Crain’s Chicago Business: Hospital brawl takes aim at private equity

Crain’s explored how a “big Chicago-area doctor’s group and its private-equity backers are squaring off with a downstate hospital in a fight with potentially big implications for Illinois’ health care industry.”

Crain’s Chicago Business, April 11, 2022: Hospital brawl takes aim at private equity

In Illinois, according to Crain’s, “private-equity healthcare dealmaking surged to $35 billion last year on the mega-buyout of hospital supplier Medline Industries. Excluding that transaction, private-equity firms cut deals worth a total of $1.7 billion in Illinois last year, about the same as 2020’s total.”

Private-equity firms such as Ares have purchased and sold other hospitals and healthcare companies in Illinois, Crain’s wrote. “Ares, which has more than $300 billion in assets under management, also has a stake in The Aspen Group, a Chicago-based operator of dentist’s offices and medical urgent-care facilities.”

Additionally, “Los Angeles-based private-equity firm Pipeline Health purchased three Chicago-area hospitals in 2019, and came under scrutiny for closing Westlake Hospital just two weeks later. Now it’s selling its two remaining Illinois hospitals for $92 million.”

Crain’s looked at the national picture as well, reporting how “Private-equity activity in health care services across the U.S. has steadily increased over the last decade, according to PitchBook. Deals totaled $77.5 billion in 2021, up from $66.3 billion in 2020 and $76.6 billion in 2019.”

The local struggle Crain’s focused on was Blessing Health System, a nonprofit three-hospital chain based in Quincy. The non-profit opposes neighboring Quincy Medical Group’s plan to build a “small format” nonprofit hospital 2 miles from Blessing’s Quincy hospital, which is a “safety-net” facility serving many Medicare and Medicaid patients. According to Crain’s, “The controversy in Quincy is another flashpoint in the increasingly contentious debate over the growing role of private-equity firms in health care.”

Crain’s also looked at “Duly, a for-profit entity formerly called DuPage Medical Group, is the second largest physician group in Illinois by 2021 revenue, according to Crain’s data. It is backed by Los Angeles-based private-equity firm Ares Management, a fact that Blessing highlights in its arguments to the Illinois Health Facilities & Services Review Board.”

At a hearing last month, a lawyer representing Blessing said, “The board should recognize this project for what it is, an attempt by a large, national private-equity company to set up a cherry-picking, profit-motivated, low acuity hospital in rural Illinois.”

Blessing pointed out that Ares recently pulled a $209 million debt-funded dividend from Duly. PESP reported on the dividend recapitalization when it occurred in early 2021.

PESP’s Eileen O’Grady told Crain’s regarding dividend recapitalizations: “This is an incredibly problematic and pretty controversial practice that private-equity firms will engage in. There’s no benefit to the company itself or to the patients or to the workers. The only people it really benefits are the private-equity firms and their investors.”