Healthcare Bankruptcies Spark Fury at Financial Deal-Makers
A wave of healthcare bankruptcies has ignited public outrage, prompting lawmakers to draft tough new curbs on financial deal-makers in the industry. However, these efforts are fizzling out, and the short-term risk of more rigid rules for financial deal-makers in the healthcare industry is diminishing.
California and Massachusetts Lead the Charge
California Governor Gavin Newsom vetoed legislation that would have enabled the state to block private equity deals for most healthcare facilities. Similarly, in Massachusetts, a bill that would have increased scrutiny of private equity and real estate firms is stuck in legislative limbo.
Private Equity Under Fire
Critics argue that private equity firms often prioritize cost-cutting over patient care, leading to staff reductions and adverse health outcomes. According to the Private Equity Stakeholder Project, private equity-backed companies accounted for about a fifth of bankruptcies in the healthcare sector last year.
The Steward Health Care Saga
The bankruptcy of Steward Health Care, one of Massachusetts’ largest hospital operators, sparked widespread outrage. The hospital chain filed for bankruptcy with $9.15 billion in reported liabilities, the most out of any other company so far this year. The story of Steward’s rise and fall is complicated, involving private equity firm Cerberus Capital Management and real estate investment trust Medical Properties Trust Inc.
Pinpointing Blame
Lawmakers struggle to pinpoint blame for business bust-ups, as the story of Steward’s collapse underscores. Singling out financial deal-makers for stricter scrutiny risks sending a message to startups in industries that rely on venture capital funding that they should establish themselves in states with friendlier regulations.
A Call for Guardrails
Massachusetts Governor Maura Healey believes there is a role for private equity in healthcare, but the question becomes how to define that role and establish guardrails. Other states, including Indiana, have enacted laws that require special notice of certain healthcare transactions but stop short of conferring outright blocking powers.
The Future of Healthcare Reform
With federal action already a long shot, future debate is likely to center around a less radical search for ways to rein in potentially risky practices, including more comprehensive disclosure requirements. Lawmakers will need to find a balance between making a difference and avoiding unintended consequences.
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