Outrage of the Month: Private Equity Firms: Stripping Hospital Assets and Threatening Patient Safety
Health Letter, August 2024
By Robert Steinbrook, M.D.
Director, Public Citizen's Health Research Group
If you’re not outraged,
you’re not paying attention!
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A new analysis calls attention yet again to the predatory practices of private equity firms in health care and the threats that private equity acquisitions of hospitals in the United States pose to good patient care.
In their quest for accelerated returns on their investments, private equity firms can load up the companies they acquire with debt, sell off assets, charge high fees and extract excessive dividends. A 2023 study found that private equity acquisition of hospitals “was associated with increased hospital-acquired adverse events, including falls and central line-associated blood stream infections, along with a larger but less statistically precise increase in surgical site infections.” Similar to an intravenous line, a central venous line is a longer catheter for access to the circulation that goes all the way to a vein near the heart or just inside the heart.
The new report assessed the changes in hospitals’ total capital assets before and after private equity acquisition. Total capital assets sum the value of land, buildings, equipment and health information technology. Although it would be desirable for private equity investors to improve patient care by adding to the assets of the hospitals they acquire, the report found that they did just the opposite — typically, the firms quickly moved to strip millions of dollars in hospital assets.
Using a database of private equity acquisitions of hospitals and information in Medicare cost reports, as well as data from hospitals that were not acquired by private equity firms as matched controls, the analysis found that at the time of acquisition, the acquired hospitals and the control hospitals had similar mean capital assets. The striking finding was that in the two years after acquisition, the assets of the hospitals that were acquired decreased by a mean of 15.0%, while the assets of the control hospitals increased by 9.2%. The 24.2% difference between the private equity-acquired and control hospitals corresponded to an estimated difference of about $28 million in assets. Stated another way, after two years 61.0% of the acquired hospitals had reduced capital assets as compared to 15.5% of the control hospitals.
Data for five years after acquisition showed that the trends at two years persisted and widened. Published in JAMA in July 2024, the lead author of the report was Dr. Elizabeth Schrier, a resident physician at the University of California, San Francisco; among the co-authors were Dr. David U. Himmelstein and Dr. Steffie Woolhandler, research associates at Public Citizen.
In Massachusetts, the debacle of Steward Health Care has focused national attention on the problems with permitting private equity firms to acquire hospitals and other health care practices and organizations. After buying a chain of Catholic hospitals, Steward depleted their assets, including selling the hospitals’ real estate to a real estate investment trust in 2016, burdening the hospitals with high rent payments and starting them on the path to bankruptcy and possible closure. After the for-profit company filed for Chapter 11 bankruptcy in May 2024, physicians and patients have been leaving, further destabilizing Steward’s operations. As of July 2024, Stewart planned to close two hospitals and sell its six other Massachusetts hospitals.
Senate Bill S.4503, introduced in June 2024 by Sen. Elizabeth Warren and co-sponsored by Sen. Edward J. Markey (both of Massachusetts), aims to prevent exploitative private equity practices in health care. Among the provisions of this bill, called The Corporate Crimes Against Health Care Act, are (1) requirements for public reporting by health care providers receiving federal funding of mergers, acquisitions, changes in ownership and control, and detailed financial data; (2) authority for state attorneys general and the Department of Justice to claw back private equity compensation when an acquired health care firm experiences serious and avoidable financial difficulties due to asset stripping; and (3) criminal penalties for executives who strip assets from nursing homes, hospitals and other health care entities if the stripping results in a patient’s death.
The pernicious effects of private equity firms in health care are well known. Congressional action is urgently needed to protect patients, physicians, hospitals and the health care system.