While not everyone has so cynical a view of capitalism in its more robust forms, i.e., large corporations and conglomerates, there are those on Capitol Hill who have taken aim at what they see as unabashed greed, especially in the context of healthcare.
According to multiple news outlets, U.S. Senators Elizabeth Warren and Ed Markey of Massachusetts introduced legislation earlier this month that targets "corporate greed and private equity abuse" in the healthcare industry. The Corporate Crimes Against Health Care Act of 2024 is meant to address what its sponsors consider to be an alarming rise in private equity control of health-related assets, including hospital facilities.
Is There Really a Problem?
In a June 11 joint press release, Senators Warren and Markey asserted that private equity fund assets have more than doubled, hitting $8.2 trillion in 2023. They also maintained that lax corporate transparency and accountability laws have allowed private equity firms to undermine the long-term stability of nursing homes, physician practices, hospitals and health systems. A recent misadventure in the medical community was listed as an example of the severity of the problem and why it needs to be addressed by Congress.
Dallas-based Steward Health Care declared bankruptcy on May 6. The 31-hospital health system is attempting to unload its hospitals and physician group, Stewardship Health. One of its facilities happens to be in Massachusetts, which no doubt caught the eyes of the Bay State senators. According to Ms. Warren:
My Corporate Crimes Against Health Care Act would prevent what happened with Steward from ever happening again. 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.
Okay, so we’ve got one statistic, one accusation and one anecdote. But do these really point to a major vulnerability within our healthcare system?
Placing Limits on Equity
According to news sources, the Corporate Crimes Against Health Care Act of 2024 would accomplish the following, if ultimately passed and signed by the president:
- The bill calls for criminal penalties that would include up to six years in prison for executives who “loot” healthcare organizations, such as hospitals and nursing homes, should such activity result in a patient’s death.
- The Justice Department and state attorneys general would have the ability to recover all compensation from private equity and portfolio company executives, including salaries, in a 10-year period before or after a healthcare firm they have acquired experiences avoidable financial issues due to their actions.
- An associated civil penalty of up to five times the recovered amount under the act could be authorized.
- Federal health program payments to entities that sell assets or use them as REIT loan collateral could be banned, apart from existing arrangements, under the act. The Tax Code rule that allows taxable REIT subsidiaries to sway healthcare operations could also be repealed. The bill would also cut by 20 percent the so-called pass-through deduction.
- Healthcare providers who receive federal funding would be required to publicly report mergers, acquisitions, financial data (such as debt and debt-to-earnings ratio) and changes in control and ownership.
- An Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) report to Congress would be required to include information detailing the harms of corporatization within the healthcare space.
In summing up the need for this legislation, Senator Markey stated:
They promised to improve health care, but instead traded lives and livelihoods for profit. Private equity firms and their enablers will continue to steal from America's healthcare system to feed their corporate greed unless we stop them. We need guardrails now to guarantee CEO wealth doesn't come before the public's health.
Industry leaders will want to keep a close eye on this bill now working its way through the halls of Congress and prepare to adjust their plans based on the ultimate outcome. Money is needed to fund the healthcare system. It will be up to government leaders to determine the extent to which equity firms can be a part of that process.