The impact of private equity’s expansion into healthcare is important.
On April 9-10 the PBS NewsHour broadcast a two part report on the effect private equity firms have had on the hospital industry. In this case it was on Cerberus Capital Management
“The impact of private equity’s expansion into health care” was the first installment:
Steward Health Care was once the largest private hospital system in the country. When the private equity-backed network filed for bankruptcy last year, it devastated providers and patients. Five of the eight Steward-owned hospitals in Massachusetts were salvaged by the state and two were shuttered.
Narrated by Paul Solman, it introduced the audience to Carney Hospital and Nashoba Valley Medical Center, both located in Massachusetts. They were purchased by Steward Heath Care, a subsidiary of Cerberus to manage its hospital purchases. They both closed after Steward acquired them, primarily due to not paying bills
People will come in for surgery. They couldn’t get the equipment. So they had to send them home. Sorry. It happened all the time. They owed so much money to creditors for equipment That they wouldn’t give them anymore.
Elaine Graves, Former Nurse at Carney Hospital
On the Steward Health Care website, they actually list the hospitals in Massachusetts and ones in Texas that were closed. It shows only one operating hospital, in Pennsylvania.
Steward Health Care filed for bankruptcy. Its CEO, Ralph de la Torre resigned after refusing to testify before Congress citing his Fifth Amendment right. A website entitled “The Truth About the Steward CEO” justifies both de la Torre’s actions and compensation.
The second episode, entitled “How private equity’s increasing role in health care is affecting patients,” has interview with experts who venture further into the effect decisions by private equity owners have on others than the company’s shareholders.
Make money, leave, make it however you want, make it for people who are invested in making money, and then you have got health care, which is all about delivering care to people. The cost is not the first thing. The delivery care is the first thing. And those two things do not mesh.
State Sen. Cindy Friedman (D-MA)
Solman provided some additional information on the history of private equity in the health care industry:
Steward bought 37 hospitals around the country. More than 450 hospitals nationwide have been taken over by private equity, as well as nursing homes, emergency rooms, doctor’s practices, and air ambulances. One analysis finds that private equity investors spent more than $200 billion on health care acquisitions in 2021 alone, and $1 trillion over the past decade.
Analysis
The impact of private equity’s expansion into healthcare is important. Hospitals are struggling through the country. When an outside buyer comes in with the possibility of infusing cash to get the financial position in shape, it may look like a good deal. If the acquired company is going bankrupt, and the private equity firm is earning profits, something is definitely wrong with this scenario.
There are several issues involved here. One is, are all private equity firms bad or are there just some bad performers. Related to that is, are there any private equity firms that have actually done a good job at creating a sound financial footing that employees/customers are happy with? If so, what is their business model? Hospitals are in financial straits because of their never-ending battle with insurance companies and discrepancies over payments. In addition, this situation with Steward Health Care also involves such issues as privatization, financialization, stakeholders versus shareholders and issues with small towns.
The history of a private equity’s acquisitions should be a basis for anti-trust violation. Acquisitions that have either failed or gone into debt and bankruptcy are sold off as a tax write-off, there is something wrong here. This is not capitalism. There should be a law that required the private equity company itself to assume the debt for its acquisitions. More on this will be coming in the later months.
