The Senate continued to probe the impact of private equity on healthcare delivery this week, launching both an inquiry into PE’s emergency department management practices and holding a subcommittee field hearing on “corporate greed” and PE’s impact on patient care.
The field hearing and request for information come as private equity has increased its investment in healthcare. As of January, more than a quarter of the nation’s rural hospitals and 460 total hospitals in the U.S. were owned by private equity firms, according to a tracker produced by nonprofit watchdog, the Private Equity Stakeholder Project.
PE-backed physician staffing groups operate nearly one-third of emergency departments across the country, according to letters sent Monday to some of the nation’s largest private equity companies by Sen. Gary Peters, D-Mich., and chair of the Senate’s Homeland Security Committee.
Lasting high demand for services makes healthcare an attractive investment for private equity firms, said Eileen O'Grady, research and campaign director at the Private Equity Stakeholder Project. As the nation ages and requires more care, the possible value of healthcare investments will increase further, she said.
However, health systems and patients rarely — if ever — benefit from private equity deals, according to testimony from Donald Berwick, president emeritus and senior fellow at the Institute for Healthcare Improvement. Studies show falls and infections spike at hospitals following PE acquisitions, while patient and payer costs climb.
Berwick told lawmakers during the field hearing Wednesday that he couldn’t think of a “single example” of when private equity investment had improved healthcare delivery.
“It just doesn't seem to be what happens,” he said.
Probe into emergency departments
The Senate inquiry questions whether private equity has downgraded hospital emergency department quality to the extent that facilities would be ill prepared to field unexpected high volumes of patients in the case of an emergency, such as a terrorist event or a mass casualty.
The probe requests operating and financial information from Apollo Global Management, Blackstone and KKR, as well as the emergency department staffing services they own or owned, including U.S. Acute Care Solutions, TeamHealth and Envision Healthcare. Peters also seeks information from Apollo-owned LifePoint Health.
The inquiry is specifically asking for details about ownership transactions, staffing decisions, and care quality and patient safety metrics. Companies have until April 17 to respond and May 3 to meet with the committee in person.
In the inquiry letters, Peters expressed concern that private equity’s business model — which he says “hinges on highly leveraged debt, little equity, and the need to obtain outsized returns within a limited time” — specifically pushes policies that downgrade care quality.
PE firms acquire assets and then seek to sell them for profit, typically within a three- to five-year time frame. The investors may also have limited direct knowledge of healthcare, and the funds are subject to fewer regulations than public companies, according to a 2023 report from the CommonWealth Fund. As a result, the firms tend to have fewer patient-centric guardrails in place compared to traditional healthcare owners and investors.
The senator pointed to the recent string of PE-backed staffing firm bankruptcies as evidence for how the model can go awry.
KKR-backed Envision Healthcare, for example, filed for bankruptcy in May. The company has since emerged from bankruptcy smaller, after selling its ambulatory surgery unit to pay down debt. Staffing firm American Physician Partners also filed for bankruptcy last summer, citing up to $1 billion in liabilities.
Peters alleged PE-owned staffing firms engaged in “predatory” surprise billing, which is when companies charge patients high bills after unknowingly receiving out-of-network care at in-network facilities.
While the No Surprises Act, which was implemented in January 2022, barred surprise billing, Peters warned staffing firms may now “consider other cost cutting efforts that more directly ... negatively [impact] patient safety and care” to turn a profit.
Care quality concerns
The Senate Health, Education, Labor & Pensions committee heard from emergency medicine physicians, registered nurses and academics about the impact of private equity on patient care during the field hearing.
Much of the hearing, which was held in Massachusetts, centered around Dallas-based Steward Health Care.
PE firm Cerberus Capital Management purchased the health system, then called Caritas Christi Health Care, in 2010. Cerberus made $800 million on its investment when it exited in 2020, but the for-profit hospital chain was left saddled with debt, experts testified.
Steward has recently come into regulators’ crosshairs as it teeters toward possible financial collapse. The system says it is seeking to restructure, pay down its multi-millions of outstanding debt and exit its forbearance period by the end of the month.
Lawmakers probed Cerberus’ role in the Steward crisis, asking experts to square the difference between the PE firm’s profits and Steward’s alleged operational deficiencies.
Cerberus invested almost nothing into the quality of Steward hospitals during its 10-year ownership, according to testimony from Ellana Stinson, an emergency medicine physician who has worked at Steward hospitals and other PE-backed facilities.
Stinson alleged Steward gutted hospitals under Cerberus’ ownership, including removing basic medical equipment to cut costs.
“Most of the facilities no longer had certain specialty services,” Stinson said.
Stinson said her department got “maybe five extra ER rooms” after Steward sold its hospitals to Medical Properties Trust for $1.25 billion in 2016.
“If Cerberus didn't use this windfall to increase wages or invest money back into Steward's hospitals, where did it go?” asked Sen. Elizabeth Warren, D-Mass, during the field hearing. “That’s a lot of money.”
Almost $500 million of that money went to Cerberus, Private Equity Stakeholder Project’s O’Grady responded.
Steward is currently pursuing a sale of its physician group to UnitedHealth’s Optum Care, but experts expressed doubt that proceeds from a sale would be used for investments in care.
The Institute for Healthcare Improvement’s Berwick dismissed the deal as “another way [for executives] to line their pockets.”
Steward’s troubles are indicative of problems with PE ownership in the industry, witnesses said.
Stinson, who also worked for PE-backed staffing firms Envision and TeamHealth, said the firms pressured physicians to upcode, artificially reduce wait times and meet “increasingly daunting metrics” that were unsafe for patients.
Co-chairs of the hearing, Sen. Edward Markey, D-Mass., and Warren both put forth legislation they say would increase oversight into public equity’s role in healthcare. Warren’s proposal, the Stop Wall Street Looting Act, first introduced in 2021, seeks to hold private equity funds liable for the their portfolio companies’ debt. It would also ban dividends to investors after a firm is acquired.
Markey’s draft legislation, the Health over Wealth Act, would require greater transparency in healthcare entity ownership. Currently, experts say the thresholds for disclosing private equity ownership are too high, obscuring the role of PE-funds in healthcare.
