Citing Steward Health, lawmakers take aim at private equity in health care

Lawmakers on Beacon Hill heard testimony Monday around how health care has become increasingly attractive to for-profit companies. Experts warned that without stronger regulation, this could destabilize the health care system and come at the expense of patient care.

The hearing about private investments in health care focused primarily on the financial challenges facing Steward Health Care, one of the nation's largest private, for-profit hospital chains, and the uncertain fate of its nine Massachusetts facilities.

In remarks that opened the meeting, state Sen. Cindy Friedman referenced concerns shared by many health care leaders that Steward could shutter hospitals in the state, causing hardships for a health care system already struggling to serve all of the patients seeking care.

"The recent events concerning Steward Health System have exacerbated a crisis that has existed and exists across all aspects of health care delivery in the commonwealth, from primary care to hospital systems to long-term care," said Friedman, a Middlesex Democrat and co-chair of the Joint Committee on Health Care Financing. "While there are many factors that are destabilizing the delivery system, the entry of profit-driven entities in health care has and does play a key role."

Steward is facing losses and has said it plans to leave Massachusetts. State officials have been negotiating with various financial, legal and health care executives and experts about how to ease the transition. Gov. Maura Healey has said the state will not provide a bailout for Steward.

The health care industry has become increasingly attractive to for-profit companies, particularly private equity firms that tend to focus on short-term profits.

Academic experts who testified at the hearing said private investments in U.S. health care have skyrocketed over the past decade, with more than 400 hospitals now owned by private equity firms. The experts said their research suggests that when facilities are acquired by private equity, patient outcomes are worse, staffing is reduced and patients have less access to care.

In Massachusetts, most health care is delivered by nonprofit companies. But the share of health care transactions involving private equity has steadily increased over the last decade, according to David Seltz, executive director of the state's Health Policy Commission. He presented an analysis that found 63% of purchases and sales of health care providers in Massachusetts between 2020 and 2023 involved private equity firms. That was up from 25% between 2013 and 2016.

Many of the private equity transactions involved facilities offering treatment for behavioral health and substance use disorders, he said.

Seltz told lawmakers that in this environment, state agencies need more power to oversee the health care system, monitor the quality of care and protect patients.

"The need for urgent action could not be greater," Seltz said, "to ensure that all organizations in our health care system are operating in good faith."

Dr. Zirui Song, director of research at Harvard Medical School and a physician at Massachusetts General Hospital, said private equity has saved hospitals — which can be important, especially in rural or underserved communities. The challenge, he said, is making sure patient care doesn't suffer after private equity gets involved.

On average, when private equity firms have invested in hospitals, "the benefits hoped for, for patients and for society, and indeed for investors, haven't panned out in a way that's beneficial for patients and taxpayers and workers," Song said.

He suggested that better guardrails might help safeguard patient care, while still allowing investors to benefit.

Seltz recommended stronger transparency requirements for health care companies about their ownership and interests. As an example, Seltz cited the 2016 deal in which Steward sold its hospital real estate to Medical Properties Trust, a real estate investment firm, for $1.2 billion, then agreed to lease back the properties at a significant cost. The hospital chain used part of the proceeds from the sale to pay back Cerberus, its private equity backer at the time.

Seltz said the Health Policy Commission was not made aware of the deal before it was finalized, and had no ability to evaluate the potential implications for Steward hospitals or their patients.

Medical Properties Trust, one of the largest hospital landlords in the nation, has said Steward is one of its largest tenants and owes more than $50 million in back rent.

Cornell University Professor Rosemary Batt, who has studied Steward and real estate investment trusts, told lawmakers Medical Properties Trust invests in hospitals that are important to communities, "almost like banks that are too big to fail." Even if a hospital operator can't afford the rent, she said, the company expects a community or state will step in to keep it running.

"Fundamentally what we are looking at is a real estate deal rather than a health care deal," Batt said.

Batt also told lawmakers that both Steward and Medical Properties Trust are companies at risk of "mutually collapsing." She said it's likely any new owner of Steward hospitals would have to assume the rental deals Steward made with Medical Properties Trust.

Some of the recommendations at Monday's hearing included expanding state oversight of health care transactions, increasing penalties for health care operators that do not comply with state regulations, requiring a public database where health care ownership is easily identifiable and giving more authority to the state attorney general to block some deals.