Bill would curb private equity in health care
mally filing, would require them to:
Disclose detailed financial information including the health care organization’s debt burden, fees and dividends paid to the private equity owner, lobbying and political spending, and real estate transactions such as sale-leaseback agreements, mortgages, and leases.
Set up an escrow account to cover operating and capital expenses for five years in the event of a closure or reductions of essential services.
Grant the Department of Health and Human Services a range of new powers to block acquisitions and other transactions by private equity investors.
“My goal is to place essential guardrails on private equity to protect patients,” Markey said in an interview. Unlike private equity takeovers of “widget makers or coffee companies, this is actually life and death. It’s not a metaphor, it’s reality,” he said.
Step back: Steward’s collapse, precipitated in large part by the profiteering of Cerberus Capital Management and the chief executive it put in charge, Dr. Ralph de la Torre, has turned a harsh spotlight on for-profit owners.
Markey’s legislation is similar to a House bill filed in March by Representative Pramila Jayapal, a Washington Democrat. And Senator Elizabeth Warren told my colleague Rob Weisman last week that she plans to propose banning health care entities that receive federal funding from selling or mortgaging their assets to real estate investment trusts so that investors “can no longer strip hospitals of their land and property, their operating rooms and nurseries.”
The Massachusetts Democrat also wants to hand the federal government new authority to claw back compensation from health care executives and Wall Street investors whose predatory financial engineering endangers the viability of a hospital.
If legislation incorporating many of the proposals above were to become law, it would make health care toxic for notoriously secretive PE firms and other privately held operators. It also would make it hard to pay themselves fat fees and dividends.
Reality check: Congress doesn’t get much of consequence done during a presidential election year. Moreover, private equity firms have proven themselves to be quite effective at defending their interests in Washington.
Consider the industry’s repeated success blocking efforts to repeal the advantageous tax treatment of so-called carried interest, or the cut of fund profits taken by private equity, venture capital, and hedge funds. Carried interest is usually taxed as a long-term capital gain, which has a top rate of 20 percent. Many critics argue that it should be treated as income, which has a top rate of 37 percent.
Even in 2017, when President Trump wanted to make good on his promise to eliminate the lower rate on carried interest, congressional Republicans balked.
Final thought: The health care system has to be inoculated from the excesses of for-profit owners. With federal action unlikely, the onus is on Governor Maura Healey, Attorney General Andrea Campbell, and the Legislature.
Massachusetts, however, is dominated by nonprofit providers. They face challenges unrelated to private equity. Expenses are rising, insurance reimbursement rates are inadequate, staff shortages are common.
Heywood Healthcare, a health care system based in Central Massachusetts, filed for Chapter 11 bankruptcy in October, citing a “substantially challenging operational infrastructure.”
If Beacon Hill doesn’t help shore up nonprofit health providers, it won’t matter what happens to private equity.