Top Democrats and Republicans on a powerful Senate committee on Wednesday launched a wide-ranging investigation into the impact of private equity on the U.S. health care system. Democratic Sen. Sheldon Whitehouse of Rhode Island and Republican Sen. Charles Grassley of Iowa sent letters to a constellation of financial firms seeking information about how their businesses in the health care space impact patient care.
“The American people deserve to understand the role that PE plays [private equity] companies perform, and any resulting potential negative financial or patient care impacts, on the delivery of your health care,” wrote the senators, who chair the Senate Budget Committee.
As part of the investigation, senators are also seeking information related to certain transactions that were the focus ofto the collapse of hospitals that care for some of the most vulnerable residents in the United States.
“As private capital has moved into healthcare, we have become increasingly concerned about the associated negative outcomes for patients,” Whitehouse said in a statement to CBS News. “From facility closures to compromised care, it’s now a familiar story: Private equity buys a hospital, loads it with debt, and then reduces operating costs by cutting services and staff, all while investors pocket millions. Before As the dust settles, the private sector “The capital firm sells and abandons the city, leaving the communities to pick up the pieces.”
The couple of senators wrote to the heads of two companies – Prospect Medical Holdings and Medical Properties Trust – which CBS News found had diverted hundreds of millions of dollars from hospital operations in and . Without funding, critical care facilities subsequently closed. The senators are also seeking information from a third firm, Los Angeles-based private equity giant Leonard Green and Partners, which they claim was “deeply intertwined” with the other two firms.
With the investment from Leonard Green and Partners, Prospect Medical Holdings quickly grew from owning five Los Angeles-based hospitals in 2010 to 20 hospitals in six states in 2018. Five of those hospitals have since closed, including the centennial Delaware County Memorial Hospital. in the suburbs of Philadelphia. Last November, the Pennsylvania Department of Health closed the hospital after learning that Prospect Medical Holdings was understaffed.
Last year, CBS News reported on a series of financial moves made by the management of Prospect Medical Holdings that left the company deeply in debt before closing. The first was in 2018, when the company’s owners borrowed $1.12 billion and paid themselves a dividend of $457 million. The company’s then-CEO, Sam Lee, who is now chairman, took home about $90 million.
“It would be like if a homeowner went to a bank, asked for a $100,000 loan, and instead of using it to invest in their property or pay for their kids’ college, what they did was basically put it in their pockets as cash.” Rhode Island Attorney General Peter Neronha told CBS News last year.
After the $457 million dividend was paid, the owners of Prospect Medical Holdings sold the Pennsylvania health system’s land and buildings, which includes Delaware County Memorial Hospital, to Birmingham, Alabama-based Medical Properties Trust. The transaction, called a sale-leaseback, meant that the Pennsylvania health system owed $35 million a year in rent to Medical Properties Trust, which has bought the real estate of nearly 200 American hospitals, often in communities low income.
In a statement to CBS News following the announcement of the senators’ investigation, a spokesperson for Medical Properties Trust said the company’s “real estate investments have made available substantial amounts of capital that can be used to continue investing in facility improvements, technological improvements and other investments in operations that benefit the long-term health of communities.”
“In some cases, operators have used [Medical Properties Trust’s] real estate capital to acquire and continue to operate hospitals that would otherwise most likely have closed permanently,” the spokesperson said.
However, CBS News found at least one case in which a hospital’s lease obligations to Medical Properties Trust may have contributed to its closure. In April, San Antonio’s 356-bed Texas Vista Medical Center closed its doors forever, leaving the city’s Hispanic-majority south side without a nearby primary health care option.
“The closest hospital is 12 to 15 minutes from our facility, and if you are having a stroke or heart attack, time is of the essence,” respiratory therapist Jessica Carrasco told CBS News in April.
For Medical Properties Trust executives, buying hospital real estate has been lucrative. According to the company’s SEC filings, from 2017 to 2021, CEO Edward Aldag’s salaries, bonuses and stock awards totaled about $70 million.
The Senate investigation was first reported by NBC News. A spokesperson for Prospect Medical Holdings did not immediately respond to a request for comment, nor did a spokesperson for Leonard Green and Partners, who acknowledged receiving the senators’ letter.
In recent months, regulators have taken new steps to rein in Prospect Medical Holdings in states where it still operates hospitals.
Neronha, who previously blocked Prospect Medical Holdings from selling the real estate of its two hospitals in his state, sued the company last month for failing to pay its debts. According to the lawsuit, the hospitals owe more than $24 million to their suppliers, “jeopardizing the financial health and stability of the hospitals and, ultimately, patient care.”
Pennsylvania’s Attorney General agreed in October to suspend his own lawsuit against Prospect Medical as long as the company sold its health system there to a nonprofit operator by July. State lawmakers have introduced a bill that would give the attorney general’s office the power to regulate all major hospital transactions.
“The attorney general’s office would be required to review sales and mergers, and then make a determination to mitigate harm to the public,” said state Sen. Tim Kearney, one of the bill’s co-sponsors.
And in Connecticut, where Prospect Medical has been negotiating the sale of its three hospitals to the Yale University Health System for more than a year, a spokesperson for the attorney general’s office confirmed to CBS News that an investigation has been launched into the company’s financial practices.