Why Private Equity Is Buying Hospitals & Shutting Them Down
There is a growing trend for private equity firms to buy companies and then bankrupt them to enrich their investors
by A More Perfect Union and PBS
There is a growing trend for private equity firms to buy companies and then bankrupt them to enrich their investors. A formula used by private equity involves buying hospitals, loading them up with debt by taking out loans that obligate the hospitals, paying off investors, and then selling the facilities and leasing the real estate back to them, resulting in the closure of hospitals. The people in the community pay the price. In addition, private equity owned physician staffing groups operate nearly one-third of all emergency departments across the country.
Emergency departments are the last resort for low income and uninsured and low income people who wait for an emergency to get care. Private equity is attractive to investors because it has an average return on investment rate of 13%, compared to 8.6% in the stock market. Patients are a captive market in emergency situations. Private equity cuts costs by requiring doctors to see more patients, reducing time spent with each patient that reduces quality of care. Private equity often reduces staff and hospitals are short handed, resulting ibn long wait times. Private equity often increases billing and price gouging is the “secret” for increased profits.
Private equity acquired companies have had a 25% rise of patient adverse events that include bloodstream infections, falls, and a doubling of surgical infections.
An example is the Crozer-Chester Medical Center, located in Delaware County, Pennsylvania that was the busiest ER in the area, that treated tens of thousands of patients per year. Crozer Health system was in financial trouble because it was a safety-net hospital that cared for patients covered by Medicaid or uninsured people. In 2016, the non-profit hospital was sold to a for-profit California company called Prospect Medical Holdings, with Leonard Green & Partners, a private equity firm, as its principal owner.
In 2018, just two years after buying Crozer Health, Prospect took out a $1.1 billion loan and then sent nearly half of it straight to their investors while Crozer continued to suffer. The private equity firm is not on the hook for any of that debt. Leonard Green sold Prospect in 2019, but Prospect and its hospitals were still on the hook for the debt. In order to pay down that debt, Prospect sold the real estate of its hospitals, including Crozer, to an Alabama company called Medical Properties Trust, or MPT. These deals are known as sale-leaseback transactions. What MPT does is it partners with health systems like Prospect to buy up their real estate and then rent it back. A critic called it a ‘hospital landlord’. Most of the time the revenue that’s generated from these one-time sales of the real estate doesn’t go back into the hospital. It’s being pocketed by investors. And like a tenant, Crozer had to start paying rent— $35 million a year. Last year, the Pennsylvania Attorney General’s office sued Prospect and Leonard Green for mismanagement and breach of contract. This January, Prospect filed for bankruptcy and within months it closed its last hospitals in Delaware County.
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We're headed for boutique surgical operations and emergency services for the rich, and clinic level care or nothing for the rest.
What does amaze me is the hospital boards at the beginning of the hedge fund raping process. Where are these hospital board members who could shut this shit down if they wanted too - before it even got started?
Isn't it their fiduciary responsibility as Board Members to protect the financial health of the organization? Are they that stupid or are they paid off?