With Steward's struggles on full display, clinicians, lawmakers sound the alarm on private equity's impact on healthcare

Steward Healthcare, UnitedHealth Group’s Optum, HCA Healthcare and a laundry list of private equity investors were in the firing line of a congressional field hearing on “corporate greed” in healthcare held Wednesday.

The session was hosted by Sen. Edward Markey, D-Massachusetts, chair of the Senate Health, Education, Labor and Pensions (HELP) Subcommittee on Primary Health and Retirement Security and joined by fellow progressive Sen. Elizabeth Warren, D-Massachusetts.

Both lawmakers used the session to highlight proposed legislation they said will address the conflicting interests of profit-seeking investors and quality care delivery, with Markey unveiling and seeking public comment on a discussion draft that would increase ownership transparency.

The hearing was held at the Massachusetts State House, reflecting state leaders’ increasing frustration with the floundering for-profit health system. The lawmakers and invited witnesses directly attributed its financial struggles to the influence of its former private equity owner, Cerberus Capital Management. The company’s CEO, Ralph de la Torre, M.D., was invited to participate as a witness but declined to attend.

Had he been in attendance, the executive would have found himself outnumbered in a hostile room. The senators and witnesses broadly condemned de la Torre for permitting Cerberus to overleverage the company with debts before exiting with a $800 million profit in 2020, which in recent months has jeopardized care access due to resulting sell-offs and closures.

“Dr. de la Torre promised to deliver really good healthcare, but he failed the health providers, he failed communities and he failed to show up here today to answer even the most basic questions about what he has done,” Markey said in the session’s opening comments. “Dr. de la Torre’s chair is as empty as the promises he made to the public.”

Ellana Stinson, M.D., an emergency medicine physician, president of the New England Medical Association and formerly a clinician at a Steward-owned hospital and other locations backed by private equity, said she was able to see firsthand how “resources were being bundled down and pulled from each facility.”

She stressed that such practices are becoming common throughout the country, particularly among struggling facilities that are treating a higher proportion of vulnerable patients.

Responding to questions from Warren, she said that when the Steward hospital she worked in had its real estate sold to Medical Properties Trust for $260 million, her department didn’t see any evidence of reinvestment into the clinical workforce or infrastructure beyond the addition of “maybe five extra ER rooms.”

“So Steward sells its hospital buildings, for a total … of more than a billion and a quarter dollars, and yet none of the money or very little of the money seems to have been used to support the doctors, the nurses, the other workers, patient care,” Warren replied. “If Cerberus didn’t use this windfall to increase wages, to reinvest money back to Steward’s hospitals, where did it go? That’s a lot of money.”

“It went to Cerberus,” responded Eileen O’Grady, research and campaign director for the Private Equity Stakeholder Project, a nonprofit that seeks to increase transparency into private equity practices. “Almost $500 million went straight to Cerberus, and the rest of it was used to fund a rapid, massive expansion strategy by Steward.”  

"Very, very difficult to know what's going on"

The scrutiny and discussion extended to other major for-profit players within the healthcare industry.

HCA Healthcare, a major for-profit health system which had a $3.8 billion initial public offering in 2011 that was a record breaker for private equity, has maintained a strategy of limiting staff and prioritizing profits over care, said Hannah Drummond, a registered nurse at HCA-owned Mission Hospital and the chief nurse representative for an affiliate of National Nurses United. She said she immediately began seeing “concerning changes” at her hospital surrounding supplies and staffing after the hospital was acquired by the chain, and management’s choice to ignore nurses’ concerns led them to organize.

Mission Hospital has received multiple deficiency warnings in recent months that have threatened its Medicare funding.

“At the end of the day, their No. 1 priority is their shareholders and their profits, which is in direct conflict with patient care,” she told Markey during Q&A. “[Mission Health is] the second most profitable hospital system in HCA … and yet they refuse to staff us properly and give us the resources we need. And ultimately, patients suffer and die.”

Last week. Steward filed with Massachusetts state regulators to sell its physician group to UnitedHealth Group’s Optum—the country’s largest employer of physicians—for an undisclosed sum, which Warren said is likely to be “hundreds of millions of dollars.”

Though the deal “has been spun” as a safety line for Steward’s operations, the senator said she is worried that much of the money could find its way into investors’ pockets and can “not understand how regulators can approve such a deal.”

Responding to her questioning, Donald Berwick, M.D., a former health policy adviser to the White House and now president emeritus and senior fellow at the Institute for Healthcare Improvement, stressed that both Steward and Optum “operate under conditions [with] a lack of transparency that make it very, very difficult to know what’s going on.”

He said he feared, but couldn’t know for certain, Warren’s suspicion that money from the deal could be redirected away from Steward’s struggling hospitals—though the end result of Optum’s greater market share was easier for him to predict.

“[Optum is] absolutely the world’s experts on upcoding; they actually own companies for the purpose of upcoding,” he said. “They have done that all over the country, and I suspect that we’re going to see costs rise.”

When asked for recommendations on policy changes to address the issues, Berwick and O’Grady  pointed to a combination of transparency, oversight and changes in healthcare providers’ governance.

On the former, Berwick recalled Steward refusing “with no consequences” to share requested information with Massachusetts’ Health Policy Commission, on which he had served. O’Grady said that her group is generally only able to “get a glimpse” of private equity firms’ extracted debt-funded dividends and fees from the companies they own “because they have to report this to another financial institution, the banks. So really, the only disclosures that I end up seeing are only available to me because they’re meant to protect the banks.”

These investors, they said, are incentivized to run healthcare organizations with a goal of amplifying short-term cash flow and, thanks to a lack of transparency and little oversight, aren’t penalized when a provider later finds itself underwater. Here, O’Grady highlighted data gathered by her group showing that more than a fifth of healthcare bankruptcies in the last year were among private-equity-owned companies, and that 90% of healthcare companies considered most at-risk of bankruptcy are owned by private equity firms.

“I don’t think that these investors are setting out to drive these companies into bankruptcy; it’s that their interests are misaligned, and it is a broken business model that fully relies on extracting profit out of these hospital systems. They have everything to gain and very little to lose,” she said.

To realign health systems’ priorities, Berwick called for regulatory changes to the makeup of their governing boards. He pointed to a study that found just 14% of board members for the country’s largest health systems have any experience with patient care and said he believed that number should be closer to 50% for for-profit healthcare entities.

“Who else is sitting in those seats? Guess what: private equity investors, real estate investors,” he said.  “And they’re good-hearted people, but they think the mission is to accumulate. That’s not the mission. The mission is to do whatever it takes to help patients, and so something’s got to change.”

During the session, Markey revealed a discussion draft for new legislation, the Health over Wealth Act, that would “require greater transparency in health care entity ownership; put safeguards in place to protect workers and preserve access to health care; and elevate the voices of workers and communities in regulating health care and monitoring hospital closures and service reductions,” according to his website. The draft is open to public comment.

Warren, meanwhile, reiterated the need for Congress to pass her Stop Wall Street Looting Act, which puts guardrails on payouts to investment firms from portfolio companies and exposes those firms to the liabilities their companies incur.  

In statements and a release provided to Fierce Healthcare on Tuesday, the American Investment Council, a lobbying group representing private equity, said the legislators were “wrongly blaming private equity” for Steward’s troubles and that Wednesday’s field hearing was pursuing “a factually deficient, politically motivated agenda.”

“Private equity has a long history of strengthening U.S. healthcare and improving the lives of millions of Americans, including in Massachusetts,” Drew Maloney, the group’s president and CEO, said in a statement. “Unfortunately, headline-seeking politicians continue to place misguided blame on our industry instead of pursuing sound policymaking to address systemic challenges head-on. Private equity will make targeted health sector investments that advance progress, drive life-saving innovation, and support the livelihoods of nearly 260,000 hardworking employees at Bay State-based companies.”

Conversely, the hearing drew strong praise from the Coalition for Patient-Centered Care, a group of industry stakeholders that opposes private equity’s increasing ownership of physician groups. In a letter submitted into the record at the field hearing, it said that investors who acquire independent physician groups limit clinicians’ care decisions, leading to “decreased quality of care for patients, increased cost of care for public and private payors, and deteriorating working conditions for employees.”