Will health systems begin to steer clear of private equity investments?
Private equity is everywhere. As it continues to be a controversial topic, the Steward Health Care fiasco has made that spotlight even brighter.
As Steward Health Care is on its way to securing a $225 million loan to keep its 31 health systems operational ahead of auctions, its actions have not gone unnoticed by lawmakers.
The health system filed for bankruptcy on May 6 after it was days away from running out of money. Later this week Steward will seek approval for the loan, provided by a group of unidentified lenders, in bankruptcy court. The loan is expected to keep the health system running until autumn.
According to a WBUR report, Steward has said that it has more than 100,000 creditors and liabilities lying somewhere between $1 billion and $10 billion.
Massachusetts state officials are fed up with the health system, claiming it has threatened public health across the east side of the state. In February Massachusetts Governor Maura Healey and House Speaker Ron Mariano demanded for Steward to reveal its finances, sell its hospitals and leave the state completely.
Steward plans to sell off its remaining hospitals and physicians’ network at a pair of auctions on June 27.
Legislation Inspiration
A new bill is aimed at preventing future Steward-like financial crises. The Corporate Crimes Against Health Care Act proposed by Senator Elizabeth Warren is aimed at cracking down on private equity misconduct in healthcare. The bill would pose high penalties for investors who profit at the expense of their healthcare business.
According to a report from the Boston Herald, Warren, along with the president of the Massachusetts Nursing Association and other healthcare workers, Steward’s CEO and equity firm Cerberus made millions by purchasing hospital properties, selling off the land underneath the buildings and then leasing the buildings back to the hospitals.
“Let me be clear, this disaster is private equities’ fault. Cerberus and Steward’s CEO Ralph de la Torre, cut Steward’s resources so close to the bone that hospitals couldn’t afford lifesaving medical care,” Warren said, according to the report.
Warren said the proposal would not inhibit Steward’s bankruptcy proceedings, but it would prevent other health systems from taking the same path of ownership via private equity.
The proposal would make it a crime to steer a hospital towards bankruptcy to the point where a patient dies. Health system CEOs could be charged with manslaughter and face a prison sentence under the plan.
The Future of Private Equity
Healthcare bankruptcies related to private equity have been on the rise, but new findings reveal that actual investment activity by firms continues to slow down. A handful of factors come into play here including buyer and seller price differences, regulatory climate and hints that the Federal Reserve will hold rates higher for longer.
As the healthcare industry continues to pump the brakes on private equity, coupled with Warren’s proposed plan, private equity may even come to more of a lull in the future. Much is still yet to be determined, including the approval of Warren's plan and the financial viability of Steward Health for the rest of 2024 and beyond.
Marie DeFreitas is the finance editor for HealthLeaders.
KEY TAKEAWAYS
Steward Health Care has secured a hefty loan to keep its hospitals operational, but it has also inspired a newly proposed legislation
A proposed legislation takes aim at private equity in healthcare, including prison time for CEO financial misconduct
Private equity in healthcare may continue to slow