Concerns Continue Over Private Equity’s Reach Into Healthcare

In September, we reported on a Senate hearing that focused on the impact that Steward Health Care’s greed and mismanagement had on patients and healthcare workers. Here we report on what has happened since.

During a Senate Health, Education, Labor, and Pensions (HELP) Committee hearing, nurses described the “unsafe” and “untenable” conditions across hospitals in the Steward Health system, which had filed for bankruptcy a few months earlier.

Approximately 15 patients in Steward hospitals died due to lack of medical equipment or staff, and many more lives were endangered, said HELP Committee Chair Sen. Bernie Sanders (I-Vt.). All the while, Ralph de la Torre, MD, the CEO of Steward, spent $160 million on a yacht, two private jets, a luxury fishing boat, and a donation to an elite preparatory school.

After he declined to appear at the hearing despite a congressional subpoena, the HELP Committee voted to hold him in civil and criminal contempt. Later that month, de la Torre announced that he would resign as CEO having “amicably separated from Steward on mutually agreeable terms.”

In mid-December, Steward informed the U.S. Bankruptcy Court for the Southern District of Texas of its plan to close Sharon Regional Medical Center in Mercer County, Pennsylvania on Jan. 6. Steward has already closed at least two other hospitals due to lack of a buyer.

How Did Things Get So Bad?

Rising healthcare costs and inadequate reimbursement rates have left many hospitals vulnerable to “the sway of private equity,” Natasha Murphy, MSPH, director of health policy at the Washington-based Center for American Progress, told MedPage Today. Private equity “can step in like that white knight and say … ‘we’re here to help,'” but their actual goal is to maximize profits, which is “in direct misalignment” with the goals of patient care, Murphy said.

Robert McNamara, MD, chief medical officer of the American Academy of Emergency Medicine and a co-founder of Take Medicine Back, a group formed to reclaim medicine from corporate interests, argued that “at its simplest, the private equity model is wealth extraction.” Private equity firms acquire a health system, sell the real estate, force the hospital to pay rent it wasn’t paying before, and then take out loans, giving itself dividends that hospitals have to repay, McNamara told MedPage Today. They also pressure physicians to see more patients in less time, cut staff, and replace physicians with less costly non-physicians, he noted, in addition to raising costs for patients.

The acquired hospitals generally aren’t lucrative or well-run, he added. “When you put [that burden] on top of them, collapse is pretty much inevitable, unless the state bails them out, or some other buyers come in,” McNamara said. “Doctors swore an oath to put the patient first. Private equity doesn’t do that.”

State and Federal Action

This year, Massachusetts lawmakers introduced a bill to require greater scrutiny of private equity transactions in healthcare. Similar bills were introduced in California, Minnesota, and Oregon, said Vicki Norton, MD, an emergency medicine physician in Florida and a co-founder of Take Medicine Back. “The problem is none of these bills passed,” Norton told MedPage Today.

In California, legislation that would have enabled the attorney general to more closely scrutinize and even deny private equity mergers was approved by the legislature but vetoed by Gov. Gavin Newsom (D) in October. In a statement, Newsom said the existing review process already addressed stakeholders’ concerns.

“I think we’re looking at very powerful forces at play here that don’t want these regulations,” Norton noted.

Despite these failed efforts, Murphy stressed that greater transparency is needed. Whether providing adequate notice of a transaction to a cost commission or state attorneys general, it’s critical that relevant officials have private equity activity on their radar, she said.

At the federal level, Sens. Elizabeth Warren (D-Mass.) and Ed Markey (D-Mass.) introduced the Corporate Crimes Against Health Care Act in June; that measure would establish “a criminal penalty of up to 6 years in prison for executives who loot healthcare entities like nursing homes and hospitals, if that looting results in a patient’s death.” The bill would also allow state attorneys general to take back salaries given to private equity company executives under certain circumstances.

Norton said she was not impressed by the bill, which has not gotten a lot of traction. “I feel like it was more virtue signaling,” she noted. “We really need our legislature to be on the side of patients and to be on the side of helping healthcare in this country be what it should be.”

New Administration, New Approach?

In March, HHS, the Department of Justice, and the Federal Trade Commission (FTC) announced a joint investigation into the role of private equity and “corporate profiteering” in healthcare. When asked whether the FTC might issue its findings before year’s end, the agency had no comment.

With the Trump administration taking over, Murphy said she does not expect any follow-up actions. “Despite the fact that I think we have started to see some focus on deregulation and … anti-corporate sentiment, particularly in the healthcare space, I don’t see that fully extending to the private equity space,” she noted.

McNamara disagreed. “Trump, he’s got a populist bent,” he said. “So we’re hoping that the next administration realizes that public sentiment is clearly against these entities that are extracting wealth from the healthcare system.”

However, Norton also said that she is “not optimistic” about the next administration picking up where the FTC under President Biden left off.

Regarding the FTC’s joint investigation, “I feel like it’s going to go nowhere,” she added. “We really need, top-down, an entire government that’s on board with fixing this problem, and until people want to stand up to Wall Street and stand up to private equity, it’s not going to get fixed.”

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