Last week, U.S. Senators Elizabeth Warren (D-Massachusetts) and Ed Markey (D-Massachusetts) introduced a bill that seeks to tackle corporate greed in the healthcare sector. The bill, called the Corporate Crimes Against Health Care Act of 2024, goes after private equity firms.
The nation’s private equity fund assets have more than doubled over the past 10 years, totaling $8.2 trillion last year. A recent report from the American Hospital Association shows that private equity firms account for 56% of all physician practice acquisitions since 2019.
Private equity funds’ continued dealmaking in the healthcare industry poses serious risks to patients’ healthcare access and care outcomes, according to the new bill. It stated that private equity companies often saddle their portfolio companies with excessive debt, sell off valuable assets, and charge inflated dividends and fees, regardless of whether the institutions they buy are well-run or not.
The senators’ concerns are backed by years of research showing that private equity ownership often decreases care quality at provider facilities. One of these studies, published in JAMA in December, showed that patients receiving care at private equity-owned hospitals experienced a higher rate of hospital-acquired adverse events — such as bloodstream infections, falls and medication errors — than patients receiving care at hospitals that are not private equity-owned.
Not only is private equity ownership problematic for patients’ health and safety, but it can also jeopardize their access to care. In a joint press release, Warren and Markey pointed out that private equity mismanagement was a key reason Steward Health Care filed for bankruptcy last month and is now scrambling to sell its physician group and 31 hospitals.
“My Corporate Crimes Against Health Care Act would prevent what happened with Steward from ever happening again,” Warren said in a statement. “When private equity gets hold of health care systems, it is literally a matter of life and death, so if you drive a hospital like Steward into bankruptcy, putting patients and communities at risk, you should face real consequences.”
If passed, the act would establish a new criminal penalty of up to six years in prison for private equity executives whose business decisions result in a patient’s death.
Should a healthcare portfolio company experience serious, avoidable financial difficulties as a result of their private equity ownership, the bill would allow the Department of Justice and state attorneys to claw back all compensation issued to private equity and portfolio company executives within a 10-year period before or after those financial difficulties begin. There would also be an associated civil penalty of up to five times the clawback amount, the bill stated.
The act would also ban payments from federal health programs to healthcare organizations that sell their assets or use them for REIT loan collateral, as well as repeal a tax law that allows taxable REIT subsidiaries to impose influence on healthcare providers’ operations. Additionally, the bill seeks to eliminate the 20% pass-through deduction for all REIT investors, which was instituted in 2017.
The bill has received support from various groups seeking to improve patient outcomes and uphold Americans’ local access to healthcare services.
For instance, Mona Shah, Community Catalyst’s senior director of policy and strategy, stated that private equity is a “metastasizing disease” that continues to harm the country’s healthcare delivery system.
“The profit-driven health care system in this country is expensive, inefficient and inaccessible to those who need it most. And private equity’s growing foothold is making these problems — tenfold. It’s contributing to our medical debt crisis, worsening health outcomes and creating unsustainable working conditions for many health workers. It is far past time to put the needs of people over profits,” she wrote.
And Chris Noble, policy director at the Private Equity Stakeholder Project, remarked that the bill was necessary based on the “common-sense idea that U.S. healthcare systems should prioritize safeguarding our long-term health over short-term profits.”
This new bill from Warren and Markey is not the only Congressional effort to probe into private equity’s impact on healthcare. For example, two bipartisan members of the Senate Budget Committee launched an investigation in December into private equity firms and their “questionable financial transactions” in the healthcare sector.
But not all healthcare leaders believe that this increased private equity scrutiny is deserved.
In a media roundtable Polsinelli held last month, one its shareholders, Bobby Guy, said that the growing focus on private equity stems from a fundamental misunderstanding of its role in healthcare innovation. In his view, the transparency issues and greater regulatory focus on private equity are results of the lack of public market investment opportunities created by earlier regulatory change.
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