Senate Probes Private Equity Activity in Healthcare
Senators point to studies claiming that PE-acquired facilities often place profits before provider retention and patient safety.’
A bipartisan Senate inquiry into private equity ownership of healthcare facilities believes that this results in a ‘business model that places profits before provider retention and patient safety,’ according to a letter from the Senate Committee on the Budget to chief executives at PE firms Leonard Green & Partners, Prospect Medical Holdings, and the REIT Medical Properties Trust.
The letter was one of a number sent to a set of private equity firms with significant healthcare holdings. Other PE firms receiving letters were Apollo Global Management, Lifepoint Health, and Ottumwa Regional Health Center.
Signing the letters were committee chairman Sen. Sheldon Whitehouse (D-RI) and ranking member Chuck Grassley (R-IA).
“According to several recent studies of the health care industry, PE firms have significantly increased their participation in the health care system, including by acquiring controlling stakes in health care services organizations that operate hospitals, especially over the last two decades,” one committee letter read. “In many cases, these acquisitions have resulted in negative outcomes for both frontline medical providers and patients ranging from staffing reductions to wholesale facility closures to substandard medical care. These studies as well as news articles have sounded the alarm regarding PE investment in health systems, suggesting a business model that places profits before provider retention and patient safety.”
The investigation was preceded by a CBS News report that found two of these firms had siphoned hundreds of millions of dollars from hospital operations in Pennsylvania and San Antonio, Texas and that subsequently shut down.
The main issue they address is not that a company can make good or bad decisions, or even fail. But healthcare, for all of the activity by private actors, is a public good where certain aspects may be irreplaceable. A company might make a significant return off an asset, pulling out the financial resources it needs for a solid future, and leave a husk for which there is no alternative.
“As private equity has moved into health care, we have become increasingly concerned about the associated negative outcomes for patients,” Whitehouse said in a statement. “From facility closures to compromised care, it’s now a familiar story: private equity buys out a hospital, saddles it with debt, and then reduces operating costs by cutting services and staff—all while investors pocket millions. Before the dust settles, the private equity firm sells and leaves town, leaving communities to pick up the pieces.”
This is the type of situation that can lead to additional regulation, and if so, it could become an additional burden on those who had nothing to do with creating the problem.