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The Keckley Report

STAT Investigation on Ascension Private Equity Activity Problematic for Hospitals

By November 22, 2021March 1st, 2023No Comments

The STAT headline last Tuesday read: “How America’s largest Catholic hospital system is moonlighting as a private equity firm” The news organization’s investigation involved “interviews with nearly two dozen academic experts, financial analysts, accountants, and community organizers and a review of more than 3,500 pages of financial disclosures, lawsuits, and previously undisclosed internal financial documents.”

STAT’s Rachel Cohrs wrote “Rather than passively investing in private equity funds, the practice of several major nonprofit hospitals, Ascension has over the past six years actively made investment decisions to play the private equity game itself, for profit. The investigation reveals how far a wealthy, religious, tax-exempt health system can migrate toward behaving like a Wall Street firm — and how little such a system has to disclose about whether or how its profits are benefiting the nation’s poorest and most vulnerable patients.”

The article details Ascension’s investment activity beginning with its venture funding in 2001 and then its private equity entry in 2015 in a partnership with Towerbrook Capital Partners. It also details the 142-hospital system’s charity care activity, hospital closures and executive pay for its 3 top executives including two who left the hospital to run Ascension Capital earning more than $10 million each in 2019.

While characterizing Ascension’s private equity role with Towerbrook as “unusual”, the article opines that it’s perfectly legal.


Optics matter. Not-for-profit hospital critics will use this article to demonstrate that “not for profit” is a misnomer—a tax-dodge with a distant relationship to mission, purpose and community.

They’ll question how Board Compensation Committees arrive at comp packages for their Executives—a ripe source of media attention for hospitals especially when juxtaposed next to averages for all their workers including their doctors and nurses.

But few will ask the more fundamental question: how should the hospitals be funded? It’s the underlying context for the Ascension’s investment pursuits.

The organization of the hospital system in the United States and its funding is unique, complicated and a mess. No other country has such a hodgepodge.

Structure: U.S. hospitals can be classified as short-term (acute care) hospitals, teaching hospitals, or long-term care institutions; as public, private nonprofit, or private for-profit; or designated by the main type of services provided, such as general, specialty, or referral services.

Funding comes from private insurers, Medicare, Medicaid, CHIP, employers and out of pocket payments by consumers. Each payer “negotiates” a price for services provided, some based on cost-based reimbursement, discounted charges or prospective payments based on diagnosis-related groups (DRGs).

Adding complexity, there is no uniform payment system or rates for hospitals in the United States. Although Medicare pays all hospitals using a common rate-setting methodology (with different hospitals receiving different rates), Medicaid rates and payment methods are determined by individual states, and private insurance companies set their own hospital rates and payment arrangements within the constraints established by antitrust laws. Maryland is the only state that uses an all-payer, prospective rate-setting system for hospital care under which services are paid for by multiple third-party payers, but all payers must adopt the same methods and hospital-specific rates.

In 1980, hospitals received 39.7% of total health spending; in 2019, they received 31.4%. As care shifted from inpatient to outpatient and office settings, hospitals employed physicians to defend their revenues and referrals. More than half of the 1,062,205 physicians in actively practice today are employed by hospitals where the average compensation is $339,542—up from $315,999 a year ago. While physicians got 18.8% of total spending in 1980, they got 20.3% in 2019. As a result, hospitals + their employed physicians represent at least 42% of total spending which is forecast to grow 5%/year or higher through 2029– well above inflation and overall economic growth.

But the margin from these activities is shrinking: the median change in operating margin declined 18.2% from August to September and compared to pre-pandemic levels in 2019, its down 1.7%. Revenue in 2021 has declined 1.4%, discharges have declined 5.1% and expenses have increased 7.6%. Drug costs are up 23.5%, supply costs are up 14.2% and labor costs are up 8.9%.

Compounding matters for hospitals, private equity and strategic investors have plowed into the hospital and physician services sectors since 2018 creating a competitor landscape which now features national brands like Oak, Iora, CVS, Walmart, Optum and others competing against community providers.

Though McKinsey and others forecast a return to pre-pandemic admission levels in 2022, its unlikely for many—especially rural and independent non-multi-hospital system affiliated organizations and in hotspots where the pandemic’s fourth wave hits. At the same time, private equity funds will continue their blistering 3-year run in the hospital and physician services markets.

Ascension’s track record as an investor is strong: As a share of its expenses, its charity care has hovered around 2.5% in line with its not-for-profit peers. But unlike others, its overall investment income has grown considerably from 3.5% in 2015 when it entered the private equity arena to 18.9%, according to the most recently available federal tax filings.

Although investing strategies, asset allocation, and legal structuring understandably differ, Ascension is not alone in this practice. Names like Kaiser Permanente, Cleveland Clinic, Mayo Clinic and others have well established venture arms as well. And let’s be clear: investment income outside of any sort of retirement plan can be (and often is) made up of more than just PE/VC funds. These groups are putting cash to work through a variety of avenues- be it asset managers, funds of funds, etc. It’s understandable, especially if hospital margins erode further and funding remains a mess. But three unintended consequences merit thoughtful consideration:

  • Added scrutiny by the Department of Justice and State Attorneys General who are keen to seek False Claims Act reparation from privately funded ventures.

  • Escalating insolvency in hospitals lacking scale, balance sheet strength and optimal locations.

  • Added media scrutiny to hospital finances and business practices involving executive compensation and business practices.

Until and unless hospital funding changes, systems like Ascension will use every means legally necessary to access capital through investment profits. How profits are used will require greater accountability to their employees, communities and patients.


P.S. The Keckley Report will resume publication December 6. Enjoy thanksgiving and down-time this week with your family and friends, and thanks for being my readers!!


Rachel Cohrs “How America’s largest Catholic hospital system is moonlighting as a private equity firm”; November 16, 2021; STAT News

“Hospitals and Health Systems Continue to Face Unprecedented Financial Challenges due to COVID-19”; June 2020; American Hospital Association

“National Hospital Flash Report October 2021”; November 1, 2021; Kaufman Hall

Tara Bannow “Why the Justice Department is targeting private equity” November 15, 2021; Modern Healthcare


Notable Recent Deals

MedArrive– a home health focused care management platform- raised $25M in its Series A financing round. Section 32 led the round, along with support from participating sponsors 7wireVentures and Leaps by Bayer. Note that Silicon Valley based Kleiner Perkins is an existing investor. MedArrive’s platform is unique in that it connects payors and providers with EMTs, paramedics, and other skilled healthcare workers as a means of extending the continuum of care.

HealthSnap– a Miami based Remote Patient Monitoring (RPM) specialty platform for chronic disease management in areas like hypertension, diabetes, and heart failure- raised $10.2M in its Series B round earlier this month, bringing the company’s valuation to the low $20M range. Miami based healthcare company OPKO Health led the round, with support from new investors like W-5 Group and 6nine26; as well as follow on investments from Florida Funders, MacDonald Ventures and others. HealthSnap has seen impressive growth through its partnerships with names like Montefiore Health System, the Mayo Clinic, and Virginia Cardiovascular Specialists to name a few.

Altarum: Health spending +2.0% in October—less than Overall CPI

Per the Altarum Health Sector Economic Indicators Report for November 2021:

  • Health spending has stabilized near 17.5% of gross domestic product (GDP).

  • National health spending in September 2021 was 6.3% higher than in September 2020

  • Since January 2020, net growth in national health spending was 4.4% through September 2021. For the past 4 months, health spending has exceeded $4 trillion for the first time in history.

  • Spending on hospital care and home health care spending has increased 6.1% since January 2020 while dental services lag the other categories, at -11.4%.

  • Year-over-year health care price growth was highest for physician and clinical services (3.3%) and hospital services (2.3%), and lowest for prescription drugs (-0.7%) and durable medical equipment (0.2%).vs. the consumer price index (CPI) and producer price index (PPI), which continued to set records at 6.2% and 8.6% respectively in October

“November 2021 Economic Indicators Briefs”; November 16, 2021; Altarum

You Gov Poll: Majority think Economy Declining

According to an average of the past four weekly polls conducted by YouGov on behalf of The Economist, 46% of American adults believe the state of the economy is “getting worse” whereas only 19% think it is “getting better.” Just six months ago, roughly 30% of Americans polled believed that the country’s economy was improving. 56% of adults say they are having trouble affording petrol, 48% cannot easily pay their rent or mortgages and 45% are struggling to put food on the table.

The Economist/You Gov Polls November 16, 2021

Study: 34% of Health Plan Step Therapies Consistent with Clinical Guidelines for Leading Conditions

Using data from 17 of the largest US commercial health plans, researchers analyzed step therapy protocols that determined patients’ eligibility for specialty drugs for ten diseases that are often subject to that requirement. Overall, plans applied step therapy in 38.9% of drug coverage policies, with varying frequency across plans (20.6–57.5%). Of the protocols for the ten diseases, 34.0% were consistent with corresponding clinical guidelines, 55.6% were more stringent, and 6.1%were less stringent. Trials of alternatives not included in the clinical guidelines were required in 4.2% of protocols, and the consistency of protocols varied within and across plans.

Lenahan et al “Variation In Use And Content Of Prescription Drug Step Therapy Protocols, Within And Across Health Plans”; November 2021; Health Affairs

McKinsey: Hospitals Volume Will Return in 2022

Per McKinsey’s survey of 100 200-bed+ hospital systems:

  • In 2022, hospitals expect inpatient admissions to return to 2019 levels.

  • Southern and Western hospitals predict the largest inpatient admission increase for 2022, at 6% and 5% respectively. The average prediction for inpatient increase across all hospitals was 4%.

  • Hospitals expect a 7% increase in operating room procedures by 2023 and a 6% increase in emergency department admissions.

  • The strongest competitive threats to hospitals are United Optum (76%), CVS (64%), Walmart (58%) and Amazon (57%)

“Survey: US Hospital Patient Volumes Move Back Towards 2019 Levels”; November 15, 2021; McKinsey


COVID Trackers, CDC Guidance, & Other Resources

Key stats, news from CDC, Johns Hopkins, Food and Drug Administration, World Health Organization as of 11/19/21

  • 47 million confirmed COVID-19 cases in U.S.; 254 million cases globally

  • 770,800 deaths in the U.S. (385,457 in 2020); 5.1 million deaths global.

  • 59.9% of Americans have received a vaccine shot; 36% of Americans 65+ have received a booster

  • 30% of healthcare workers were unvaccinated as of September 2021

  • Boosters were authorized for all adult recipients of Moderna, Pfizer vaccines last week

  • 70% of U.S. adults are concerned about another pandemic happening in their lifetime and 47% think the country will be prepared to handle the public health impact of another health crisis like COVID-19, according to Morning Consult’s the poll of 2,200 adults taken between Nov. 3 and Nov. 5.