospital independence being threatened. Two U.S. senators have launched investigations finding private equity ownership leads to workforce cuts and reduced quality. Ensuring transparency and accountability is also more difficult with private firms not required to meet the same disclosure standards as non-profit hospitals.

For the future of rural healthcare, fundamental reforms are needed to support small, independent community hospitals financially. I hope policymakers will address how to best care for the “tweener” rural hospitals left out of many conversations. Without changes, more hospitals may be forced to turn to private equity, and the impacts on local access to care could be significant.