In the wake of a deal for financially strapped Steward Health Care to sell its nationwide physician practice to UnitedHealth Group subsidiary Optum, a Senate subcommittee meeting was held in Boston on Wednesday to address ongoing concerns that the corporatization of healthcare is putting patients and providers at risk.
The meeting, led by Sen. Edward Markey (D-Mass.), chair of the Subcommittee on Primary Health and Retirement Security, focused on the broader impacts on healthcare professionals and their patients, as well as an expressed need for greater transparency in healthcare transactions, especially those involving private equity.
“Whatever the financial strategy or company type, patients and communities suffer when companies freely put corporate greed over community need,” Markey said during the hearing. “Frustratingly, our system allows — even rewards — this strategy. Private equity companies across the country are quietly making profits while infiltrating everything from fertility care to hospice care.”
In the case of Steward, its roots date back to 2010, when the private equity firm Cerberus Capital Management agreed to acquire the financially struggling non-profit Caritas Christi health system in Massachusetts in a more than $800 million deal. The company now operates more than 30 hospitals as the country’s largest private for-profit hospital chain, but Cerberus has been selling off its stake in Steward, leaving the chain saddled with large financial liabilities that threaten future hospital shutdowns.
“In industry, after industry, after industry, when private equity marches in, a few wealthy investors see an opportunity to turn a quick buck,” Sen. Elizabeth Warren (D-Mass.) said during the hearing. “They buy a business, they load it up with debt, they strip out the assets, and then they sell it off. They take the money and run, leaving a hollowed out shell behind.”
Of the new deal with Optum, Warren said she fears Steward’s sale of its last asset “that private equity hasn’t already taken,” its physician group, doesn’t guarantee that hospitals will stay open or that healthcare will improve.
Ultimately, witnesses at the hearing as well as Sens. Markey and Warren noted that the current issues surrounding the corporatization of healthcare extend far beyond Steward. Though Steward’s CEO Ralph de la Torre, MD, was invited to testify at the hearing, he did not attend.
Ellana Stinson, MD, MPH, MBA, an emergency medicine physician at Boston Medical Center and president of the New England Medical Association, testified at the hearing about her prior work at Steward facilities as well as other private equity-backed facilities across the country.
“Practicing medicine in PE [private equity]-led places is no longer about patient safety or quality, but about making medical decisions and judgements due to corporate decision-making with profit motives at the expense of patients,” Stinson said.
Many of these facilities serve vulnerable populations, primarily people of color and those with low income, who have “limited access to other facilities or primary services, forcing them to only seek their care at a PE-backed site,” she said. And many buyouts are of hospitals and other facilities that are already struggling and that have higher Medicaid and Medicare populations.
“It is critical we consider, not only the impact that facilities have on our healthcare system, but also on the worsening care access and quality being provided to these communities already harmed by historical injury,” Stinson said.
As for impacts on the current workforce, Stinson pointed to the more than 550 emergency residency positions that notably went unfilled in last year’s Match cycle as representative of ongoing concerns. “A profession once competitive when I first began my medical journey is now one of the least competitive fields to enter as students bear witness to the destruction of the profession,” she said.
“Private equity firms are short-term investors,” Eileen O’Grady, research and campaign director for healthcare at the Private Equity Stakeholder Project in Washington, D.C., explained during her testimony. “They usually try to own companies for around 4 to 7 years. During that time, they have to generate as much cash flow as possible, often with a goal of doubling or tripling their investment.”
To do this, they often turn to debt, she said. Many private equity firms buy companies through leveraged buyouts. They finance a substantial portion of the purchase price by taking out a loan secured by the company they’re purchasing. “That means the company is on the hook to pay down the debt that the PE firm took out,” O’Grady said. “That kind of high leverage can divert cash away from operations to paying interest on the debt, and leave companies more at risk for restructuring or bankruptcy.”
Private equity firms also use sale-leaseback transactions, she said. For instance, they will sell a hospital’s underlying real estate and lease it back from the entity they sold it to. They will do this because it “provides a quick and easy way to monetize the real estate and generate cash for investors,” O’Grady said. But this “often leaves hospitals with higher monthly lease payments and beholden to a landlord.”
Among other measures, private equity firms have “taken out new debt on the companies they own, and then used the proceeds from that debt to give themselves a cash payout, which is known as a dividend recapitalization,” she said.
Furthermore, they routinely cut costs when it comes to staff, medical supplies, equipment, and charity care, O’Grady added.
Both Markey and Warren have proposed legislation aimed in part at improving transparency surrounding healthcare transactions. “Private equity should not be allowed to loot one business after another,” Warren said.
Jennifer Henderson joined MedPage Today as an enterprise and investigative writer in Jan. 2021. She has covered the healthcare industry in NYC, life sciences and the business of law, among other areas.
Source : MedPageToday