The pressure points inflicted by private equity ownership in health care extend far beyond Steward Health Care, and lawmakers have a long menu of policy reforms they can consider to erect new guardrails in a changing environment, experts said Monday.
Pushed into public-facing action after a long-simmering financial crisis at Steward burst into public view this year, lawmakers convened a public hearing to explore how deeply private equity has taken root in the Bay State's health care system and what policymakers should do to prevent harm to patient care. The Democrat-controlled panel invited a long list of people to testify.
Sen. Cindy Friedman, co-chair of the Joint Committee on Health Care Financing, called the more than six hours of testimony from experts "enormously helpful" and a "really good roadmap."
"We've learned a lot about what's happening and different financial incentives, and I think it's now our job to take this information and figure out how can we better protect Massachusetts," Friedman told the News Service.
Her counterpart, Rep. John Lawn, said he remains concerned that "when private equity gets into health care, we've seen patient safety go in the wrong direction."
"We can't let what's happened already at Steward Health Care to patients happen again," he said.
U.S. Sen. Ed Markey has a similar hearing, focused on for-profit companies in health care, slated on Beacon Hill next month. He's invited Steward CEO Ralph de la Torre to testify.
Health care "financialization" under the microscope
The rise of private equity investments has occurred across the health care system, at hospitals, nursing homes, hospice care, ambulatory surgical centers, and physician specialties like fertility, gastroenterology, and dermatology, researchers told lawmakers.
While some private equity deals might be viewed positively – such as investing to keep rural or community hospitals open – the researchers cautioned the transactions typically lead to higher patient costs, poorer quality of care and reduced staffing.
More than 400 hospitals nationwide are owned by private equity firms, said Dr. Zirui Song, associate professor of health care policy and medicine at Harvard Medical School. Research shows that once hospitals are acquired, their patients see an increase in bloodstream infections and falls.
Emergency department visits and hospitalizations have also increased at nursing homes acquired by private equity firms, said Robert Tyler Braun, assistant professor of population health sciences at Weill Cornell Medical College.
Private equity firms that prevent hospital closures promote themselves as "saviors" due their infusion of private capital, Song said.
"But let's ask ourselves: does the saving of a hospital with private capital either necessitate or justify the staffing reductions or the patient harms that we found?" Song said.
"What the research shows is that many of the benefits that we all hoped for in private equity investment thus far just haven't panned out," he told lawmakers. "If they were to pan out, it could be a win-win for multiple entities in society. When private equity firms invest in health care, there are promises of improvement in quality, more efficient operations through the cost-cutting and staffing reductions, hopefully not harming people and yielding large returns for other institutions and people in society."
Braun said that outdated and aging nursing homes across the country, including facilities that are falling down or in bad quality, need major capital infusions to upgrade their buildings. In certain instances, that capital can only be secured by private equity firms, real estate investment trusts or other types of institutional investments, he said.
"In these typical leveraged buyout types of deals, I think there needs to be more skin in the game for a private equity firm in case a nursing home closes, or they go bankrupt or they do a second sale," Braun said. "That would, I think, be a critical policy reform that would be needed to make sure that private equity is held liable in case of the unfortunate event of closing."
Joseph Dov Bruch, assistant professor of public health sciences at the University of Chicago, described private equity as part of a larger problem within the "financialization of health care." Bruch said the industry is becoming a large target of hedge funds, and health care entities are also building their own investment portfolios.
"I think the focus on private equity is really important, but I also in my own research try to recognize it as one of many factors," Bruch said.
Friedman, drawing laughs, responded, "Good, because we didn't have enough problems."
In Friedman's telling, the fundamental question of the hearing revolved around how much money should be generated by the health care sector.
"It looks like the model is just to make a huge amount of money quickly, and we're all struggling with how do you reconcile that with health care, which is in the business of taking care of people and keeping them healthy," she said.
Rosemary Batt, a Cornell University professor whose recent research has explored the financialization in health care, explained the financial repercussions of the arrangement between Medical Properties Trust and Steward.
MPT – Steward's landlord which purchased the company's Massachusetts real estate in 2016 – is expecting a steady cash flow from rents that increase annually and are locked in for a 10-year period, Batt said.
"We are looking at a model that is fundamentally a real estate deal, rather than a health care deal," Batt said. "Medicaid and Medicare payments simply can't keep up with the annual rent increases. Hospital net-revenues continue to call, the financial distress or bankruptcy is highly likely, and this has occurred in a number of other systems."
Batt, echoing Gov. Maura Healey's past remarks on Steward, described the situation as a "house of cards."
"One is dependent on the other but both are mutually collapsing, and this is very predictable given other deals of this sort between real estate investment trusts and private equity firms," she said.
A bevy of regulatory reforms on the table
The crisis has provided the Health Policy Commission with another, more urgent chance to pitch lawmakers on something its leaders have been seeking for years: providing the watchdog agency with more regulatory muscle.
HPC Executive Director David Seltz urged the committee to equip his organization with new tools, many of which have already appeared in HPC reports that predate the Steward upheaval. His push also had a national angle, arguing that Massachusetts should give its regulators more power to dictate terms of health care transactions that might bulwark against negative effects from a private equity takeover.
"Other states have empowered some of these government regulatory agencies to actually be able to deny, approve or impose conditions upon review," Seltz said. "That is not something the HPC currently has authority to do. Our process is really a public report at the end of the day."
Erin Fuse Brown, director of the Center for Law, Health and Society at Georgia State University, told lawmakers Monday that the HPC and attorney general in Massachusetts have authority to study and review transactions before they happen, but do not wield the power to deny or impose conditions upon transactions without seeking a court order.
Health care entities need to inform regulators about some big changes on the horizon, like planned closures, but officials and experts said Monday that existing law does not apply reporting requirements to all transactions.
Another change that could be key, Seltz and other experts said, is boosting the state's monitoring of ongoing operations after a transaction is complete. Seltz said his agency might "raise a lot of concerns" when reviewing a proposed acquisition or merger, but asked, "What happens after that?"
Mary Beckman, a senior advisor in the Executive Office of Health and Human Services, added that the Department of Public Health performs monitoring of services but is "quite clinically focused."
"It's really triggered by problems that have been brought to light," Beckman said. "A lot of these operations are financed by the vendors, who are not being paid timely. That is a problem that I think is a great example of the lack or some of the gaps in current reporting."
Also among Seltz's suggestions were subjecting changes in provider capacity, investment by private equity or for-profit organizations in health care providers and more to new scrutiny by the HPC, and creating new enforceable penalties for entities that fail to provide sufficient information about their operations.
Steward for years has reportedly refused to provide complete system-level financial documentation to the Center for Health Information and Analysis, even though all hospitals in Massachusetts are required to do so.
The for-profit system sued CHIA in 2017 over the mandate, alleging that regulators were seeking "confidential business information" with no promise to keep it private. Superior Court Judge Catherine Ham ruled last year that Steward should be compelled to provide financial information to CHIA, but the case is now tied up in an appeal.
"You have a comment in here about how it's been six years that Steward has not released their financials. Why is it taking six years?" Rep. Hannah Kane asked Seltz during Monday's hearing. "That just seems like an excessively long period of time for something. Do we not have the appropriate statutes in place? Is it the courts holding us up?"
"I agree, it's been a very long time," Seltz replied. "With all respect to our colleagues on the other constitutional branch, this has been an ongoing court process."
After the hearing, Lawn suggested his committee might work to weave private equity-related reforms into "the DON bill," referring to legislation that has long been a priority of House Speaker Ron Mariano.
The House in 2021 approved legislation that would overhaul the determination of need process, which requires health care entities to undergo state review before any major service changes, capital expenditures, ownership changes or expansions. At the time, the bill sought to add scrutiny to when larger providers expand into markets covered by smaller, financially vulnerable community hospitals.
The Senate never took up the bill, so it died at the end of the 2021-2022 lawmaking session.
Taking a national focus
The Massachusetts health care market for years has been dominated by entities registered as non-profits, which can access tax advantages not available to for-profit operations. But for-profit entities have grown, and private equity backers in particular are accelerating their investment into health care.
Seltz presented data showing that the share of health care transactions in Massachusetts involving private equity interests has more than doubled in recent years.
The HPC examined 182 provider purchases and sales between 2013 and 2023, according to data Seltz presented. Between 2013 and 2016, Seltz said, private equity was involved in about 25 percent of transactions. That jumped to 47 percent of transactions between 2017 and 2020 and 63 percent between 2020 and 2023.
HPC leaders discussed similar data in December, before the problems at Steward erupted into public view and accelerated calls for reform.
And nationally, Seltz said one piece of research found a "sixfold increase in the number of physician practices acquired by private equity firms from 2012 to 2021."
"Our attention should also be focused on the future because the trends of private equity, for-profit ownership and consolidation of all types into larger, horizontally and vertically integrated health systems will only continue in Massachusetts and across the country," Seltz told lawmakers.
He later added, "The need for urgent action could not be greater."
A representative from the National Conference of State Legislatures briefed lawmakers on how their peers in other states have attempted -- both successfully and unsuccessfully -- to create new limitations around private equity in health care.
Sarah Jaromin, a policy associate at NCSL, said lawmakers can require additional notification about mergers, closures, affiliations and acquisitions. They can also impose conditions on proposed transactions or deny them altogether.
Under the federal Hart-Scott-Rodino Antitrust Improvements Act, companies must disclose some planned mergers and acquisitions. The reporting threshold for that law is just shy of $120 million this year.
"Because some smaller transactions like acquiring independent physician practices may not exceed the federal financial reporting threshold, we see states enacting additional requirements for those smaller transactions," Jaromin said.
A new law in Indiana requires health care entities to notify the attorney general about mergers and acquisitions worth at least $10 million at least 90 days ahead of time, according to Jaromin. Another bill still under consideration in California would require any private equity group or hedge fund to get the attorney general's consent before changing control of or acquiring a health care entity, and the state AG could deny the move or impose conditions.
Another lever lawmakers can pull is requiring more transparency about provider ownership, Jaromin said.
Friedman said the committee is accepting written testimony from interested parties who were not invited to testify.
