Home Private Equity Delco legislators introducing bills to prevent for-profit health care “looting”

Delco legislators introducing bills to prevent for-profit health care “looting”

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MEDIA – Flanked by county leaders, health care workers and patient advocates, members of the Delaware County legislative delegation announced a package of for-profit health care reform bills to prevent private equity from decimating hospital systems.

In light of the crisis facing the Crozer Health system as Prospect Medical Holdings closes or severely cuts hospitals and services throughout Delaware County, state legislators announced their intention to introduce six bills in the Senate, with companion pieces in the House, to keep this from happening throughout Pennsylvania.

“Today, we are announcing a package of bills to prevent crisis like the ones we are facing in Delco from happening to any community in the Commonwealth,” state Sen. Tim Kearney, D-26 of Swarthmore, said. “We’re here to send a clear message to predatory private equity firms and Wall Street looters: That their days of raiding our hospitals and nursing homes of their assets and then abandoning them to bankruptcy are numbered … Private equity can’t treat our hospitals like piggy banks. We won’t be taken advantage of anymore.”

Delaware County Council Chair Dr. Monica Taylor said county leadership has expressed concern since January that Crozer’s cuts would be detrimental to the community.

“It’s critical that the health and safety of our residents come before a company’s goal of profit,” she said, noting the county’s own emergency ordinance requiring advance notice and county approval of hospital closures or significant service changes. “The county has immense concerns about the devastating impact that the sudden loss of critical services would have on our community and we are doing everything in our power to ensure there is not a gap in services.”

“We shouldn’t have to take legal action to ensure a health care system provides vital care to the residents that it serves,” Taylor said.

State legislators have been working Delaware County Council to ensure that health services are maintained without interruption.

Kearney presented a history of events leading to the current day health care crisis in the county.

In 2016, private equity firm Leonard Green & Partners purchased then non-profit Crozer Healthy system  through one of its portfolio companies, Prospect Medical Holdings Inc.

Kearney said that despite Prospect’s record of severe cuts and high numbers of patient care violations at hospitals across the United States, then-Pennsylvania Attorney General Kathleen Kane approved the conversion after Prospect agreed to keep all of Crozer’s five hospitals open for five years.

He said during those five years, Leonard Green recouped their purchase costs through debt recapitalization, a debt-funded dividend scheme.

“The private equity partners took out $458 million in dividends across the systems, paid for by selling Crozer’s and other hospital system’s real estate to another portfolio company, Medical Properties Trust,” the senator said. “In tandem, Leonard Green committed Prospect to expensive, long-term leases with Medical Property Trust in order to secure the debt that Medical Property Trust took out to pay for the real estate.”

Then, in 2019, the private equity firm sold its controlling stake in Prospect to Prospect’s CEO and his business partner for $12 million, paid for by Prospect, according to Kearney.

“Delaware County was left with a for-profit health system burdened by impossibly large lease obligations, destined to fail,” he said. “Crozer’s performance has declined since. Prospect declined to maintain safe staffing levels, quality of care deteriorated and staff routinely lacked the supplies and the resources needed to do their jobs.”

Even with receiving $72 million in pandemic relief funds, Prospect only shut down hospital rooms and used the pandemic as an excuse, Kearney noted.

“The pandemic did not cause the Crozer crisis,” the senator said. “Private equity caused the crisis. Prospect put profits over people in Delaware County and now, we are at risk of losing one of the county’s largest employers and our access to health care.”

State Sen. Anthony Williams, D-8, whose district covers Delaware and Philadelphia counties, said he was almost speechless.

“In an economy that is seeing extraordinary inflation at a record rate that almost surpasses almost a half a century, in a community that’s devastated already economically – modest income individuals, Black and brown folks who primarily depend upon institutions as emergency health care delivery – in a place like that, Leonard Green and his thieves have decided to legally rip off human beings,” Williams said. “How dare you. How shameful. How disgusting.

“You are literally giving out bonuses in the middle of devastation – human devastation,” the senator continued. “When people cannot pay their rent, pay enough for food, can’t find a job and now can’t find health care because you decided to exploit a loophole in the law.”

He described the situation.

“This is a bomb going off in the middle of a city, in a county that will devastate for generations,” Williams said. “Understand there will be people who will lose their lives. There will be children who will be born without healthcare. There will be employees who will never find a job and there’ll probably be a crippling effect in terms of finding a hospital.”

All, the senator said, because “Leonard Green … and Prospect Medical Holdings has decided not to make a buck, but millions, off misery.”

He spoke of a bill, SB 1274, he introduced that would prevent exploitative real estate splits. He said the entire health system was bought, then the real estate was separated from the hospital and then sold at a profit, leaving the hospital debt ridden while paying dividends to themselves.

“I cannot tell you how ridiculously cruel that is,” Williams said.

State Rep. Jennifer O’Mara, D-165 of Springfield, spoke of how the health of Delaware County’s citizens has become “part of a get-rich-quick scheme.”

She said this reform package would prevent this situation from ever happening again in the commonwealth.

O’Mara and state Rep. Mike Zabel, D-163 of Upper Darby, introduced a bill to initiate a for-profit purchase mortatorium and impact study.

“Our legislation would put a two-year pause on for-profit hospital systems from buying up other hospitals – exactly like what we’re seeing here with Prospect Medical Holdings,” O’Mara said.

The Senate version of that is SB 1270.

During that two-year period, the state Legislature would conduct a study on the full impact that for-profit hospitals have on the cost and availability of health care in Pennsylvania.

From 1999 to 2020, the proportion of non-profit hospitals in Pennsylvania declined by 18 percent while the rate for for-profit hospitals grew by 350 percent, she said, adding that for-profit hospitals have poorer performance with patient outcomes compared to non-profit hospitals.

Another bill would require for-profit hospitals to get state approval for major transactions like sales of a hospital or taking on a major equity owner. Under this, for-profit hospitals would have to give notice to the state before large actions, such as changes in ownership, and would require public hearings. Regulators would have the authority to reject, approve or approve with certain conditions these transactions.

Senate Bill 1271, prime sponsored by state Sen. John Kane, D-9 of Birmingham, is a ban of new for-profit hospitals in Pennsylvania.

“For profit hospitals are chronic abusers of our public health system,” he said. “Private equity firms have a proven track record of draining every dime that the hospital has and then shutting it down – leaving the public without the resources that they need.”

SB 1273 would mandate a minimum severance package for mass layoffs. SB 1272 would require the state Attorney General to provide oversight when a health system changes ownership by requiring that office’s approval for such a change.

And, SB 1275 would place a moratorium on dividends following health system acquisitions.

“We are so grateful for this legislation,” said Peggy Malone, vice president of the Crozer Chester Nurses Association. “It really, really does exactly what we’ve been trying to do – which is give a voice to our people … This legislation is proof that our people do have a voice and our legislators are behind us and they see this suffering of our people and they’re going to get legislation passed and there will be no more for-profit in health care.”

 

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