Hospitals acquired by real estate investment trusts associated with greater risk of bankruptcy and closure

Real estate investment trust (REIT)-acquired U.S. hospitals were associated with a greater risk of bankruptcy or closure than non-REIT-acquired hospitals, according to a new study led by researchers at Harvard T.H. Chan School of Public Health. The findings also showed that REIT acquisition of hospitals had no significant impact on quality of care or clinical outcomes.

The study is published in The BMJ

How REIT acquisitions work in health care

When a hospital sells its real estate to a REIT, the REIT then functions as a landlord with the hospital as a tenant. This practice has become increasingly common among private equity- and corporate-owned hospitals in the U.S. Proponents argue that the profits from a hospital’s sale of its real estate to a REIT can be used to improve clinical care. But concern has grown that for-profit hospital owners are using REITs as a strategy to strip assets from hospitals to generate returns to investors.

While prior studies have examined the consequences of private equity and corporate ownership of hospitals, none have evaluated the consequences specifically of REIT acquisition of hospitals.

Study design and key findings

For this study, the researchers compared the clinical and financial outcomes of 87 hospitals that had been acquired by REITs from 2005–2019 with 337 non-REIT acquired hospitals. They assessed a variety of data, including Medicare claims, financial performance, patients’ experiences at hospitals, hospital staffing levels, and clinical outcomes and quality, indicated by 30-day mortality and readmission rates for patients with heart attacks, congestive heart failure, and pneumonia.

The findings showed that REIT acquisition had no significant impacts on quality of clinical care or patient outcomes—but had a significant negative impact on a hospital’s finances. REIT-acquired hospitals had a 5.7-fold higher risk of closure or bankruptcy compared with non-REIT acquired hospitals.

Expert perspectives and policy implications

“In REIT-acquired hospitals, there don’t seem to be any systematic reinvestments into clinical services, which is one of the arguments employed by private equity or corporate owners of hospitals as to why a REIT transaction may be beneficial,” said corresponding author Thomas Tsai, associate professor in the Department of Health Policy and Management, co-director of the Health care Quality and Outcomes Lab, and a surgeon at Brigham and Women’s Hospital. “What we see instead is that these hospitals are less likely to survive. As more and more financial resources are stripped away, it’s death by a thousand cuts.”

The researchers say the findings highlight the need for greater oversight over REIT acquisitions of hospital real estate.

“REIT acquisition of hospitals has the potential to help hospitals and the communities they serve, or to seriously damage them,” Tsai said. “The real-world evidence generated by our study can inform federal and state regulatory efforts to more closely monitor hospital ownership and transactions, to ensure that patients and communities are not being harmed.”