A wave of public outrage over health-care bankruptcies has sparked calls for tougher regulations on private equity firms in the industry. People are frustrated, especially after major hospital chains, like Steward Health Care in Massachusetts, filed for bankruptcy. These bankruptcies have prompted lawmakers across the U.S. to propose new laws to curb private equity deals in healthcare. But so far, many of these efforts are falling flat.
In California, for example, Governor Gavin Newsom vetoed a bill that would have stopped most private equity deals involving health-care facilities. Similar proposals have failed in other states, including Pennsylvania, Connecticut, Oregon, Washington, and Minnesota. Even in Massachusetts, after Steward’s financial troubles made headlines, a bill aimed at increasing scrutiny of investors is stuck in legislative limbo.
With no big changes on the horizon, lawmakers are starting to think less about banning private equity altogether and more about ways to keep it in check. Some states, like Indiana, have introduced laws that require special notice of certain health-care transactions, but these don’t go as far as blocking deals entirely.
Critics of the proposed laws argue that they unfairly blame private equity for larger problems in the healthcare system. They argue that private equity can provide the investment needed to keep healthcare facilities running, even if it sometimes leads to cost-cutting measures that affect staff and patient care. However, health-care policy experts like Zirui Song from Harvard point out that when private equity firms take over, they often focus on boosting profits quickly, which can hurt workers and even patients.
In fact, private equity-backed companies were behind a fifth of all healthcare bankruptcies last year, according to the Private Equity Stakeholder Project. Without better safeguards, experts warn that more health-care crises like Steward’s could happen again.
The Steward Health Care story is a case in point. Steward was once a collection of struggling hospitals in Massachusetts that was turned around with private equity funding. But over the years, the company took on more and more debt, which eventually led to its bankruptcy. At one point, Steward even sold its hospitals to real estate firms, which added more pressure with high rent payments.
The collapse of Steward sent shockwaves through Massachusetts, especially after stories came out about poor conditions, like nurses being forced to use cardboard boxes for deceased newborns because the hospital couldn’t pay for proper supplies. Steward’s debts amounted to a staggering $9.15 billion — the highest of any company this year. The company’s former CEO, Dr. Ralph de la Torre, has faced accusations of profiting while the company crumbled, and federal authorities are investigating him for possible fraud and corruption.
Lawmakers in Massachusetts and beyond have criticized private equity for its role in this collapse. Senators like Elizabeth Warren and Edward Markey have introduced bills to tighten regulations on private equity firms. But these bills haven’t gotten far, and in Massachusetts, lawmakers failed to pass a health-care reform bill before the legislative session ended in July. While there’s still time for them to act, the window is closing fast, and it’s uncertain if a new bill will pass this year.
If the current proposals fail, Massachusetts lawmakers, like House Speaker Ron Mariano, say they’ll revisit the issue next year. But as time goes on and the public’s outrage over Steward’s collapse fades, it may become harder to build the consensus needed for big changes. Meanwhile, financial firms continue to play a major role in the health-care industry. For instance, in October, a private equity firm, Kinderhook Industries, acquired Steward’s network of physicians.
It’s clear that private equity will remain a hot topic in health-care policy discussions. The challenge now is finding a balanced way to keep the industry accountable without stifling the investments that some argue are necessary to keep health care running.
