How private equity raided safety net hospitals: Pipeline Health

A new investigation by the Private Equity Stakeholder Project (PESP) reveals, for the first time, the private equity (PE) owners of a healthcare company that broke promises to regulators when it moved to close a Chicago-area safety net hospital. The report, “How private equity raided safety net hospitals: Volume 2—Pipeline Health,” written by PESP researcher Mary Bugbee, highlights the pitfalls of private equity ownership of hospitals, including the monetization of hospital real estate, rapid expansion at the expense of company health, large-scale layoffs, and hospital closures.

How private equity raided safety net hospitals: Volume 2—Pipeline Health

Key Points

• Pipeline Health is an operator of safety net hospitals in California and Texas, and previously in Illinois. It is backed by private equity and investment firms Stanton Road Capital, Davidson Kempner Capital Management, and Deerfield Management.
• Pipeline Health provides a case study that captures many of the typical strategies and pitfalls seen with private equity acquisitions of hospitals, including asset-stripping through the monetization of real estate, pursuit of expansion at the expense of the overall company, layoffs, and closures.
• Pipeline’s ownership structure is opaque and convoluted. Because of a lack of public disclosure regarding some of its investors, as well as its use of over two dozen subsidiary companies to structure its business, it has been difficult to pinpoint who Pipeline’s owners are and how much influence they have over business operations.
• Pipeline’s story is a familiar one, echoing private equity firm Leonard Green & Partners’ looting of safety net chain Prospect Medical Holdings, and Joel Freedman and Paladin Healthcare’s looting of Hahnemann Hospital in Philadelphia. In all three cases, private equity investors broke promises to communities and regulators as they squeezed safety net hospitals for profits at the expense of patients, healthcare workers, and communities – even leading to closures of hospitals in Chicago, San Antonio and Philadelphia.
• One of Pipeline’s business strategies has involved the monetization of real estate.
  • Soon after it acquired City Hospital at White Rock in Texas in March 2018, Pipeline sold the hospital’s real estate, land, and parking garage to Global Medical REIT in a $23 million sale-leaseback transaction.
  • In 2022 in Chicago, Pipeline sold Weiss Memorial Hospital’s parking lot to a real estate developer for $12 million despite immense community protest. The developer planned to build luxury apartments.
  • In July 2021, Pipeline sold the hospital real estate of four Los Angeles hospitals to Medical Properties Trust in a $215 million sale-leaseback transaction.
• Pipeline purchased three Chicago-area safety net hospitals in January 2019 from Tenet Healthcare. Despite assurances made to regulators that the hospitals would remain open for at least two years following the acquisition, less than a month later Pipeline announced it would be closing Westlake Hospital.
• A legal battle ensued regarding Westlake’s potential closure, holding up Pipeline’s plans to close the hospital by June 2019. It remained open until August, when Westlake Hospital’s holding company filed for Chapter 7 bankruptcy. Over 500 workers were laid off.
• The following year during bankruptcy proceedings, it came to light that closing Westlake by June 2019 had been a condition of the acquisition agreement with Tenet—Pipeline was supposed to close the hospital and then sell it. In other words, Pipeline had planned to close the hospital and did not disclose this to regulators leading up to the acquisition.
• Some of Pipeline’s investors were alleged to have received illegal kickbacks involving an Avanti Hospital in California. In December 2018, they reached a settlement with the Office of the Inspector General and Department of Justice and entered into a Corporate Integrity Agreement to facilitate continued monitoring. The following month, Pipeline acquired the Avanti Hospitals and rebranded them under the Pipeline banner.
• Pipeline filed for Chapter 11 bankruptcy in the Southern District of Texas Bankruptcy Court in October 2022 after it faced delays in selling its remaining Chicago hospitals.
• Pipeline was ultimately able to sell the hospitals to the planned buyers for $92 million during the bankruptcy proceedings. By February 2023, Pipeline Health had emerged from bankruptcy with its debt restructured and with new leadership.
• One of Pipeline’s founders, Nick Orzano, previously worked with Joel Freedman at Paladin Capital and both were investors in Avanti Hospitals in California. Orzano co-founded Pipeline Health with Mark Bell in 2017, later buying out Avanti investors and rebranding the Avanti Hospitals under Pipeline Health in 2019, a year after Freedman acquired Hahnemann University Hospital in Philadelphia. Hahnemann would go on to file for bankruptcy and close in 2019 – the fate that befell Westlake Hospital under Pipeline’s stewardship the very same year.
• Greater vigilance is needed on the part of lawmakers, regulators, and government officials to address the threats associated with private equity- and investor-ownership of safety net and community hospitals. Regulations need to be updated to thwart predatory investor strategies aimed at monetizing real estate and obscuring ownership. More stringent regulations paired with greater accountability measures can deter investors hoping to make a quick buck at the expense of communities, as well as hold them accountable when they do.

Find the full report HERE.

*This report was updated on August 2, 2023 to fix a factual error regarding Avanti Hospitals’ first sale-leaseback transaction in 2012. This transaction was with Griffin-American Health REIT, not Medical Properties Trust.