(Bloomberg) – A spate of health care bankruptcies has sparked a wave of public anger against the industry’s financial traders, prompting state lawmakers across the country to draft tough new regulations.
The crackdown on those who want to be cracked down is progressing rapidly.
California Governor Gavin Newsom has vetoed a bill that would have allowed the state to block private equity deals for most medical facilities. Efforts to tighten oversight of financial institutions or outright bans on certain health investments have also stalled in Pennsylvania, Connecticut, Oregon, Washington and Minnesota.
In Massachusetts, political criticism of private equity and real estate companies reached a climax after Steward Healthcare, one of the state's largest hospital operators, filed for bankruptcy in May. A bill that would have strengthened oversight of such investors is stuck in a legislative stalemate with just days left before the end of the session.
The failure of those efforts, including in Democratic-majority states, has largely reduced the short-term risk of stricter rules for health care industry financial traders.
Federal action has already dragged on, so future discussions could potentially include more comprehensive disclosure requirements that could at least give lawmakers more warning when a company is in distress. Less radical discussions are likely to focus on ways to curb dangerous practices. Other states, including Indiana, have enacted laws requiring special notice for certain health care transactions, but stop short of providing full blocking power.
“I don't think it's realistic or viable to completely eliminate private equity,” Massachusetts Governor Maura Healey said in an interview. “I think there is a role for private equity in health care, but the question is, what is that role? How do you define that role? What are the guardrails that we need here? I think it's the right thing to consider.”
Critics of the Massachusetts and California bills, the most advanced of state legislative efforts, argue that they unfairly blame private equity and real estate companies for larger problems in the health care industry. There is.
“American companies in health care and other sectors of the economy need more investment from all sources. Private equity and private credit can provide the capital they need,” said a private equity lobbyist. Drew Maloney, CEO of the American Investment Council, said in a September letter to members of Congress.
But Jirui Song, a professor of health policy and medicine at Harvard Medical School, said financial companies often rely on cost cutting to improve profits, which can lead to layoffs and negative health outcomes. He said there is.
Private equity-backed companies accounted for about one-fifth of all healthcare bankruptcies last year, according to the advocacy group Private Equity Stakeholder Project. Mary Bagby, PESP's health care director, said without further guardrails, crises like the Steward collapse will continue to occur.
“Even though it didn't work out this time in Massachusetts and California, I think our best bet continues to be state-level policy decisions,” Bagbee said. “But we'll probably have to look at something even worse than Steward. It was horrifying.”
steward fallout
The fallout from Steward's financial collapse sparked widespread anger. Former nurses have testified to horrors, including having to place dead newborns in cardboard boxes because the company failed to pay a vendor to provide appropriate condolence boxes.
The hospital chain has filed for bankruptcy with $9.15 billion in reported debt, more than any other company so far this year, including Spirit Airlines and battery maker Northvolt AB, according to data compiled by Bloomberg. This is the highest amount.
But the story of how Steward became so big and how it ultimately fell apart is complex. This story is about legislation that is broad enough for lawmakers to identify responsibility for corporate failures and bring about change, but narrow enough that it does not cause unintended consequences, such as cutting off access to financial assistance if a company goes bankrupt. This highlights why it is so difficult to enact. face challenges.
Identifying and subjecting financial transactors to strict oversight sends a message to startups in industries that rely on venture capital funding, such as life sciences and climate change technology, that they should locate in states with more favorable regulations. There is also a risk of sending
Steward's roots trace back to six financially troubled hospitals in Massachusetts formerly owned by the Archdiocese of Boston. Dr. Ralph de la Torre was tapped to lead the chain in 2008, and by 2010 he helped negotiate its sale to private equity firm Cerberus Capital Management with an infusion of cash. In 2016, Steward agreed to sell and lease back its assets, including a hospital in Massachusetts, 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 Mr. de la Torre.
Cerberus earned approximately $800 million from its investment. The company also said it “rescued and restored a critical community hospital in Massachusetts.”
The sale-leaseback agreement with MPT gives Steward the resources to accelerate its plans to acquire more hospitals across the country. Lawmakers also said the deal left Steward with exorbitant rent costs, further exacerbating its financial challenges. In Massachusetts, the House version of the health care bill would have specifically prohibited hospitals from leasing their main campuses from REITs, but the Senate removed that provision.
plenty of blame
Meanwhile, former CEO Del Torre has been criticized by lawmakers for accusing Steward of lining his own pockets by racking up huge debts. Mr. de la Torre's lawyers said federal agents recently seized Mr. de la Torre's cell phone, while the Boston Globe reported that a grand jury investigation into allegations of fraud, bribery and corruption As part of the report, members of the review committee were summoned to answer questions. Delatorre declined to comment through a spokesperson.
“When you look at this and assess responsibility, they're all responsible,” Sen. Edward Markey, D-Mass., said of Mr. de la Torre, Mr. Cerberus and the members of Congress. “They all made money, and the hospital collapsed. All these players working together at the same time led to the collapse of the stewardship system.”
Markey and his colleague Massachusetts Sen. Elizabeth Warren introduced federal legislation this year that would tighten regulation of private equity and real estate investors and introduce tougher penalties for wrongdoing. It's not progressing.
Meanwhile, in Massachusetts, members of the House and Senate were unable to reconcile competing versions of the state's health care bill before the end of their regular term in July. Other unfinished bills have since passed in informal sessions, including an economic development bill that Healey supported, but lawmakers have yet to reach an agreement on the health care bill.
Evan Horowitz, executive director of the Center for National Policy Analysis at Tufts University, said there is still time, but Congress is unlikely to pass the bill in its entirety as the deadline for the end of the session on Dec. 31 is shrinking. Ta.
Massachusetts House Speaker Ron Mariano said in a statement that there is “much common ground” between the two chambers on health care reform, even if the scope of the proposals differs. Mariano said he hopes to reach an agreement by the end of the year. Gray Milkowski, a press secretary for Massachusetts Senate President Karen Spilka, said the Senate will continue its efforts to complete the bill this session and “and beyond if necessary.”
Mariano also said he would revisit health care reform next year if current measures fail. Building consensus may be harder than it was when anger over Steward's debacle was still fresh.
As a result, financial transactors continue to have a significant impact on the healthcare business. In October, private equity firm Kinderhook Industries acquired Steward's Physician Network, which includes a large footprint in Massachusetts.
–With assistance from Jonathan Randles.
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