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Private Equity Consolidation of US Health Care Leading to Soaring Costs to Patients [1]

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Date: 2024-06-07  

The Wall Street Journal is basically two separate publications. The Opinion section excoriates Democrats and opposes and progressive programs that target the wealthy class. The news sections is generally balanced and often has excellent investigative reporting. Case and point is coverage of Private Equity. While the Opinion commentators often celebrate PE buyouts — no matter how harmful to employees and customers, — the news reporters have a much more critical approach.

Recently, the WSJ has focused on the harmful effects of Private Equity buying hospitals and doctor practices. The first piece of a series on this topic is titled You Can Thank Private Equity for That Enormous Doctor’s Bill

When a business gets bigger, it forces mom-and-pop players out of the market, but it can boost profits and bring down costs, too. Think about the pros and cons of Walmart and “Every Day Low Prices.” In a complex, multitrillion-dollar system like America’s healthcare market, though, that principle has turned into a harmful arms race that has helped drive prices increasingly higher without improving care. Years of dealmaking has led to sprawling hospital systems, vertically integrated health insurance companies, and highly concentrated private equity-owned practices resulting in diminished competition and even the closure of vital health facilities. As this three-part Heard on the Street series will show, the rich rewards and lax oversight ultimately create pain for both patients and the doctors who treat them. Belatedly, state and federal regulators and lawmakers are zeroing in on consolidation, creating uncertainty for the investors who have long profited from the healthcare merger boom.

One PE-fueled debacle I’ve been following is Steward Healthcare System, a network of 31 hospitals that was loaded up with $9 billion in debt after being acquired by Cerberus Capital Management. It filed for bankruptcy protection last month.

One particularly troublesome aspect of the private-equity marriage with healthcare is that it can put businesses that are essential to society at risk. An example is the crisis engulfing Steward Health Care System. The hospital chain was formed by the private-equity firm Cerberus Capital Management when it first bought six struggling Massachusetts hospitals in 2010. A 2016 sale-leaseback agreement with the hospital landlord Medical Properties Trust allowed Cerberus to receive hundreds of millions of dollars in dividends and helped Steward expand through acquisitions.

While PE firm Cerberus and its executives pocketed “hundreds of millions”, the hospitals (and its patients) have suffered from a lack of capital investment. Steward’s vendors have $90 million in unpaid invoices while highly-skilled clinical staff are leaving in droves.

Last spring, a nurse found a live bat clinging to a curtain in the intensive-care unit of Florida’s Rockledge Regional Medical Center. Steward Health Care System, which operates the hospital, brought in a pest-control company, which discovered another 3,000 or so Brazilian free-tailed and evening bats in the building. “That’s been a known issue,” said retired nurse Vonnay Norbury, who used to see bats in the hospital’s stairwell. The hospital evacuated the floor, and the bat-removal workers came in. Last fall, Rentokil North America sued Steward for $1.6 million of allegedly unpaid bills, including $936,320 for the bat removal.

Meanwhile, Steward CEO Ralph de la Torre — who engineered the Cerberus takeover — is the proud owner of a $40 million, 190-foot yacht named the Amaral, a boat that has six bedrooms, cabins for as many as 15 members of the crew, a gym, a living room, dining room, and so much more. But that’s not all! The Boston Globe discovered that de la Torre has a SECOND yacht worth $15 million.

“Greed is good” — for Private Equity. But for patients not so much.

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