Failure to crack down on private equity in health care sector in statehouse

A string of health care bankruptcies has stoked public anger against the industry’s financial dealmakers, prompting lawmakers in statehouses across the country to draft tough new restrictions.

The original crackdown is failing.

California Gov. Gavin Newsom has vetoed legislation that would have enabled the state to block most private equity deals for health care organizations. Efforts to tighten regulations on financial firms or ban certain health care investments outright have also faltered in Pennsylvania, Connecticut, Oregon, Washington and Minnesota.

In Massachusetts, political condemnation of private equity and real estate firms in the state reached a fever pitch after Steward Health Care, one of the state’s largest hospital operators, filed for bankruptcy protection in May. With just days left until the end of the session, a bill aimed at increasing scrutiny of such investors is stuck in legislative limbo.

The failure of those efforts, including in Democratic-dominated states, all but defuses the short-term risk of tighter rules for financial dealmakers in the health care industry.

With federal action unlikely, future debates are likely to focus on finding less aggressive ways to contain potential risks, including more comprehensive disclosure requirements that could at least be sent to lawmakers when businesses are in trouble. More warnings. Other states, including Indiana, have enacted laws requiring special notification of certain health care transactions but without granting the power to block them outright.

“I don’t think it’s practical or feasible to completely eliminate private equity,” Massachusetts Gov. Maura Healey said in an interview. “I think private equity has a role to play in health care, but the question is what is that role? How do you define that role? I think the Legislature is right to look at what guardrails we need here.

Critics of the Massachusetts and California bills, which have made the most progress among state legislative efforts, say they unfairly blame private equity and real estate firms for the health care industry’s larger problems.

“U.S. companies in health care and other sectors of the economy need more investment from a variety of sources. Private equity and private credit can provide the capital needed,” Drew Maloney, executive director of private equity lobbyist the American Investment Council, said on 9 wrote in a letter to federal lawmakers last month.

But Zirui Song, a professor of health care policy and medicine at Harvard Medical School, said financial companies often rely on cost cutting to boost revenue, which can lead to layoffs and adverse health outcomes.

About one-fifth of the health care industry bankruptcies last year were caused by private equity-backed companies, according to the Private Equity Stakeholder Project, an advocacy group. PESP director of health care Mary Bugbee said without more guardrails, crises like Steward’s collapse will keep happening.

“I think our best option is still policymaking at the state level, even though it didn’t work this time in Massachusetts and California,” Bagby said. “But we could see worse things than Stewart – that’s terrible.”

The fallout from Stewart’s financial troubles sparked widespread outrage: ex-nurses testified of horrors such as having to put dead newborns in cardboard boxes because the company failed to pay suppliers for proper funeral boxes middle.

The hospital chain filed for bankruptcy and reported $9.15 billion in liabilities, the most of any other company so far this year, including Spirit Airlines Inc. and battery maker Northvolt AB, according to data compiled by Bloomberg.

But the story of how Stewart grew to such proportions and how it eventually collapsed is complex. The incident highlights why it’s difficult for lawmakers to pinpoint the culprits of corporate bankruptcies and enact legislation that is broad enough to have an impact but narrow enough not to trigger unintended consequences, such as when companies run into trouble. cut off their opportunity to receive some form of financial assistance.

Selection of financial dealmakers for greater scrutiny may also send a message to startups in industries that rely on venture capital funding, such as life sciences and climate technology, that they should establish themselves in states with more friendly regulations.

Stewart’s roots can be traced to six financially troubled hospitals in Massachusetts that were formerly part of the Archdiocese of Boston. Dr. Ralph de la Torre was appointed to lead the chain in 2008, and by 2010 he helped negotiate its sale to private equity firm Cerberus Capital Management, which provided a cash infusion. In 2016, Steward agreed to sell and lease back its properties, including the Massachusetts hospital, to real estate investment trust Medical Properties Trust Inc. in a $1.25 billion deal. In 2020, Cerberus sold its stake in Steward to a management group led by de la Torre.

Cerberus made about $800 million in profits from its investments. The company also said it “rescued and restored vital community hospitals in Massachusetts.”

The sale-leaseback agreement with MPT provides Steward with resources to accelerate its plan to acquire more hospitals across the country. Lawmakers also said the deal saddled Stewart with exorbitant rents and exacerbated its financial challenges. In Massachusetts, the House version of the health care bill would explicitly prohibit hospitals from leasing their main campuses from real estate investment trusts, while the Senate excluded that provision.

Meanwhile, former CEO De La Torre was accused by lawmakers of seeking personal gain, while Stewart racked up huge debts. De La Torre’s attorney said federal agents recently seized De La Torre’s phone, and the Boston Globe reported that Steward board members have been subpoenaed to answer questions as part of a grand jury investigation into alleged fraud, bribery and corruption. question. De La Torre declined to comment through a spokesman.

“When I look at this and assess responsibility, they all have responsibility,” Sen. Edward Markey, D-Mass., said of de la Torre, Cerberus and MPT. “They all made money, and the hospital collapsed. All these players cooperated at the same time, causing the housekeeping system to collapse.

Markey and Massachusetts Sen. Elizabeth Warren introduced federal legislation this year that would tighten restrictions on private equity and real estate investors and impose tougher penalties for malfeasance. No progress yet.

Meanwhile, in Massachusetts, House and Senate lawmakers failed to agree on competing versions of the state’s health care bill before the regular term ends in July. Lawmakers have yet to reach agreement on the health care proposal, although other unfinished bills have since passed in informal sessions, including an economic development bill championed by Healey.

Evan Horowitz, executive director of the Center for National Policy Analysis at Tufts University, said they still have time to do so, but the window is narrowing before the session ends on Dec. 31 and the Legislature is unlikely to fully pass the bill.

Massachusetts House Speaker Ron Mariano said in a statement that the legislative chambers have “a lot in common” on health care reform, although the scope of their proposals differs. Mariano said he still hopes to reach a deal before the end of the year. Gray Milkowski, a spokesman for Massachusetts Senate President Karen Spilka, said the Senate will continue to work on finalizing legislation this session — “if necessary.” I will continue to work hard.”

Mariano also said he intends to revisit health care reform next year if current measures fail. Building consensus may be trickier than it was when the furore over Stewart’s collapse was still lingering.

As a result, financial dealmakers continue to occupy an important role in the healthcare industry. In October, private equity firm Kinderhook Industries acquired Steward’s physician network, which includes a large presence in Massachusetts.

With help from Jonathan Landers.

This article was generated from automated news agency feeds without any modifications to the text.