Efforts by two private equity firms to extract profits from hospitals located in underserved communities are putting patients at risk, according to a new report released Tuesday by a powerful Senate committee.
162-page Senate Budget Committee report comes as Americans continue to express outrage at the role of corporations in the American health care system, following the assassination in December of the CEO of the country’s largest health insurer. And its findings add to a chorus of lawmakers trying to tackle the harmful impact of private ownership on critical U.S. hospitals – a topic that has been the subject of a two-year CBS News investigation.
“Private equity has infected our health care system, putting patients, communities and providers at risk,” said Sen. Sheldon Whitehouse, a Rhode Island Democrat who led the investigation with Sen. Chuck Grassley, a Republican from Iowa.
“As our investigation revealed, these financial entities put their own profits over patients, resulting in health and safety violations, chronic understaffing and hospital closures,” said Whitehouse.
In September, another Senate committee took the extraordinary step of vote to keep Ralph de la TorreCEO of Steward Healthcare, for contempt of Congress when he refused to appear after receiving a subpoena. CBS News documented how he and private equity investors squeezed hundreds of millions of dollars out of the company before this one declaring bankruptcy last May.
The latest Senate investigation has uncovered thousands of documents detailing the financial maneuverings of two private equity firms: Leonard Green & Partners and Apollo Global Management. Investigators concluded that private equity’s financial model could pose “a threat to the nation’s health care infrastructure, particularly in rural and underserved areas.”
“During its investigation, this committee obtained more than a million pages of new documents that shed light on the business dealings of these PE-owned hospital operators and highlighted concerns about the harmful effects of ownership of EP on hospitals and their patients nationwide. The Senate investigators wrote, emphasizing that their findings should serve as a road map for reform.
A spokesperson for Leonard Green said he had not received the report, but disagreed with the committee’s findings shared by CBS News.
An Apollo spokesperson said the company invested billions in the hospital companies it acquired, which were used to improve facilities, expand services, upgrade technology and hire new staff.
Accusations of financial mismanagement
In 2010, Leonard Green & Partners acquired a California-based hospital company called Prospect Medical Holdings. As Leonard Green executives and Prospect Medical executives sought to turn a profit, the Senate committee documented what it called “overwhelming evidence of financial mismanagement” that led hospitals in five states to cut their services or to close completely.
Prospect Medical hospitals that have closed include the Delaware County Memorial in suburban Philadelphiawhich closed in 2022, a year after Leonard Green exited his stake in Prospect Medical.
CBS News
The report notes that that same year, Sam Lee, CEO of Prospect Medical, “invested heavily” in improving his property in Aspen, Colorado, one of two homes he owns worth a combined of $20 million, according to records obtained by Senate investigators.
Investigators said they also obtained documents showing Leonard Green “exercised significant control” over Prospect Medical’s finances and operations.
In addition to holding the majority of seats on Prospect Medical’s board of directors, Leonard Green executives granted stock options to Prospect Medical executives to meet their financial goals, but did not provide similar incentives for “improving quality and patient safety,” the report notes.
Meanwhile, Prospect Medical has paid hundreds of millions of dollars in dividends to its executives, including $457 million in 2018. CBS News previously reported Lee took home about $90 million while Leonard Green shareholders received a total of about $275 million, payments that depleted the company’s cash reserves, according to Senate investigators.
“In 2019, the company faced $2.8 billion in liabilities, underperforming hospitals, and the collapse of essential health services in the communities it served,” the investigators wrote. Senate.
The company told the Senate Budget Committee that it rejects any implication that Prospect Medical was operated in a financially irresponsible manner or that Leonard Green “put its financial interests ahead of those of the hospital system and the communities it serves.” .
A Leonard Green spokesperson denied that Prospect Medical was in trouble when it exited, writing in a statement that the company was “in a strong financial position with access to more than $500 million to support its operations.” “. Spokesman Leonard Green said this allows Prospect Medical to invest in previously closed or bankrupt hospitals.
“Over the past three years of Leonard Green’s investment, more than $200 million has been invested to improve and expand the hospital’s operations,” the spokesperson said.
In a statement, a Prospect Medical spokesperson said the report drew false conclusions and omitted key facts.
“The Committee has drawn broad conclusions about the quality of care in our hospitals without ever reviewing information from those hospitals, where the focus is on care, rather than at the corporate level,” the committee wrote. spokesperson in a statement, noting that the company has invested more than $750 million in its hospitals and provided more than $900 million in charitable and uncompensated patient care.
“Nearly all of the hospitals Prospect acquired were cash-strapped, neglected, in disrepair and on the verge of closure or bankruptcy,” the spokesperson wrote. “In almost all cases, no one else wanted to acquire them, and many were on the verge of going out of business. »
Pennsylvania recently moved to take control of Prospect Medical’s hospitals in the state to prevent the company from further suspending its services. In a lawsuit filed in November, the state attorney general claimed that years of mismanagement and negligence by the company had left hundreds of thousands of Pennsylvanians without care.
And problems at Prospect Medical’s hospitals persisted. The day after Christmas, a water main broke at another facility in suburban Philadelphia caused a flood, then a fire, which forced the evacuation of 38 patients.
“Broken promises and underinvestment”
The Senate report also traced what investigators called “broken promises and underinvestment” at Ottumwa Regional Health Center, a rural Iowa facility operated by a hospital company owned by Apollo Capital Management.
Among their most alarming conclusions, investigators say that “financial factors” could have contributed to the continued employment of a nurse who sexually assaulted at least nine female patients while they were sedated, before dying of a drug overdose.
“It was discovered that staff were concerned about (the nurse’s) behavior prior to her death and escalated at least some of these concerns, but no substantive action was taken in response,” investigators wrote of the Senate, citing the cost of replacing a nurse and staff. lack of adequate staff.
“The Ottumwa community has personally felt the impact of private equity on its health care system,” Grassley said. “The decline in quality of care, availability of services and capacity for care at the hospital is forcing Ottumwa residents to travel significant distances in order to receive appropriate treatment.
According to the report, Apollo told the committee that rural hospitals “have faced challenges for decades, in part due to underinvestment,” and that it plans to do “the opposite by investing in and supporting businesses.” like the one who manages Ottumwa.
In a statement, an Apollo spokesperson told CBS News that as a result of its investments, the quality of care has improved and the hospital company it owns has not had to close a single facility.
Still, the committee said its findings reflected persistent underinvestment. The report alleges that Apollo and its partners failed to meet certain legally binding commitments since acquiring the hospital in 2015, including maintaining access to services, establishing and implementing an outpatient substance abuse treatment program and maintaining his or her charitable care obligations.
“Regardless of the challenges of managing rural hospitals, Apollo profited immensely from its ownership of the hospital portfolio that contains (Ottumwa), while failing to make the investments committed and necessary to (Ottumwa),” investigators wrote of the Senate, noting that the hospital was one of approximately 220 U.S. hospitals operated by Apollo-owned hospital companies.