By: David Ostrowsky
In 2017, New York Times medical journalist Dr. Elisabeth Rosenthal published “An American Sickness: How Healthcare Became Big Business and How You Can Take It Back.” It quickly became one of this century’s most influential healthcare books, enlightening the masses about the corporate greed embedded in a trillion-dollar industry, one that is ostensibly grounded in altruistic endeavors.
Unfortunately, little has changed in the seven years since Rosenthal’s best-seller hit the shelves of your local Barnes & Noble. If anything, the industry has only become further riddled with opportunities for captains of industry, such as those leading private equity (PE) firms, to reap handsome profits. Without getting too in the minutiae of how PE acquisitions work, it has become fairly common practice for PE firms to acquire a struggling healthcare facility or physician practice, one desperately in need of capital and management expertise, by raising some funds from investors and then borrowing the remainder by unloading debt on the acquired facility as collateral for the loan. Subsequently, the facility or practice is left with having to generate funds to pare down the debt while cost-cutting measures ensue. In other words, patient welfare takes a back seat to financial engineering.
While not all PE acquisitions are societal ills – there are quite a few success stories of how PE involvement bails out entities in dire need of an infusion of cash -- it’s become far too common to hear tales of exploitation. Indeed, it's become a systemic flaw of American capitalism and little has been done to stand in the way of the all-powerful PE firms. Until last month, that is.
On July 25, Senator Edward J. Markey (D-Mass) and Representative Pramila Jayapal (D-WA), announced their Health Over Wealth Act, which on the surface, would mandate that PE-owned practices publicly report their debt load, executive pay, lobbying activities, healthcare costs and service reductions. Further, PE firms would have to receive a license from HHS to invest in healthcare institutions and if they were to price gouge, grossly understaff facilities or restrict access to care following an acquisition, the administration would be able to remove their license and require divestiture. Markey actually drafted a proposal in April at a hearing on private equity in healthcare and since then has collaborated with unions to bolster protections for healthcare employees by requiring facilities to disclose agreements with union-busting organizations and to prioritize workers in bankruptcy payouts.
In a statement announcing the proposed legislation, Markey, who has been a fearless crusader against PE acquisitions of local hospitals in Massachusetts following the Steward Health Care fiasco (Steward, a private-equity-owned hospital system running in Massachusetts, filed for bankruptcy on May 6 with over $9 billion in debt), remarked, “Private equity firms and greedy corporate executives are using the healthcare system as a piggybank. But putting profit over patients results in substandard care, while health workers suffer, and communities are left to clean up the mess. . . . We need to put in place permanent guardrails to protect patients, providers, and communities, and that is exactly what the Health Over Wealth Act provides.”
The act is promising in that it applies to a broad swath of healthcare entities, including not just physician practices and hospitals but also nursing homes, hospice facilities, opioid treatment programs and behavioral health practices, would initiate safeguards to prevent firms from stripping assets post-acquisition, and eliminate many tax loopholes. The Health Over Wealth Act would also require PE firms to report on lobbying and political spend as well as establish escrow accounts for facilities that could provide for five years of operational and capital expenses in the event of financial disruption.
While naturally there’s a groundswell of political support for legislation that would prioritize patients’ health over corporations’ bottom line, it bears mentioning that the Health Over Wealth Act faces significant headwinds in winning over enough Republican supporters to become law. And surely, the outcome of November’s elections will factor into whether there is ultimately enough backing to pass what could potentially be groundbreaking legislation reining in PE ownership of healthcare facilities.