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Health Affairs This Week places listeners at the center of health policy’s proverbial water cooler. Join host Jeff Byers, editors from Health Affairs Publishing, and guests as they discuss health policy’s most pressing news and trends.
Hello and welcome to Health Affairs This Week. I'm your host Jeff Byers. We are recording on 10/14/2026. So what happens when a for profit system converts into a nonprofit system? That's what we are here to talk about today with Stat News, Tara Bannow.
Jeff Byers:Tara, welcome to the program.
Tara Bannow:Thank you. Excited to be here.
Jeff Byers:Yeah. So you recently wrote a piece in Stat News about how the 11 rural hospital system, Quorum, is converting to a nonprofit system. So I know that sounds really straightforward, but what's the context here?
Tara Bannow:Yeah. Well, so Quorum was originally formed back in 2016 when a big for profit system, community health systems, spun off, these 11 hospitals. Actually, sorry. It was 38 hospitals at the time. And CHS at the time was the second largest hospital system in the country, but it was dealing with a lot of debt.
Tara Bannow:So it had to sell a bunch of hospitals, but it's still proclaimed that Quorum would be a good investment for investors. But unfortunately, I mean, problems kind of started right away. Quorum lost hundreds of millions of dollars in its first year as a company and investors pretty quickly sued both Quorum and CHS, claiming that the leaders didn't disclose that these hospitals were underperforming. And that's why CHS allegedly sold them. CHS and Quorum ultimately paid $18,000,000 to settle that lawsuit.
Tara Bannow:But then things continued to just kinda go downhill for Quorum. The the big private equity giant KKR bought a stake in 2017, and that deal, of course, saddled it with a lot of debt. And then Quorum declared bankruptcy three years later, sold a bunch more hospitals. And I think it's kind of worth backing up a little bit and noting that when I talk to hospital finance experts, they tell me that a lot of a hospital's fate is kind of sealed by where it's located. So are you in a growing
Jeff Byers:What do you mean by that? Yeah.
Tara Bannow:Yeah. Like, are you are you in, you know, Houston or... I don't know if Houston's growing. I would assume it's growing. If...
Tara Bannow:Are you in, like,
Jeff Byers:a It's a
Tara Bannow:big city. Nashville. Yeah. Yeah. Where there's lots of commercially insured people.
Tara Bannow:Or are you in a rural area with lots of Medicare, Medicaid patients? Are you in an area where there's lots of demand for your services? Or are there plenty of hospitals in town and you're just one of many? So it could be that Quorum's hospitals were underperforming just by virtue of where they were located. And the fact that they're so spread apart too, there's 11 hospitals in nine states now.
Tara Bannow:So the company can't really create these economies of scale within specific markets like you usually try to do if you have a lot of hospitals. So I don't know. If the investors that sued early on are correct, it could just be that, you know, Quorum was a little bit doomed to fail from the beginning.
Jeff Byers:Yeah. Yeah. There's there's definitely a reason why there's a lot of urban hospitals Yes. Along in the... Yeah.
Jeff Byers:And so, like, as you've noted, quorum has, you know, a pretty storied history regarding debt, but it's interesting that you noted that they thought these hospitals, the quorum system was, you know, a good deal or a good investment. So when you look at the state of rural care, you know, is that what they were looking at? Like, why did they think it was a good investment? You know, do we have a sense of, like, how the investment or the state of rural care is currently? That might be two separate questions.
Jeff Byers:But
Tara Bannow:Well, I would say they they said it was a good investment.
Jeff Byers:Okay.
Tara Bannow:And then they paid $18,000,000 to to settle a lawsuit that it wasn't a good investment. So Mhmm. They said it was a good investment. This... Rural health care is a tough business.
Tara Bannow:You know, like, their operating margins do tend to be lower than urban hospitals, and they are more likely to have to shut down. Just under 200 rural hospitals closed in the twenty year period ending in 2024. That's according to the research firm KFF. About half of the rural hospitals in the country have 25 beds or fewer. So they do get special sources of funding from the government, special designations because of their rural status.
Tara Bannow:But more of their patients are covered under Medicare than urban hospitals, so that doesn't pay as well. They're less likely to have commercially insured patients than urban hospitals. And I think with the Medicaid cuts coming down the pike next year under HR one, all hospitals are just gonna have a more difficult time, but rural hospitals could be especially affected.
Jeff Byers:Yeah. And, you know, if the listeners are interested, we on Health Affairs This Week had an episode on the Rural Health Transformation Fund in June 2026 with Sarah Jane Tribble, so check that out if you're interested. Kind of going back to this quorum story, you mentioned that it's been... Did you say it was troubled? I don't wanna put words in your mouth, and I don't wanna say that it was troubled.
Tara Bannow:I would say it is troubled, and, yes, I I would say it was troubled. I think you could safely say that.
Jeff Byers:What's been... So, like, when you look at it operation wise since its creation, you noted that there was a a debt paid. I think it started at 1,200,000,000 in debt. And looking at your reporting notes, the new nonprofit will have 1,260,000,000 in debt. Is is that correct?
Jeff Byers:Like, what's been going on there?
Tara Bannow:Quorum has been... Interestingly, even though it's been selling hospitals basically since it formed to pay down debt, it's actually been growing its debt. And that's because it hasn't been able to make its interest payments. And so what it does then is it strikes these deals with its lenders where instead of making the interest payment, it just adds that total amount it owes back onto the outstanding debt. So the debt's been growing.
Tara Bannow:Moody's is very unhappy with this. They say that they're at risk of bankruptcy, high risk of default. But yeah, it started out with 38 hospitals. When it went bankrupt in 2020, it was down to 24. Now it's down to 11.
Tara Bannow:So it's... It is interesting that it hasn't been able to lower the debt even though it sold so many hospitals. And part of the reason for that too, is that it has to make all these payments to its private equity owners. That's just part of the deal when you're owned by a private equity company. And this was actually cited as one of the benefits of becoming a nonprofit by Quorum's owners in its regulatory findings.
Tara Bannow:So as far as like how this all affects the hospitals operationally, I was able to interview four CEOs of Quorum Hospitals. I kinda got the sense that they weren't allowed to say anything negative about the company of the company. You know, they've all got Quorum email addresses. So... Yeah.
Tara Bannow:So so truth be told,
Jeff Byers:Smart play.
Tara Bannow:I know. I know. I I don't have a ton of insight into how all this turmoil is really affecting the individual hospitals. You know, one of them, Three Rivers Medical Center in Eastern Kentucky, they actually are quite profitable. The last operating margin I saw was 17%.
Tara Bannow:The CEO said that they have a very generous, responsive state Medicaid program and... But yeah, he said that the dividend payments to the private equity owners haven't really affected the hospital's ability to keep its facility intact. So they've built a new ER, new ICU, new surgery center. So as far as that hospital, I mean, things seem to be going okay.
Jeff Byers:Do you get the sense in your reporting, you know, are all the hospitals as as good as the Three Rivers one operation fund wise?
Tara Bannow:No. Few hospitals have a 17% margin, But that might... You know, it's it's... We're looking at small numbers, relatively speaking. So, no, the others, I I can't remember the specific margins.
Tara Bannow:I'm not sure they were losing money, but, you know, they weren't they weren't doing terrible. I think they all have small margins, if I'm remembering right.
Jeff Byers:So in some ways, it sounds a little like this move to becoming a nonprofit as a manner to, like, kinda move money around portfolios. You know, I'm not a a finance person, so someone more educated in that field could be able to to talk about that or ask questions specifically about that. But I I think it does highlight arguably small differences between for profit and nonprofit hospitals. So, like, what is the difference between the two, and how might this change to nonprofit impact Quorum in their operations?
Tara Bannow:There's a lot of financial benefits to becoming a nonprofit. It's a very favorable tax treatment. You don't pay federal income taxes. You don't pay local property taxes. Quorum estimates it'll save 31,000,000 a year alone just from lower debt payments.
Tara Bannow:Nonprofit hospitals are eligible for 340B drug discounts. They can get certain grants that they weren't eligible for as for profits. And they can receive philanthropic support, which is really nice too. One of the CEOs told me that she's really looking forward to offering loan forgiveness to encourage doctors to come practice in this rural part of Kentucky where their hospital's located. There's also just like a perception factor when you're a nonprofit.
Tara Bannow:I think that all the CEOs told me that they feel like they'll have a better time collaborating with other nonprofit hospitals in their regions because they're nonprofits. So all of that would be very helpful for these hospitals aside from being loaded up with a lot more debt. Oh, that's not great. Yeah. But, I mean, as a for profit, you have some more options for raising money.
Tara Bannow:You know, you can get private equity backing, venture capital backing. The profit goes back to the shareholders. And so, yeah, obviously, if you're a public for profit company, if you're publicly traded like CHS, HCA, Tenet, you have to make all your financials public, which could be a drawback to some.
Jeff Byers:Yeah. So what do we what do we expect next in this develop? Is this a story that you're continuing to report on, develop? Is this a one and done story? You know, what should we watch out for next?
Tara Bannow:No. I definitely wouldn't call it a one and done. I'm I'm really interested to see what happens once this deal closes. Because I I think it will close. I mean, California and Oregon already have approved the deal.
Tara Bannow:Oregon regulators signed off on it after this article published. But it got through the federal Hart Scott Rodino review, which is like a antitrust review. Wasn't really a big risk there. But New Mexico still has to sign off, which it has until the end of November to do. So, I mean, you know, Moody's, as I said, currently rates Quorum's capital structure as unsustainable, says there's a high likelihood of bankruptcy.
Tara Bannow:So, I mean, we'll see how the system does once it's got 30% more debt. We'll we'll have to watch it closely. Beyond that, I think that it's important to keep an eye on whether other private equity owned healthcare operators, not even just hospitals, but like nursing homes, you know, physician clinics, are they going to try to use this maneuver of becoming a nonprofit as an exit strategy as is happening here? You know, one of my sources kind of was pretty critical of this deal and commented that it feels like a public bailout of these private equity investors once they realize they they can't really make these hospitals profitable.
Jeff Byers:Tara, anything else on this story before we wrap up on this?
Tara Bannow:I think that... I think it's important to recognize that I... Well, first of all, I really... I appreciate that quorum was very responsive to my very in-depth questions. They kinda went back and forth with me, gave me a lot of numbers, which a lot of companies don't do.
Tara Bannow:So
Jeff Byers:That's the dream.
Tara Bannow:Yeah. Respect. I didn't get an on the record interview, but you know what? They were... They did more than most.
Tara Bannow:So I will say that some of their projections for the future company are pretty rosy. So that is a... I think a little concerning. Like, they're saying that, you know, when the company... Like, on day one, once it's a nonprofit, it's gonna have...
Tara Bannow:Its liabilities are going to exceed its assets by $635,000,000. So that's a... That's... They're very underwater on day one. And they said that that will change.
Tara Bannow:That will flip into positive territory by 2028. So how that will happen, I think, is a big question. And it's... To assume that will happen, I think, is is a bit of a a long shot. I don't know.
Tara Bannow:We'll see. But they also project to to have a lower debt to earnings ratio next year, which I I guess I'm I'm curious how that'll happen as well with 30% higher debt on day one.
Jeff Byers:Yeah. It's an interesting story, which is why I flagged this, and thanks for thanks for coming on today to talk about it. I assume it isn't the last we'll hear of of kind of moves in this fashion, so it'll be interesting to see how this shakes out. Well, fantastic. Tara Bannow, thanks again for joining us today on Health Affairs This Week.
Jeff Byers:We'll put a link into the show notes for the article whose name I can't remember. Do you remember the article's name that you have?
Tara Bannow:It's called a private equity owned hospital chain is becoming a nonprofit. Is it just a bailout for investors?
Jeff Byers:We'll put that link in the show notes. Tara Bannow, thanks again for joining us today on Health Affairs This Week. If you, the listener, enjoyed this episode, please send it to a friend. Thank you.
Tara Bannow:Thanks, Jeff.