July 17: Health economics and public health experts have sought to shine a spotlight on the financialization of healthcare in the 21st century, but most of the literature has focused on how private equity and other financial actors are turning healthcare organizations like hospitals, nursing homes, and physician practices into investment targets. A new paper is one of the first to systematically document how hospitals are also actively engaging in the financialization process as investors.
“I don’t think most people understand the range of financial activities nonprofit hospitals pursue,” said senior author Joseph Dov Bruch, PhD, Assistant Professor of Public Health Sciences at the University of Chicago. “Most people think of a nonprofit hospital as a charitable institution that takes in patient revenue and spends it on care. Few people realize that some of these institutions are collectively sitting on hundreds of billions of dollars in investment portfolios, or that those portfolios increasingly look like something you’d see in a financial firm.”
Analyzing IRS Form 990 data from 2,366 nonprofit hospitals between 2010 and 2023, the researchers found that these institutions now collectively hold nearly $300 billion in investment securities, representing a 55% increase over the course of the study period. The amount hospitals spent on investment management fees rose even more steeply, averaging over $550,000 per hospital by 2023, which represents an inflation-adjusted increase of just over 85% compared to 2010.
The data also revealed that more complex and volatile investments such as private equity, venture capital, and hedge funds came to comprise larger shares of hospital portfolios over time. These alternative investments are often characterized by less liquidity, transparency, and regulation than publicly traded securities.
The authors say existing policies weren’t built to provide the oversight and accountability needed to address the additional exposure to market-driven risks that comes from nonprofit hospitals’ increased engagement as investors.
“In the background of the introduced Tax Exempt Hospital Transparency Act, we think it is important to continue to expand IRS Form 990 disclosure requirements, so hospitals report investment allocations with more granular detail,” said first author Cal Chengqi Fang, a PhD candidate in Public Health Sciences at UChicago. “You can’t regulate what you can’t see. Right now, policymakers don’t have enough visibility into these investments.”
Now that they have documented that hospitals hold these investments, researchers’ next step will be to examine how hospitals respond to financial losses and gains, seeking to understand if they adjust operations in terms of service provision, staffing and compensations, and many other changes when the market moves.
Bruch says that while patients don’t need to start pulling up hospital 990 forms when making individual healthcare decisions, the overarching trends are worth keeping an eye on as community members.
“It is possible that when hospitals experience financial loss from the financial market, they may scale back or eliminate less profitable service lines or change operations in a way that has negative impacts on patients,” he said. “At the same time, one could imagine that investment gains could allow for more care delivery opportunities.”