Lawmakers considered testimony regarding a handful of bills this week aimed at regulating private equity ownership of health care facilities, which, in some cases, has led to devastating impacts on patient care, both in Connecticut and around the country.
The legislative push comes after the highly-publicized financial struggles at three Connecticut hospitals owned by Prospect Medical Holdings, a formerly private equity-backed national health system.
When Prospect acquired Waterbury, Manchester Memorial and Rockville General Hospitals in 2016, it promised to bring its philosophy of “higher value” and “better care” to Connecticut.
Today, Prospect’s Connecticut hospitals owe tens of millions of dollars to vendors and $67 million in taxes to the state. And executives have warned that the hospitals are at risk of closure if a pending deal to sell them to Yale New Haven Health doesn’t receive state approval.
[RELATED: Prospect Medical chain owes CT $67 million, tax liens show]
“My experience has shown that after making sometimes lofty promises during the acquisition process that these firms quickly pivot to profit-driven tactics with potentially devastating, real-life clinical consequences for our patients and communities,” stated Milford-based primary care physician Eric Schwaber in written testimony supporting one of the proposed bills.
Oftentimes, private equity’s end goal of driving profits over a short-term investment horizon (typically around four to seven years) conflicts with the mission of providing patient care, the Connecticut State Medical Society said in testimony it submitted. Specifically, private equity investors use a significant amount of debt financing, which financially burdens the health care facility, and can employ aggressive cost-cutting measures, including layoffs.
Sale-leasebacks
One of Gov. Ned Lamont’s proposals, An Act Promoting Hospital Financial Stability, includes a measure that would require hospitals to obtain state permission when a hospital sells 10% or more of its assets, including its real estate.
“We know the way they function,” said Public Health Committee co-chair Sen. Saud Anwar, D-South Windsor, in reference to private equity companies. “If we make those actions illegal or [make them] go through the regulatory process, we can have some control over them.”
The sale of hospitals’ real estate assets to third parties — known as a “sale-leaseback” — is a tactic private equity investors, and others, often use to generate cash off their health care investments. The health systems make money off the sale and the landlord collects cash from lease payments.
But the health facilities are left with an expense that they didn’t previously have: rent payments.
In 2018, Prospect, then majority-owned by private equity firm Leonard Green & Partners, took out a $1.1 billion loan to fund a $457 million dividend for its executives and investors. The following year, to pay for the loan, Prospect sold the land and buildings from hospitals it owns in Connecticut, California and Pennsylvania to Medical Properties Trust for $1.4 billion, then leased back those hospitals from the trust, CBS News reported.
In October 2022, when MPT announced the agreement to sell the hospitals to Yale New Haven Health, the company said it had collected $104 million from the facilities since the start of their lease agreement, for an average of roughly $35 million a year.
Eileen O’Grady, who researches private equity involvement in health care as a director at the Private Equity Stakeholder Project, said that the lack of transparency into private equity firms means that, oftentimes, the impact of their investment tactics on the health care providers doesn’t become obvious until several years down the line.
“In many of these cases, five years later, that company is left high and dry,” said O’Grady. “It’s hard to see things happening in real time until they get really bad. And by that point it’s too late to do anything about it.”
Other legislation
Another bill proposed by the public health committee would require the Office of Health Strategy, or OHS, to develop a plan by the end of this year regarding private equity firms acquiring or holding an ownership interest in health care facilities.
In written testimony, OHS Executive Director Deidre Gifford said she supports the intent of the proposal but feels that the governor’s bill would achieve the intended result of regulating private equity.
Dawn Holcombe, the executive director of the Connecticut Oncology Association, opposed the proposal as written, stating that it would unintentionally harm private practices that are only able to remain private through aligning themselves with physician-based practices and networks.
“These are mostly not predatory private equity firms, but medically aligned partnerships of like-minded private practices united in their mission of preserving and continually strengthening community medical care,” wrote Holcombe.
Another planned proposal, which hasn’t yet been released, would require a year’s worth of operational expenses to be deposited into an escrow account in cases where a private equity investor acquires a health care facility, said Anwar.
The Human Services Committee is also considering a bill that would require the Department of Social Services, or DSS, to conduct a study of private equity ownership in nursing homes.
DSS commissioner Andrea Barton Reeves testified that such a study might be duplicative of existing studies, including a working paper published by the National Bureau of Economic Research that found that, on average, “PE acquisitions of nursing facilities lead to adverse health outcomes for some patients.”
Rep. Michelle Cook, D-Torrington, agreed that doing another study might not make sense, but said the state has to find a way to address the issue.
“We have people dying. We have people being abused. We have people being overdosed. We have one [certified nursing assistant] per 80 residents in some cases. This is deplorable,” said Cook.
Barton Reeves agreed that the issue needs further investigation and suggested that, instead, DSS could collaborate with other state institutions, including OHS, DPH and universities, to gather the information that has already been obtained through existing studies.
