Study Links Hospital REIT Acquisitions to Higher Closure And Bankruptcy Risk

Hospitals acquired by real estate investment trusts are significantly more likely to close or file for bankruptcy, according to new national research examining the long-term impact of REIT ownership on U.S. hospital, according to a new study led by researchers at Harvard T.H. Chan School of Public Health.

The study published in BMJ Thursday found U.S. hospitals experienced an average 31% reduction in fixed assets after a REIT acquisition, with no measurable improvements in financial performance or quality of care. By contrast, 25% of REIT-acquired hospitals closed or entered bankruptcy, compared with 4% of similar hospitals not acquired by REITs, the authors reported.

The findings add empirical weight to long-standing concerns that REIT sale-leaseback arrangements extract value from hospitals without reinvesting in clinical operations. Under these deals, hospitals sell their real estate to a REIT and lease it back often through triple-net leases that shift taxes, insurance, and maintenance costs to the hospital operator, while rent obligations escalate over time.

Although REIT ownership remains limited, only about 3% of U.S. hospitals in 2021, the authors warn the model poses growing risks as healthcare real estate becomes increasingly financialized. Healthcare properties in the U.S. were valued at more than $1.2 trillion in 2022, including nearly $700 billion in general acute care hospitals, the study noted.

The paper points to the collapse of Steward Health Care as a high-profile example. Steward entered a sale-leaseback agreement in 2016 with Medical Properties Trust, which paid $1.2 billion for hospital real estate. Read more how the Steward bankruptcy impacted Arizona, especially how HonorHealth picked up Steward properties to expand its health system in previous reporting from The Hertel Report.

Reporting cited by the study suggests much of that cash flowed back to Steward’s private equity owners, including Cerberus Capital Management, rather than into hospital operations. Facing mounting rent obligations and vendor debt, Steward later filed for bankruptcy.

From STAT, Joseph Dov Bruch, a co-author of the study and assistant professor at the University of Chicago,

Despite the fact that real estate is oftentimes one of the most important assets that health care organizations have, there is little research on what happens when health systems lose this real estate and sell it to financial firms. We see evidence of higher risk of bankruptcy and closure.

The authors said the findings raise policy questions as REIT ownership expands in healthcare, including calls for greater transparency around hospital ownership, limits on sale-leaseback arrangements, and stronger oversight of deals that may undermine hospitals’ long-term financial stability.

Read the paper: BMJ Study: Changes in hospital financial performance and quality of care after real estate investment trust acquisition: quasi-experimental difference-in-differences study