DAILY TRIFECTA: Money Never Sleeps Without Anesthesia
Private equity fulfills Dr. Gekko's prescription
EXCERPT: Why Steward Health Care’s Fate Was ‘So Predictable’
https://www.dmagazine.com/healthcare-business/2024/06/why-steward-health-cares-fate-was-so-predictable/
EXCERPT: Steward was formed when private equity firm Cerberus Capital bought Caritas Christi and rebranded it Steward in 2010. In 2016, Steward sold its Massachusetts properties to Medical Properties Trust for $1.25 billion and leased them back from the real estate investment trust. This system now had liquidity to expand but was also burdened by hundreds of millions of dollars in ever-increasing rent each year.
In 2020, Cerberus sold the system back to its doctors, turning a $800 million profit in ten years. Steward’s new ownership team paid itself a $100 million dividend, and the company’s CEO bought a $40 million yacht, according to the Lown Institute. In 2024, Medical Properties Trust went public about Steward’s $50 million in unpaid rent, and Massachusetts asked Steward to get out of the state.
In May, the system filed for bankruptcy, later announcing that it was planning to sell its physicians group and all its hospitals in the process. But according to Blatt, the system was likely doomed once it made itself a tenant in its old property. “Everything that happened was so predictable because of the sale and leaseback,” she says. “Medicaid and Medicare reimbursement does not go up three percent per year as rents do.”
After the 2008 recession, Blatt and a colleague began studying how capital markets can impact different industries and decided to focus on healthcare. As a private equity-owned system, Steward made the perfect case study for her studies. She published several white papers in the Institute for New Economic Thinking and Center for Economic and Policy Research focusing on the financial market’s impact on healthcare with titles like “Private Equity Buyouts in Healthcare: Who Wins, Who Loses?” and “Private Equity and Surprise Medical Billing: How Investor-owned Physician Practices Are Driving up Healthcare Costs.”
Blatt points to the sale and leaseback as the root of Steward’s downfall, as it has for others. Bankrupt clothing retailer Mervyn’s sued Cerebrus and another private equity firm for forcing into bankruptcy after a sale and leaseback in 2008, and senior living giant HCR ManorCare suffered the same fate after a sale and leaseback. J. Crew and Nine West also suffered bankruptcies after sale-leasebacks and private equity buyouts. While the sale gives the business cash to grow, it forces the company to pay increasing rent. Meanwhile, private equity companies can make money on the deal by just sitting on the land until the price goes up enough to sell, even if the business can’t make rent and fails.
A 2017 Steward deal paints the picture of where the value lies in these private equity transactions. Steward’s first interstate expansion after the sale of its property to MPT was to purchase eight hospitals from Community Health Systems for $311 million. The real estate for those hospitals was sold to MPT for $301.3 million shortly thereafter, meaning the eight hospitals were worth just $10 million. The value is in the land, and for a private equity company doing right by its shareholders, there isn’t much incentive to keep rents down and preserve an operator when more lucrative opportunities await.
“The real estate is more valuable, and the operating companies are worth almost nothing,” Blatt says. “Seventy-five to 95 percent of the value of these deals is in the real estate and buildings.”
TITLE: Bankruptcies, closures rock senior care across Pennsylvania
https://www.post-gazette.com/business/healthcare-business/2024/06/09/senior-care-centers-bankruptcy-pennsylvania/stories/202406090042
EXCERPT: Two industry executives, who own or operate dozens of nursing homes and who asked not to be identified, described the bankruptcies as the “tip of the iceberg” of coming facility insolvencies caused by inadequate government reimbursement for care, increased facility staffing requirements and labor shortages. Many more Pennsylvania nursing homes will go bankrupt or close in the coming months, the two officials predicted.
The 21 long term care facilities that recently went into bankruptcy represent 2,625 beds and virtually all of them are for-profit, investor-owned. Those will continue operating as usual for now, under the Chapter 11 filings.
But the moves signal instability in an industry that’s also being pinched by private equity investment strategies meant to squeeze profits from nursing home assets — sometimes at the expense of patient care, health care advocates say. The role of private equity investment in health care has gotten the attention of federal regulators, who in March began an investigation of the practice.
Pennsylvania is the U.S. poster child for a graying population, with about 20% of the population over age 65 and the ranks of the elderly increasing over 20 times faster than the state’s overall population between 2010 and 2017, according to U.S. Census data.
Caring for seniors historically was handled by nonprofits and church-related groups. Increasingly, those have been replaced by for-profit entities in the U.S. with inadequate government oversight, said Richard Mollot, executive director of the Long Term Care Community Coalition, a New York City-based nonprofit advocacy group.
“What’s new about this, in the past 20 years or so, is the increasing corporatization of the nursing home industry and an increasing number of predatory investors,” he said. “They’ve become very sophisticated in extracting profits and resources in ways we had not previously seen.”
There’s nothing new about private money in senior care — about 70% of nursing homes in the U.S. are for-profit, according to a 2023 study. What’s different is how investors maximize revenue, which can strain facility balance sheets and lead to staffing cuts and other problems as the need for generating returns clashes with the cost of caring for society’s most vulnerable residents.
TITLE: Private equity is getting into the c-section game in Florida; we have questions
https://lowninstitute.org/private-equity-is-getting-into-the-c-section-game-in-florida-we-have-questions/
EXCERPT: As American mothers already face high rates of maternal mortality and complications, quality of care is a huge concern. While the new Advanced Birthing Centers in Florida are focused on insured, low-risk patients, doctors note that dangerous complications can occur with any patient. Cole Greves, an Orlando perinatologist, told KFF Health News, “A pregnant patient that is considered low-risk in one moment can suddenly need lifesaving care in the next…even with increased regulation, [these Advanced Birthing Centers] cannot guarantee the level of safety patients would receive within a hospital.”
Private equity-owned practices in cardiology, dermatology, gastroenterology, ophthalmology, and dentistry have been known to increase their profits by churning out tests and procedures, some of which may be unnecessary. Will we see the same thing happen in maternity care? For example, c-sections put mothers at great risk and are already commonly overused.
C-sections make up around one third of births in the U.S., and can be life-saving in certain cases–but they come with risks. Women who have c-sections are 80% more likely to develop complications, and pregnant women over age 35 (a growing trend) face particularly high rates of severe complications. They can also increase the risk of complications in future pregnancies, meaning that the use of unnecessary c-sections can prohibit mothers from having more children without risk to their lives. Reasons like these factor into why the U.S. Department of Health and Human Services has made reducing the rates of cesarean births a goal for the past few decades.
C-sections, on average, are 15% more profitable for clinics than vaginal births, and some research shows that when there’s no profit incentive, the rate of c-sections goes down.
Given that most c-sections can be both scheduled and profitable, it makes sense that private equity would want to maximize this line of revenue. That should worry patients and providers, who want to ensure the most appropriate and safest care possible is provided.
SEE ALSO:
California could curb private equity health deals
https://www.benefitspro.com/2024/06/10/california-could-curb-private-equity-health-deals/?slreturn=20240611133057
Warren proposes jail time for 'corporate greed' in health care
https://www.wbur.org/news/2024/06/11/elizabeth-warren-health-care-jail-massachusetts-steward