Why should nonprofits care about private equity?
Don’t collude with private equity, Part 2
Image description: A healthcare provider sharing information with a patient in a clinic. Photo by CDC on Unsplash.
You may wish to read Part 1 first for an overview of the challenges with private equity. This post focuses specifically on how private equity encroachment is impacting nonprofits and the communities they serve.
Many people may assume that private equity is an issue of concern and interest mainly to the business sector and wealthy investors. However, there are places where nonprofits either compete or collaborate with private equity-owned businesses. Their actions impact our sector significantly (and not just by impoverishing more workers who in turn need supportive services).
Many nonprofit hospitals contract with private equity-controlled staffing agencies to staff their ERs, seeking lower costs. Unfortunately, the corners that these companies cut can impact patient safety and health. During the COVID pandemic an ER doctor at PeaceHealth’s St. Joseph’s Hospital in Bellingham, Washington, was fired by the contract staffing firm who managed the ER, TeamHealth (owned by Blackstone), when he publicly criticized the hospital’s infection control procedures during the pandemic.
Sometimes, financially strapped nonprofit hospitals sell to private equity rather than continue as nonprofits. For example, in 2017, St Joseph’s Regional Medical Center in Lewiston, Idaho, was sold by a nonprofit Catholic healthcare organization, Ascension, to private equity-backed RCCH Healthcare Partners. Changes have included discontinuation of outpatient psychiatric services and psychological evaluations in the ER, reductions in specialty care, and ongoing physician recruitment challenges. Research proves that deaths rise in hospitals that are acquired by private equity firms. Side note: When nonprofits sell to for-profits, the proceeds are generally used to set up a healthcare conversion foundation, which has been a growth area in recent years. This acquisition resulted in the Lewis-Clark Valley Healthcare Foundation.
As private equity firms have grown and are seeking new targets for their takeovers, they have expanded into several industries with many nonprofit providers, including healthcare, nursing homes and retirement communities, and childcare. Distressed nonprofits have sold to them, as have local governments. The have been particularly aggressive in acquiring rural hospitals and nursing homes where patients lack other options and may be forced to accept sub-par services.
As private equity expands into additional care industries, it competes directly with nonprofit providers. For example, many large childcare centers are corporate chains owned by private equity. In the Seattle area, these include KinderCare (27 centers in Seattle alone), the Learning Care group (at least 20 centers in the metro area including La Petite Academy locations), and Goddard School (six sites and growing). Other industries are equally impacted, including nursing homes, substance abuse treatment centers, and methadone clinics (nationally, one-third of methadone clinics are private equity-controlled). This expansion and consolidation of previously independent providers is likely a major contributor to nonprofit job loss (We lost 5.2% of our workforce in social assistance between 2017 and 2022, according to the Nonprofit Employment Data Project. Some of this was COVID-related, but I suspect the trend will continue to some degree.).
In addition to facing competition, nonprofits cannot expect support from these entities. Large corporations based elsewhere are less likely to give locally to nonprofits than local businesses. Private equity firms are even less likely to be philanthropic—not only are they not local, they focus solely on investor returns, and they do not intend to stay, typically turning over businesses with a few years.
What can we do?
There is hope! Communities all over the US are fighting back against privatization and private equity takeovers. The podcast To See Each Other documents the fight of a small town in Wisconsin to keep its nursing home public. And Bad Company: Private Equity and the Death of the American Dream profiles grassroots resistance against private equity’s damaging impacts on communities. Finally, state pension fund participants and Guaranteed Education Tuition (GET) fundholders can let the Washington State Investment Board (or the equivalent in your state) know that you want your retirement and/or education savings funds to be invested in businesses that have a positive community impact, not in private equity. To ensure ethical, socially responsible investing, you can also support efforts like SB6304, a Washington State Senate bill (unfortunately, stalled for this year) that “ensures that responsible principles of investing are incorporated into the investment decision making of the Washington State Investing Board.”
I would also love to see more research comparing outcomes at nonprofit and for-profit service providers. While I recognize that both types of organizations can provide quality care, removing the profit motive seems likely to improve the odds of higher quality services. Even absent such research, nonprofits should proudly indicate their nonprofit status and commitment to mission. This is a differentiator if we can get the word out. Without it, I fear that nonprofits will continue to lose market share in many fields.