The top Democrat and Republican on a powerful Senate committee launched a wide-ranging investigation into private equity’s impact on the U.S. health care system on Wednesday. Democratic Sen. Sheldon Whitehouse of Rhode Island and Republican Sen. Charles Grassley of Iowa sent letters to a constellation of financial firms seeking information about how their dealings in the healthcare space impact patient care.
“The American people deserve to understand the role that PE [private equity] firms play — and any potential resulting negative financial or patient care impacts — in the delivery of their health care,” wrote the senators, who lead the Senate Budget Committee.
As part of the inquiry, the senators are also seeking information related to certain transactions that were the focus of a recent CBS News investigation into the collapse of hospitals serving some of America’s most vulnerable residents.
“As private equity has moved into health care, we have become increasingly concerned about the associated negative outcomes for patients,” Whitehouse said in a statement to CBS News. “From facility closures to compromised care, it’s now a familiar story: private equity buys out a hospital, saddles it with debt, and then reduces operating costs by cutting services and staff — all while investors pocket millions. Before the dust settles, the private equity firm sells and leaves town, leaving communities to pick up the pieces.”
The pair of senators wrote to the heads of two firms — Prospect Medical Holdings and Medical Properties Trust — that CBS News found had siphoned hundreds of millions of dollars from hospital operations in Pennsylvania and San Antonio, Texas. Drained of funds, critical care facilities there subsequently shut down. The senators are also seeking information from a third company, Los Angeles-based private equity giant Leonard Green and Partners, which they allege was “deeply intertwined” with the other two firms.
With investment from Leonard Green and Partners, Prospect Medical Holdings rapidly grew from owning five Los Angeles-based hospitals in 2010, to 20 hospitals in six states by 2018. Five of those hospitals have since closed, including the century-old Delaware County Memorial Hospital in suburban Philadelphia. Last November, Pennsylvania’s Health Department shut the hospital down after learning it was inadequately staffed by Prospect Medical Holdings.
Last year, CBS News reported on a series of financial moves executed by Prospect Medical Holdings’ management that drove the company deep into debt before the closure. The first was in 2018 when the company’s owners took out a $1.12 billion loan and paid themselves a $457 million dividend. The company’s then-CEO Sam Lee, who is now chairman of its board, took home about $90 million.
“It’d be like a homeowner going to a bank, taking out a $100,000 loan, and instead of using it to invest in their property or pay for their kids to go to college, what they did was they just basically stuck it in their pockets as cash,” Rhode Island Attorney General Peter Neronha told CBS News last year.
After paying themselves the $457 million dividend, the owners of Prospect Medical Holdings then sold off the land and the buildings of the Pennsylvania health system that includes Delaware County Memorial Hospital to the Birmingham, Alabama-based Medical Properties Trust. The transaction, which is called a sale-leaseback, meant the Pennsylvania health system owed $35 million a year in rent to Medical Properties Trust, which has bought up the real estate of nearly 200 U.S. hospitals, often in low-income communities.
In a statement to CBS News following the announcement of the senators’ probe, a spokesperson for Medical Properties Trust said the firm’s “real estate investments have made substantial amounts of capital available that may be used to further invest in facility improvements, technology upgrades and other investments in operations which benefit the long-term health of communities.”
“In some cases, operators have used [Medical Properties Trust’s] real estate capital to acquire and continue to operate hospitals that otherwise very likely would have closed permanently,” the spokesperson said.
Yet CBS News found at least one case where a hospital’s rent obligations to Medical Properties Trust may have contributed to its closure. In April, the 356-bed Texas Vista Medical Center in San Antonio shut its doors for good, leaving the city’s majority-Hispanic south side without a primary health care option nearby.
“The nearest hospital is between 12 to 15 minutes away from our facility, and if you’re having a stroke or a heart attack, time is of the essence,” respiratory therapist Jessica Carrasco told CBS News in April.
For executives at Medical Properties Trust, buying hospital real estate has been lucrative. According to the company’s SEC filings, from 2017 to 2021, salary, bonuses and stock awards amounted for its CEO, Edward Aldag, totaled about $70 million.
The Senate probe was first reported by NBC News. A spokesperson for Prospect Medical Holdings didn’t not immediately respond to a request for comment, nor did a spokesperson for Leonard Green and Partners, who acknowledged receiving the letter from the senators.
State investigations
In recent months, regulators have taken fresh steps to rein in Prospect Medical Holdings in states where it still operates hospitals.
Neronha, who previously blocked Prospect Medical Holdings from selling off the real estate of their two hospitals in his state, sued the company last month for failing to pay its debts. According to the lawsuit, the hospitals owe more than $24 million to its vendors, “jeopardizing the financial health and stability of the hospitals, and ultimately patient care.”
Pennsylvania’s Attorney General agreed in October to suspend its own lawsuit against Prospect Medical, as long as the company sold its health system there to a nonprofit operator by July. State legislators have introduced a bill that would give the AG’s office the power to regulate all major hospital transactions.
“The AG’s office would be required to review sales and mergers, and then make a determination in order to mitigate damage to the public,” said State Senator Tim Kearney, one of the bill’s co-sponsors.
And in Connecticut, where Prospect Medical has been negotiating the sale of its three hospitals to the Yale University’s health system for more than a year, a spokesperson with the attorney general’s office confirmed to CBS News an investigation into the company’s financial practices has been launched.
