Two U.S. senators have launched a bipartisan investigation into secretive and powerful private-equity firms’ involvement in health care within the nation, demanding documents and knowledge from executives related to two hospital systems to evaluate how much profit they’ve generated through their complex financial arrangements and whether the deals harmed patients and clinicians.
Sheldon Whitehouse, the Rhode Island Democrat who chairs the Senate Budget Committee, and Chuck Grassley, the Iowa Republican who’s the committee’s rating member, are spearheading the inquiry. It began in March when Grassley requested information from private-equity giant Apollo Global Management, owner of Ottumwa Regional Health Center, a Lifepoint Hospital in southeast Iowa where a male nurse assaulted at the very least nine sedated patients in 2021 and 2022. The nurse later died from an overdose at the ability.
“In relation to our nation’s hospitals, a business model that prioritizes profits over patient care and safety is unacceptable,” Grassley said in a press release. “The shocking events at Ottumwa Regional Health Center prompted me to ask tough questions on how financial maneuvers by private equity and related firms have negatively impacted the resources, and thereby the patient care, at our rural hospitals. I look ahead to working with Senator Whitehouse to get answers and be sure that our nation’s hospitals provide high-quality health care to the communities and patients they serve.”
With Whitehouse joining the investigation, it has expanded to incorporate private-equity deals affecting two hospitals in his home state of Rhode Island. Those transactions involve Prospect Medical Holdings, an operator of 16 safety net hospitals in 4 states that was owned until recently by a gaggle led by Leonard Green & Partners, a private-equity firm in Los Angeles. Of interest to Senate investigators are deals involving Prospect Medical’s ownership of Our Lady of Fatima Hospital in North Windfall and Roger Williams Medical Center in Windfall, and likewise facilities in Pennsylvania and California.
“As private equity has moved into health care, now we have change into increasingly concerned in regards to the associated negative outcomes for patients,” Whitehouse said in a press release. “From facility closures to compromised care, it’s now a well-known story: Private equity buys out a hospital, saddles it with debt, after which reduces operating costs by cutting services and staff — all while investors pocket hundreds of thousands. Before the dust settles, the private-equity firm sells and leaves town, leaving communities to select up the pieces.”
Over the past decade, private-equity firms like Apollo have spent $1 trillion buying health-care businesses, including hospitals, nursing homes, physician practices and hospital staffing firms. To finance these deals, private-equity owners typically burden the businesses they buy with debt, then slash company costs to extend earnings and appeal to potential buyers in just a few years.
Academic studies show that private-equity firms’ involvement in health care is related to significant cost increases for patients and payers, similar to Medicare. A lower quality of care has also been related to the firms’ investments in health care. A 2021 study of nursing home ownership by academics at Recent York University, the University of Chicago and the University of Pennsylvania found that death rates were 10% higher at facilities owned by private equity than by other owners, including for-profit firms, while compliance with Medicare standards of care declined. Taxpayer costs rose by 11% on the facilities.
Letters sent by Whitehouse and Grassley to 5 different parties nod to those problems, noting that ownership of health care entities by private equity “may lead to negative outcomes for each frontline medical providers and patients starting from staffing reductions to wholesale facility closures to substandard medical care.” The senators asked for documents and knowledge in regards to the complicated financial arrangements that allowed the firms to extract money from the hospital systems they own. “The American people deserve to grasp the potential impact of private-equity firms within the delivery of their health care,” the letters state.
The senators seek to make clear deals involving Lifepoint Health, owner of the Ottumwa Regional facility and greater than 60 other mostly rural hospitals nationwide, and its owner Apollo Global Management, a private-equity firm run by Marc Rowan who co-founded the firm within the early Nineteen Nineties with Leon Black.
Letters have also gone out to Prospect Medical, Leonard Green & Partners and Medical Properties Trust, an actual estate investment trust that has been involved in multiple deals with private-equity firms allowing them to dump hospital real estate holdings for money.
The businesses didn’t immediately reply to requests for comment in regards to the letters.
The senators want details about a standard private-equity practice by which the businesses they own tackle significant debt, then use the cash raised by these debt issues to pay money to the private-equity firms. These deals enrich the firms but can hobble the businesses shouldering the debt.
In the course of the time it owned Prospect, for example, the Leonard Green group loaded greater than $1 billion in debt onto the operation. In 2018, the group received a money payment of $457 million from Prospect despite the fact that the corporate generated a net lack of greater than $240 million that 12 months and reported unfunded pension liabilities of $260 million, based on a lawsuit filed against Prospect last month by Rhode Island Attorney General Peter Neronha.
His suit goals to implement conditions of a 2021 agreement that allowed Leonard Green to sell its stake back to Prospect provided that certain financial requirements were met. Amongst them were requirements that Prospect “provide for a full a financial commitment to the Rhode Island hospitals that covers operational and capital expenses for the subsequent five years.” In his suit, Neronha contends those conditions haven’t been met.
Other complex financial deals that allow private-equity firms to empty money from the businesses they buy are also under scrutiny within the Senate investigation. These arrangements include the sales of real estate on which these firms’ hospitals stand, enriching the private-equity owners who receive money from the sales but saddling the hospitals with higher rent costs, potentially imperiling their future operations.
Private-equity deals are sometimes shrouded in secrecy. Because the businesses owned by these firms are private, there may be less details about their operations than is accessible from public firms. The best way the deals are structured often obscures private-equity ownership and protects the firms from liabilities related to practices at the businesses they own.
The brand new information request to Rowan at Apollo Global Management reiterates questions asked of his firm by Grassley last March, which Grassley and Whitehouse said of their letter to Rowan haven’t been answered. “The limited information and documents which have been provided so far have given rise to additional questions and concerns about financial transactions impacting Ottumwa Regional Health Center and the people of Iowa,” the letter to Rowan stated. As an alternative of answering Grassley’s questions, the letter continued, “Apollo has continued to cover behind Lifepoint.” Apollo “has an obligation to supply full and complete responses to the committee,” the letter stated.
Of their letter to Lifepoint, the senators asked for an internal document prepared for the special committee of its board that appears to have identified deficiencies “that will have contributed to the shocking events against patients at Ottumwa.”
The senators’ letters seem designed to attach arcane financial engineering by private-equity firms with declining health care quality or access in the US. The Senate Budget Committee has broad authority to analyze “matters that affect the content or determination of amounts included in or excluded from the congressional budget or the calculation of such amounts,” the letters explained.
“Access to quality health care will not be a partisan issue,” one among the letters noted, adding that the Budget Committee is “performing an objective and independent review of the impacts that private-equity ownership has had on quality of care and hospital operations.”