Question

in your opinion, what are the top two potential problems that can arise when private equity firms (for profit firms) buy formerly non-profit hospitals. Explain your reasoning

Answer 1

As per my opinion below are the two potential problems when private equity firms buy formerly non-profit hospitals.

· Private equity firms expect the firms in which they invest to be profitable at the earliest. Non-profit hospitals do not operate for profit but when they are invested by private equity firms the objective of hospital do change to make it more profitable. The hospitals profitablity would have not have been tracked over the period of time. Hence it can be problem area since profitablity tracking is of prime importance.

· Private equity firms expect higher return on investment (ROI) for their equity participation in the firms they invest. Hence the management of firms need to ensure the financials are in line with expectations of private equity management. Thus there can be alignment issues between management of private equity and the formerly non-profit hospital which can be irreconcilable in certain cases and lead to management tussle.