Investor sues UHS execs, alleging ‘unfair’ stock gains amid pandemic

The US should tax excessive CEO compensation

A Universal Health Services investor is suing several executives of the King of Prussia, Pa.-based system, alleging they unjustly enriched themselves through stock options amid the pandemic, according to Law360

The lawsuit, filed in the Delaware Chancery Court and made public July 9, accuses UHS executives and directors of taking advantage of a pandemic-related temporary hit in the company’s stock price and argues taking the stock options was “grossly unfair to the company and its stockholders.”

“The controllers and other company insiders took advantage of the temporary drop in the company’s stock price to grant and receive options to buy the company’s stock at rock bottom prices, thereby showering themselves in excessive compensation,” the lawsuit claims.

In particular, the lawsuit claims that in just 12 days after the stock options were granted, defendants made over $30 million in gains. 

Several top execs were named as defendants, including Alan Miller, UHS founder and chair and Marc Miller, CEO and president of UHS. Three other UHS execs were named, as well as Warren Nimetz, an administrative partner of law firm Norton Rose Fulbright’s New York office.

“UHS’s directors and officers deny any liability associated with the company’s routine and publicly disclosed options grant in March 2020,” attorney Matthew Madden of Robbins Russell Englert Orseck & Untereiner, representing UHS, its executives and Mr. Nimetz, told Law360. “The options grant was in line with the company’s compensation practices in prior years and took place at a board meeting scheduled months in advance.”

Mr. Madden added that UHS’ executives and officials “acted properly” and that the plaintiff’s claims are “baseless.” 

“UHS is proud of its service to patients, and stewardship of investor capital, during these unprecedented times in the healthcare industry,” Mr. Madden told Law360.

The lawsuit was filed by Robin Knight. 

Biden administration begins to implement a ban on surprise bills

https://mailchi.mp/bfba3731d0e6/the-weekly-gist-july-2-2021?e=d1e747d2d8

Biden Faces Health Industry Fight Over New 'Surprise' Billing Ban

On Thursday, the Biden administration issued the first of what is expected to be a series of new regulations aimed at implementing the No Surprises Act, passed by Congress last year and signed into law by President Trump, which bans so-called “surprise billing” by out-of-network providers involved in a patient’s in-network hospital visit.

The interim final rule, which takes effect in 2022prohibits surprise billing of patients covered by employer-sponsored and individual marketplace plans, requiring providers to give advance warning if out-of-network physicians will be part of a patient’s care, limiting the amount of patient cost-sharing for bills issued by those providers, and prohibiting balance billing of patients for fees in excess of in-network reimbursement amounts.

The rule also establishes a process for determining allowable rates for out-of-network care, involving comparison to prevailing statewide rates or the involvement of a neutral arbitrator, but falls short of specifying a baseline price for arbitrators to use in determining allowable charges. That methodology, along with other details, will be part of future rulemaking, which will be issued later this year.

Of note, the rule does not include a ban on surprise billing for ground ambulance services, which were excluded by Congress in the law’s final passage—even though more than half of all ambulance trips result in an out-of-network bill. Expect intense lobbying by industry interests to continue as the details of future rulemaking are worked out, as has been the case since before the law was passed.

While burdensome for patients, surprise billing has become a lucrative business model for some large, investor-owned specialist groups, who will surely look to minimize the law’s impact on their profits.

Tenet to sell 5 Florida hospitals for $1.1B as it doubles down on surgery centers

Simultaneous Surgeries: Both Sides of the Debate Double Down

Dive Brief:

  • Tenet, a major U.S. health system, has agreed to sell five hospitals in the Miami-Dade area for $1.1 billion to Steward Health Care System, a physician-owned hospital operator and health network.
  • The deal also includes the hospitals’ associated physician practices. Dallas-based Steward has agreed to continue using Tenet’s revenue cycle management firm, Conifer Health Solutions, following the completion of the deal, which is expected to close in the third quarter.
  • Further underscoring Tenet’s strategic focus, the sale will not include Tenet’s ambulatory surgery centers in Florida. Tenet will hold onto those assets as its ambulatory business becomes a bigger focus for the legacy hospital operator.  

Dive Insight:

Dallas-based Tenet continues to bet on its ambulatory surgery business.

It’s noteworthy that this latest billion-dollar sale does not include any of its surgery centers in Florida, but half of its hospitals. Jefferies analyst Brian Tanquilut said the ambulatory segment now becomes even more important as it will contribute a majority of consolidated earnings in the near term. 

That’s a significant leap from 2014 when earnings from the ambulatory unit represented about 4% of the company’s earnings. 

The money generated from the sale could also pay for more ASCs, under Tenet’s unit, United Surgical Partners International (USPI), further bulking up Tenet’s ASC portfolio that already outnumbers its competitors.  

Tenet is traditionally viewed as a hospital operator, even though its surgery center footprint dwarfs its hospital portfolio. Tenet operates 310 ASCs following a $1.1 billion deal in December to acquire 45 centers from SurgCenter Development. Tenet said Wednesday it operates 65 hospitals.  

Of Tenet’s 10 Florida hospitals, Steward will buy up half, including Coral Gables Hospital, Florida Medical Center, Hialeah Hospital, North Shore Medical Center and Palmetto General Hospital.

Tanquilut said that leaves Tenet in control of its “core” south Florida business in the Boca and Palm Beach market, located about 75 miles north of the Miami area where Tenet is selling its hospitals.

During the volatile year of 2020, Tenet was able to post a profit of $399 million for the full year, which includes provider relief funding. As recovery continues, Tenet posted a profit of $97 million during the first quarter, which also includes federal relief due to the pandemic.

UnitedHealthcare temporarily delays a controversial policy

https://mailchi.mp/66ebbc365116/the-weekly-gist-june-11-2021?e=d1e747d2d8

UnitedHealthcare delays ED policy; ACR says 'flawed' rule may violate  patient protection laws

Facing intense criticism from hospital executives and emergency physicians, the nation’s largest health insurer, UnitedHealthcare (UHC), delayed the implementation of a controversial policy aimed at reducing what it considers to be unnecessary use of emergency services by its enrollees.

The policy, which would have gone into effect next month, would have denied payment for visits to hospital emergency departments for reasons deemed to be “non-emergent” after retrospective review. Similar to a policy implemented by insurer Anthem several years ago, which led to litigation and Congressional scrutiny, the UHC measure would have exposed patients to potentially large financial obligations if they “incorrectly” visited a hospital ED.

Critics pointed to longstanding statutory protections intended to shield patients from this kind of financial gatekeeping: the so-called “prudent layperson standard” came into effect in the 1980s following the rise of managed care, and requires insurance companies to provide coverage for emergency services based on symptoms, not final diagnosis. UHC now says it will hold off on implementing the change until after the COVID-19 national health emergency has ended, and will use the time to educate consumers and providers about the policy.

Like many critics, we’re gobsmacked by the poor timing of United’s policy change—emergency visits are still down more than 20 percent from pre-pandemic levels, and concerns still abound that consumers are foregoing care for potentially life-threatening conditions because they’re worried about coronavirus exposure. Perhaps UHC is trying to “lock in” reduced ED utilization for the post-pandemic era, or perhaps they never intended to enforce the policy, hoping that the mere threat of financial liability might discourage consumers from visiting hospital emergency rooms.

While we share the view that consumers need better education about how and when to seek care, combined with more robust options for appropriate care, this kind of draconian policy on the part of UnitedHealthcare just underscores why many simply don’t trust profit-driven insurance companies to safeguard their health.
 

North Carolina AG gets 116 complaints about Mission Health

A concerning number,' Attorney General describes recent Mission Health  complaints filed | WLOS

The North Carolina attorney general’s office received 116 complaints about Asheville, N.C.-based Mission Health over a 12-month period, WLOS reported June 8. 

WLOS reported that most of the complaints were related to billing issues, 23 percent were concerns over quality of care, 16 percent were related to cost of service, 7 percent were from employees or former employees of Mission Health and 5 percent were related to charity care requirements.

“It’s a concerning number, 116 over a year,” Attorney General Josh Stein told WLOS. “That’s a lot, so we’re sharing our serious concerns with the management of the health system and we are going to be on top of this to the extent we possibly can.”

Mr. Stein told the publication that his office recently dedicated one of his employees to keeping track of all the complaints about Mission Health.

Mission Health was acquired by Nashville, Tenn.-based HCA Healthcare in 2019. HCA agreed to certain commitments as part of the deal, including keeping major Mission Health facilities open and continuing to provide certain services.

Since the acquisition, there have been a number of physician exits from the health system, and an independent monitor is looking into the reason behind the exits.

Mission Health shared the following statement with WLOS:

“Since January of 2021, we are aware of 15 complaints made to the Attorney General’s office, nine of which were related to billing and all of which have been resolved. We address every issue the Attorney General’s office brings to our attention promptly—both with them and the patient. Our patient care is our first priority. We strongly encourage everyone to contact us directly any time there is a concern so we can address it with them immediately and personally.

Going back to 2020, the majority of billing concerns were made shortly after acquisition of Mission and primarily regarded questions around changes to medical practice operations and a variety of billing issues all of which were resolved. Any patient or guarantor with billing questions or concerns should contact 833-323-0834 and we are happy to discuss, answer any questions you may have, and seek resolution where needed. Further, we have an email address, contactmission@hcahealthcare.com, where people can reach out to us on any matter.”

ACLA appeals dismissal of PAMA lawsuit, pushes legislative fixes

Dive Brief:

  • A trade group representing LabCorp and Quest Diagnostics has appealed the dismissal of its lawsuit challenging the implementation of the Protecting Access to Medicare Act, which sets laboratory payment rates according to market data reported by industry.
  • Federal district courts have previously dismissed the lawsuit, most recently in March, but the American Clinical Laboratory Association continues to argue that PAMA is a case of “harmful regulatory overreach” that forces an “unsustainable reimbursement model” on its members.
  • ACLA is targeting PAMA through the courts while continuing to push for Congress to change the law. The trade group said that, regardless of the outcome of the appeal, a legislative solution is needed to a law it argues has led to artificially low Medicare rates.

Dive Insight:+

ACLA began its legal case against the implementation of PAMA late in 2017, weeks after the release of the final private payer rate-based clinical laboratory fee schedule. As ACLA sees it, HHS diverged from PAMA directives by exempting “significant categories and large numbers of laboratories” from reporting market data, meaning “Medicare rates will not be consistent with market-based rates.”

The U.S. District Court for the District of Columbia dismissed the case on the grounds that ruling on the establishment of PAMA payment amounts was barred by the statute. ACLA successfully appealed that ruling in 2019. However, the lower court again dismissed the case in late March.

The trade group said the court relied “on the same conclusions that the D.C. Circuit [appeals court] rejected.” The court ruling said the case was dismissed “for lack of subject matter jurisdiction.”

ACLA’s filing of a notice of appeal restarts a process that could take months to play out. The last time the trade group appealed, there was a nine-month wait between the submission of a notice and the delivery of the opinion of the court.

While preparing its opening brief and then waiting on the decision of the appeals court, ACLA will try to tackle PAMA from another angle.

“ACLA will continue to work with policymakers to establish a Medicare Clinical Laboratory Fee Schedule that is truly representative of the market and supports continued innovation and access to vital laboratory services, as Congress originally intended,” Julie Khani, president of ACLA, said in a statement.

Congress has already delayed the next set of fee cuts until 2022. ACLA said the cuts will reduce rates for certain tests used to diagnose chronic diseases by 15%, potentially threatening access to testing. Rates were previously cut in 2018, 2019 and 2020.

Talking to investors in April, LabCorp CEO Adam Schechter said he expects the 2022 impact to “be about the same as it was in 2019, around the $100 million mark.”

The Death of Hahnemann Hospital

https://www.newyorker.com/magazine/2021/06/07/the-death-of-hahnemann-hospital

hospital

When a private-equity firm bought a Philadelphia institution, the most vulnerable patients bore the cost.

Lia Logio arrived at Hahnemann University Hospital, in Philadelphia, in March, 2018, two months after it was sold to a private-equity firm. Logio, an internist, had come from Weill Cornell, in New York, a prestigious and well-funded nonprofit hospital, where she was a vice-chair. Hahnemann served mostly low-income patients, but it had a range of medical subspecialties and was the primary teaching hospital used by Drexel University’s College of Medicine. “It felt like they had all the ingredients to do something innovative and creative,” Logio said not long ago. “It seemed like an opportunity to have an economy of scale to do coördinated care for poor, complex patients, which usually doesn’t happen very well.”

Philadelphia is one of the poorest big cities in the United States, with about a quarter of its 1.6 million residents living below the poverty line. Since 1977, when Philadelphia General closed, it has also been the largest American city without a public hospital. Hahnemann, with nearly five hundred beds, occupied a city block on the edge of North Philadelphia, an area that includes several impoverished neighborhoods. A majority of the more than fifty thousand patients that the hospital treated each year had publicly funded medical insurance or none at all; two-thirds were Black or Hispanic.

Because Hahnemann treated so many poor patients, it had significant financial difficulties. But patient outcomes rivalled those of practically any hospital in the country, and the people who worked there were driven by a sense of mission. “The doctors at Hahnemann were there because they wanted to be there,” Logio said. “Hahnemann took care of the people that no one else wanted to take care of.”

Logio regarded for-profit medicine with deep skepticism, but her new colleagues made her hopeful. “Everyone had this tremendous sense of positivity looking toward the future with the new owners,” she said. Hahnemann and another medical center, St. Christopher’s Hospital for Children, had been acquired, for a hundred and seventy million dollars, by American Academic Health System, a company controlled by the California private-equity firm Paladin Healthcare Capital. Joel Freedman, the founder and C.E.O. of Paladin, had managed a sizable hospital in Washington, D.C., and a few smaller ones in Los Angeles. He seemed earnest about his commitment to Hahnemann, buying a large town house in Philadelphia and moving there with his wife and children.

Freedman told Logio and other senior staff that he was considering creating a new center for outpatient care. He talked about opening a pediatric clinic to serve poor families. His staff met with members of each department, asking what equipment they needed. In early 2018, Hahnemann received a deep cleaning, which included scrubbing the grout with toothbrushes. For the previous two decades, the hospital had been owned by Tenet Healthcare, a multinational company that had neglected to maintain the facility. Now, to many staffers, it seemed that, finally, someone was listening to them.

Broad and imposing, Freedman projected the reassuring self-confidence of a serial entrepreneur. He had arranged funding from two institutional investors: MidCap Financial—an affiliate of Apollo Global Management, one of the largest private-equity firms in the country—and Harrison Street Real Estate Capital, another private-equity firm, with some thirteen billion dollars under management. Bloomberg Businessweek has called Leon Black, a founder of Apollo, “the most feared man in the most aggressive realm of finance.”

In May, 2018, the hospital held a banquet at the Logan Hotel, near the Philadelphia Museum of Art. Some two hundred doctors went to hear the new owner speak. Joseph Boselli, a sixty-one-year-old internist who had been at Hahnemann for more than thirty years, and who was now the president of the medical staff, introduced Freedman. “This was the first time that many people had seen him in person,” Boselli recalled. “I told him, ‘Joel, keep it short and sweet.’ ” But Freedman talked for about thirty minutes. Evidently displeased with the financial condition of his new acquisition, he sought to blame the physicians who made up his audience. “He goes on and on about how he doesn’t think doctors are doing their job,” Boselli said. “That they’re not training residents well, not seeing enough patients.”

Still, the medical staff hoped that Freedman would provide the funding Hahnemann needed to survive. David Stein, who was then the chair of surgery at Hahnemann, said, “I don’t think anyone saw the writing on the wall—that by the following summer they’d be closing the institution.”

Hospitals in the U.S. are estimated to be closing at a rate of about thirty a year. Most closures happen for financial reasons, in places where there are relatively few privately insured patients. Increasingly, hospitals are regarded as businesses like any other: at least a fifth of hospitals are now run for profit, and, globally, private-equity investment in health care has tripled since 2015; last year, some sixty-six billion dollars was spent on acquisitions. The industry’s movement into health care has been linked to price hikes, an increase in unnecessary procedures, and the destabilization of health-care networks.

The bad actors of private equity are sometimes accused of destroying American health care. But they are more symptoms than disease. The story of Hahnemann is as much about the structural forces that have compromised many American hospitals—stingy public investment, weak regulation, and a blind belief in the wisdom of the market—as it is about the motives of private-equity firms.

The idea that hospitals should turn a profit is somewhat recent. Pennsylvania Hospital, which is widely considered the oldest in the country, opened in Philadelphia in 1752. Co-founded by Benjamin Franklin, it was conceived as a place for “the reception and cure of the sick poor,” an example that, until the late nineteenth century, almost all American hospitals followed. Philanthropy—and taxes, in the case of public hospitals, like Bellevue, in New York, which opened in 1795—covered costs, and care was provided free.

The model evoked Hippocrates, who believed that, when possible, doctors should forgo fees. But it also reflected the crudity of the era’s health care. Before Pasteur’s germ theory was published, in 1861, hospitals were often unsanitary, as likely to cause infection as to cure it. Doctors relied heavily on a few primitive treatments: leeches, lancets, laxatives, liquor. Anyone with the resources to do so avoided hospitals altogether. As the medical historian David Oshinsky writes, in “Bellevue: Three Centuries of Medicine and Mayhem at America’s Most Storied Hospital,” “There was nothing a hospital could do for the upper and middle classes that couldn’t be done better at home.”

The institution that would become Hahnemann University Hospital, named for the German homeopath Samuel Hahnemann, was founded in 1848, amid advances in medicine that radically improved the quality of care: the stethoscope, blood transfusion, effective anesthetics. As hospitals offered novel procedures, they began to attract paying patients. To accommodate them, hospitals built separate units, with fireplaces and private rooms.

In 1957, a Hahnemann cardiac surgeon named Charles Bailey appeared on the cover of Time, after he’d completed a groundbreaking surgery to correct an abnormality of the mitral valve. Bailey, who attracted patients from around the world, was one of a number of Hahnemann physicians working at the medical vanguard of specialty procedures. In 1958, a Hahnemann administrator noted that Bailey and his team brought in some eight hundred thousand dollars a year.

In the decades after the Second World War, the cost of hospital care rose significantly, spurred by expensive procedures like Bailey’s and by the adoption of medical insurance. After the government began to offer tax breaks for employers who paid for their workers’ health benefits, the number of insured Americans grew to more than sixty per cent of the population. In 1965, the bill establishing Medicare and Medicaid passed, further increasing the number of patients seeking care. Guidelines dictated reimbursement for “reasonable costs,” which, for years, amounted to pretty much whatever providers said they were, and for-profit hospitals sprang up to capitalize on the boom. By the end of the decade, more than seven hundred for-profit insurance companies were offering medical coverage.

For-profit hospitals arrived in Pennsylvania in 1998. Tenet Healthcare, based in Dallas, owned a hundred and twenty hospitals in eighteen states, and that November the company bought Hahnemann out of bankruptcy, along with St. Christopher’s and six other area hospitals. “We promise we will be here for the long haul,” Michael Focht, Tenet’s C.O.O., said at a ceremony held at Hahnemann. “This is not a short-term visit.”

Eight years later, Tenet agreed to pay nearly nine hundred million dollars in fines to the Justice Department for excessive Medicare billing, distributing kickbacks to doctors, and exaggerating the severity of diagnoses in order to inflate charges. Mike Halter, who served as C.E.O. of Hahnemann under Tenet for two decades, told me that Tenet was forced to cut costs, which it did in part by ignoring requests to replace old equipment. Health care “is a very capital-intensive business,” he said. “Equipment has a useful life of five or six years. Facilities need to be upgraded every eight or ten.” A piece of stucco broke loose from the building and damaged a car. In reviews online, patients lamented conditions in the hospital. In December, 2013, a pregnant woman who went for an ultrasound complained of being kept in a cold room with flickering lights. In 2017, a patient reported finding “blood and shit on the floor.” Yet the hospital remained busy. “A lot of patients just didn’t have a choice,” Kevin D’Mello, an internist, said. “This is where they had to go.”

Freedman founded his first investment company with several young investment bankers about thirty years ago, when he was in his twenties. “We had a mentor who taught us how to turn around distressed businesses and acquire companies,” he told me. “For the better part of seventeen years, that was my core business, restructuring insolvent companies.”

By the end of 2011, Freedman and some partners had taken over four struggling hospitals in L.A., where a majority of the patients were Black or Hispanic, uninsured or covered by Medicare or Medicaid, and often afflicted with chronic illnesses. Many of those patients used the emergency room as their primary source of care, and Freedman’s group focussed on making the E.R. more efficient: hiring doctors with expertise in medical coding, in order to maximize reimbursement; pursuing insurers for unpaid invoices; reducing the time patients spent in the E.R. Soon, all four hospitals were solvent.

In 2014, with Paladin, Freedman signed on to manage Howard University Hospital, in Washington, D.C., which that year reported a fifty-eight-million-dollar loss. Paladin cut salaries, benefits, and operating expenses, and two years later the hospital showed an operating surplus of more than twenty million dollars. “We were incredibly successful,” Freedman said. “I’d become passionate about turnarounds in these communities.”

Hahnemann staffers said that Freedman seemed to see reviving struggling hospitals as a reflection of his benevolence. He communicated a mixture of good intentions, sanctimony, and unabashed self-regard. He assured one physician that he and his wife, Stella, were people of deep religious faith. At other times, he boasted about his real estate. In addition to the Philadelphia town house, he owned a home in Hermosa Beach, with views of the Pacific. He was a member of an advisory council at Harvard Medical School, and sat on the board of a health-policy center at the University of Southern California. In 2016, Freedman had received a lifetime-achievement award from a prominent nonprofit for his contributions to reducing racial health-care disparities. “He wanted to look like the hero,” a former senior Hahnemann doctor told me.

Freedman seemed convinced that he was uniquely well suited to sort out Hahnemann’s problems, but there were differences between Hahnemann and the other hospitals he’d helped lead. “He talked a lot about the things that made him successful at Howard,” Jill Tillman, a health-care executive at Drexel College of Medicine, told me. But, unlike Howard, Hahnemann had long been under for-profit management. Tenet, as one of the world’s largest buyers of hospital equipment, enjoys deep discounts and generally excels at controlling costs. “If Tenet couldn’t get any more juice out of it, there was no more juice left to get,” Tillman said.

Freedman also said that he had a plan to address the financial challenges of treating publicly insured patients. Medicare and Medicaid, which account for more than sixty per cent of all U.S. hospital care, often pay less than the cost of treatment: according to an analysis by the American Hospital Association, in 2018 Medicare and Medicaid underpaid the cost of care by a combined $76.6 billion. In an early meeting with Halter, the Hahnemann C.E.O., Freedman explained that, at his other hospitals, he had profited from federal Disproportionate Share Hospital programs, which reward hospitals that serve large numbers of publicly insured patients. “What Joel did not know is that there are caps on Disproportionate Share payments in the state of Pennsylvania,” Halter said. He explained to Freedman that Hahnemann was already at its cap. “He told me, ‘You don’t know what you’re talking about,’ ” Halter said. Only after meeting with the governor’s office and the state Department of Human Services did Freedman accept that Hahnemann would not receive additional payment from these programs.

In April, 2018, Halter retired. In the next eighteen months, Hahnemann and St. Christopher’s went through half a dozen chief-executive and financial officers, most of them dismissed by Freedman with little explanation. Freedman hired battalions of consultants, who specialized in health care, technology, and management. “I would walk down the hall and half or two-thirds of the people I would not recognize,” George Amrom, a former surgeon and long-serving chief medical officer, recalled. “They were all consultants.” Few of them lasted long. “Joel has a twenty-week relationship with people,” a former Hahnemann executive said. “The first eight, you’re a ‘rock star.’ In the middle, you don’t hear from him. The last eight weeks, it’s ‘You’re a nice guy, but I need a rock star.’ ”

Senior physicians and administrators found it hard to plan for the future. Stein, the surgery chair, had been told that his department would be prioritized. He drew up detailed plans for improvement, some of which required no capital investment, and sent copies to each successive Hahnemann C.E.O. But none of them were in place long enough to act. Logio had a similar experience. “I had the same conversation with every single C.E.O.,” she said. “And as soon as the C.E.O. got fired I would have to start over.”

A majority of the hospital’s patients came through the E.R., and Freedman believed that improving the flow of patients, and more precisely documenting the severity of their conditions for insurers, would allow Hahnemann to vastly increase revenue. One day, medical staff arrived at the E.R. to find that the procedures for patient check-in and ordering tests had been altered. Edward Ramoska, who had been a Hahnemann E.R. doctor since 2006, said, “It could potentially have worked for a community hospital”—one with no medical residency. But Hahnemann was a teaching hospital, with one of the largest residencies in the nation. Forty-five residents worked in the E.R. alone. Before an attending physician saw a patient, a resident generally took a medical history and conducted a physical exam. In the new E.R., patients were shuttled between a holding area and examination rooms, often undressing more than once. In addition to exasperating doctors and patients, the arrangement slowed the department’s operations. “They didn’t understand how an academic emergency room works,” Ramoska said, of American Academic Health System.

A physical renovation of the E.R., intended to make things more efficient, was botched. A new door frame was too narrow for wheelchairs. Walls went up on either side of a service window. A space intended for patient examinations was built without a sink, forcing doctors to run elsewhere to wash their hands. In Pennsylvania, alterations to health-care facilities require approval from the Department of Health, which the hospital’s management had neglected to get. Construction stopped and did not resume.

To increase reimbursements, A.A.H.S. hired a team of nurse-consultants to monitor how doctors documented diagnoses. Virtually all U.S. hospitals try to maximize payments from insurance companies, but the new approach struck some Hahnemann doctors as intrusive, if not unethical. The nurse-consultants sometimes second-guessed the diagnoses of residents. “They were thinking about the bottom line, and we were just thinking about the patient,” Christy Johnson, a former resident, said.

Since 2008, American hospitals have been involved in more than a thousand mergers and acquisitions, resulting in large, powerful health systems with influence on the price of hospital care and the reimbursement rates paid by private insurers. These conglomerates generally make up the losses incurred treating poor patients by building referral networks that attract privately insured patients seeking specialized care.

In Philadelphia, Tenet drew few referrals. As the Jefferson and Penn health systems cultivated satellite hospitals, physician practices, and urgent-care centers, including those in wealthy suburbs on the Main Line and in South Jersey, Tenet closed or sold most of its local holdings. Some of Hahnemann’s best-known specialists left for other hospitals. After a group of cardiologists departed, the hospital’s heart-transplant program closed.

If there was an area where Freedman’s ostensible skill set met Hahnemann’s needs, it was the negotiation of partnerships to draw referrals. “He went out and met with various leaders at different facilities,” the former Hahnemann executive recalled. “At one point, there was going to be a relationship with organization X. Next, it would be organization Y. There were always a lot of deals in flux, none of which came to fruition.”

Freedman did not appear to grasp the economics of tertiary care, the specialty practices that generate costly procedures. “He did not understand that if you do away with tertiary care no one’s going to come downtown to Hahnemann,” Amrom, the former chief medical officer, said. “I remember trying to explain to him that one of our largest areas was nephrology. And if you did away with transplant you’re going to destroy nephrology.”

Many insurance companies paid less at Hahnemann than they did at other area hospitals, an arrangement that, according to Halter, Tenet had accepted in exchange for greater reimbursements in the company’s other markets. (Tenet denies having made this arrangement.) Now those agreements could be renegotiated. The insurance companies had an incentive to compromise: if Hahnemann closed, the privately insured patients treated there would go to other city hospitals, where the cost of their care would rise. “You go into Blue Cross and you say, ‘We need some help, and it’s in your best interest to help us,’ ” Halter explained. “ ‘Give us ten million dollars more per year’—versus losing fifty million per year.” Whether Freedman overlooked this tactic or simply struggled to execute it effectively is unclear. “I did initiate a recontracting effort,” he said. “But it was to their advantage to delay.”

In late 2018, Freedman told staff that, by the spring of the following year, the hospital might be profitable. His forecast was based in part on the assumption that increasing in-patient admissions through the E.R. would yield greater reimbursements from insurance companies. But insurers continued to deny many Hahnemann claims, leaving Freedman incredulous. At one point, Tillman, the health-care executive, recalled him telling her, “This is impossible. You’re lying to me!”

Hoping to convince one major private insurer that it had unjustly denied claims from Hahnemann, several doctors arranged a meeting with the company. “We found a few very good cases of patients who could have died if they didn’t get care,” Kevin D’Mello, the internist, who attended the meeting, said. “And the insurance company had rejected admission.”

D’Mello said that the insurance representatives initially seemed receptive. Then, uninvited, Freedman appeared and harangued the representatives, accusing their company of dishonesty. “He said that American Academic would resubmit all claims for the past year, and that they expected the insurance company to pay,” D’Mello recalled. The meeting ended without a compromise on the insurance-claims dispute. (Freedman does not recall the meeting.)

Such erratic behavior was becoming increasingly common. “He would call people stupid,” Tillman said. “He would say they should all be fired, that they were useless.” (Freedman told me that he does not remember using such language, but, he said, “I can express myself with passion.”) In one meeting, a Drexel administrator said, Freedman spoke for ten hours, pausing only for cigarette breaks. He threatened at one moment to close the hospital and the next he fantasized about instituting valet parking. Maria Scenna, a former C.E.O. of St. Christopher’s, told me, “He would speak as the authority on everything.”

Still, Freedman’s anxiety was rising—at least in part because of his obligations to his lenders. Since the 2008 financial crisis, the banks that once financed most leveraged buyouts have withdrawn, and private-equity firms have filled the void. According to an analysis by the Financial Times, some of the largest private-equity companies in the U.S.—including Blackstone, Apollo, and K.K.R.—now do at least as much lending as buying. Riskier deals can involve terms that one prominent New York lawyer, who represents private-equity lenders, described to me as thuggish: “knuckle-dragger” conditions. “If you’re coming to me, that means you can’t get a loan from a bank,” the lawyer explained. “So I can charge you outrageous interest.”

MidCap Financial, the Apollo affiliate, provided Freedman’s group, A.A.H.S., with two loans, representing a commitment of a hundred and twenty million dollars. The loans had nine- to ten-and-a-half-per-cent-effective interest rates—significantly steeper than most commercial bank loans—and were secured by mortgages on Hahnemann’s real estate. (Harrison Street Real Estate Capital, which provided fifty-one million dollars in loans, took part ownership of several hospital-adjacent properties.) These financial obligations, in combination with what Freedman describes as “bad debt,” raised the possibility that he would have to default, and that Hahnemann would go out of business.

Around March, 2019, Scenna said, administrators and executives suggested that Freedman consider filing for bankruptcy. Instead, he proposed gutting the residency program—an indispensable source of physician labor, whose cost was largely borne by federal funding. Eventually convinced that this was inadvisable, Freedman announced the departure of Suzanne Richards, the latest C.E.O. of Hahnemann and St. Christopher’s, and, in early April, the hospital laid off a hundred and seventy-five employees, including sixty-five nurses. Freedman said, “I felt immense pressure every hour of the day—not only from a financial perspective but, more importantly, because of my concern for quality of care.”

A.A.H.S. began closing floors of the hospital, but the execution was fitful. All or part of a floor might close one week and reopen the next, resulting in the frequent movement of patients. “Your patients could end up anywhere,” Steven Kutalek, a cardiologist, said.

One day, with little input from medical staff, the patients in the cardiac critical-care unit began to be moved to the main I.C.U. Cardiology specialists now had to shuttle between the twelfth and the twenty-first floors to see their patients, using elevators that were often broken. “Cardiac patients need specialized equipment—balloon pumps, crash beds, ecmo [a blood-oxygenation machine]—run by cardiac nurses,” Kutalek said. These items were hard to access in the main I.C.U., and it didn’t help that many cardiac nurses had been either fired or reassigned. Paulina Gorodin-Kiliddar, another cardiologist, told me, “I remember one instance where the telemetry monitor for one patient who had a critical event malfunctioned, and it went unnoticed for a while.”

Any savings proved insufficient. In early May, A.A.H.S. received a notice of default from MidCap Financial. In the next seven weeks, Freedman and his executives met with city and state officials to try to find a way to keep Hahnemann afloat. Freedman hoped that the government would provide emergency funding, or that Drexel would buy the hospital. But, according to government officials, they never received the details about the hospital’s finances that they needed to determine how to address its operating deficit, which Freedman estimated at between three million and five million dollars per month.

On June 30th, Hahnemann, St. Christopher’s, and several related entities filed for bankruptcy. A longtime Hahnemann physician says that Freedman told her, “My wife turned the faucet off. She said, ‘No more. We’re not losing any more money, Joel.’ ” (Freedman does not recall saying this.)

One afternoon in July, hundreds of people gathered outside Hahnemann, on North Broad Street. The road was closed to traffic for several blocks, and, in the southbound lanes, white folding chairs had been arranged in rows to face a lectern bearing a blue Bernie Sanders placard. A recently released patient, a Black man with facial scars, held a bag containing medication and personal effects. Doctors in scrubs and white coats looked on from the sidewalk. Sanders had come to speak against Hahnemann’s closure. “If an investment banker like Joel Freedman is able to shut down Hahnemann and make a huge profit by turning this hospital into luxury condos,” he said, “it will send a signal to every vulture fund on Wall Street that they can do the same thing, in community after community after community.”

Sanders was expressing what had become a widely accepted theory. From the beginning, the thinking went, Freedman’s purchase of Hahnemann had been a ploy to acquire the land on which it stood. Situated steps from city hall and the convention center, the real estate had skyrocketed in value. The mile-and-a-half stretch of North Broad between Hahnemann and Temple University, in North Philly, had long been run-down. But now developers were building luxury condos and rentals. To renovate the Metropolitan Opera House, a moldering wreck at North Broad and Poplar, Live Nation spent fifty-six million dollars, then filled the schedule with such acts as Alicia Keys and Sting.

“Everyone and their mother was trying to get that real estate,” Peter Kelsen, a partner at the Philadelphia law firm Blank Rome, told me, speaking of Hahnemann. “I received calls from dozens of different people.” Developers speculated that it could be worth as much as a hundred and twenty million dollars—only fifty million less than A.A.H.S. had paid for Hahnemann and St. Christopher’s and all their assets. Crucially, the site was not part of the bankruptcy. Upon buying Hahnemann, Freedman had put its real estate in a suite of holding companies that were now beyond the purview of the bankruptcy court.

The maneuver was typical of private-equity deals, in which firms can borrow against the assets of the companies they’re buying. Eileen Appelbaum, a co-director of the Center for Economic and Policy Research, a progressive think tank, has written extensively about the influence of private equity. She told me that Hahnemann’s demise reminded her of the retail sector, where hedge funds and private equity have used leveraged buyouts to purchase chains like Sears and Toys R Us, and then stripped their assets, including real estate, en route to bankruptcies. Appelbaum worries that Hahnemann might become a model, encouraging investors to destroy hospitals that occupy valuable land. “It definitely looks as if it was meant to be a real-estate deal,” she said.

The structure of the Hahnemann deal insulated Freedman from much of the potential fallout. As the hospital floundered, staffers said, Freedman told them that, if they couldn’t make the hospital succeed, he would simply turn the property into something else. Freedman denies making such remarks, and, as a strategy for acquiring real estate, deliberately bankrupting a hospital of Hahnemann’s size was likely too messy to be practical. “It’s not the path that anyone would have chosen,” Andrew Eisenstein, the founder of the Philadelphia development and investment firm Iron Stone Real Estate Partners, said. (Iron Stone later acquired two parcels of real estate from companies controlled by Freedman and Harrison Street.)

Freedman told me that he would never have invested millions in the venture if he intended to turn a quick profit and leave. But his leveraged buyout made excellent insurance against his own mistakes.

By May, 2019, when staff at Hahnemann tried to order basic supplies venders had begun to turn them down, saying that the hospital hadn’t paid its bills; by summer, conditions were dire. Surgical equipment was broken. The air-conditioning failed. To stretch supplies, nurses cut up the washcloths that they used on patients. Parts for instruments used to intubate patients and deliver intravenous medicine became scarce. It was difficult to find a pacemaker. Medications ran out. Even the FedEx account was cut off. “It happened so quickly and so horribly,” Lorraine Alexander, a senior nurse, told me. “It was heartbreaking to see, and it was also just mind-boggling—the things that were allowed to happen.”

Bruce Meyer, the president of Jefferson Health, told me that Thomas Jefferson University Hospital began hearing from Hahnemann physicians that the hospital could no longer provide quality care. “We began parking ambulances outside [Hahnemann] in mid to late June, and shuttling back and forth,” Meyer said. Leaders from Jefferson and other Philadelphia hospitals asked for information about Hahnemann’s patient population, to prepare for their arrival. “We never got any of that data,” Meyer said.

Pennsylvania law requires a hospital to provide ninety days’ notice and a detailed closure plan in advance of ceasing operations. But, even before a closure plan was approved by city and state officials, A.A.H.S. frantically tried to empty Hahnemann. At night, private ambulances lined up at the rear of the building, waiting to take patients away—part of what staffers viewed as a reckless effort to discharge Hahnemann’s occupants. “You’d have a census of two hundred and seventy-five at midnight, and the next day at noon it would have dropped to two hundred,” Alexander said. Patients were released without clear plans for follow-up care, and often ended up back in the E.R. within twelve hours. Shanna Hobson, an E.R. nurse, said that a patient who had been prematurely taken off I.V. antibiotics returned with sepsis. Others came back with infected diabetic wounds.

Around that time, Sean Temple, who had been treated at Hahnemann for a heart condition for a decade, went for a routine cardiology appointment. His doctors had just been informed that their practice would be shut down. “They were under the gun,” Temple said. He felt blindsided. “It’s not like I came in and I knew that y’all were shutting down. Who’s gonna pick up where they left off? And when and where?” Months passed without Temple’s seeing a doctor, and he ended up at another hospital with a cardiac emergency. “I felt like a child lost in the park,” he said.

Freedman places responsibility for the execution of Hahnemann’s closure on EisnerAmper, an accounting-and-consulting firm that he hired to manage its finances and, later, the bankruptcy. (EisnerAmper declined to comment.) A report by a bankruptcy-court-appointed ombudsman describes two visits to Hahnemann in July, 2019, when the hospital’s census had already fallen significantly, and after a temporary manager had been assigned by the state. “None of the nursing staff indicated any concerns over diminished care or safety of the patients,” the report reads.

In advance of Hahnemann’s shutdown, on September 6th, city and state officials pledged up to fifteen million dollars to take care of the hospital’s patients. When other hospitals in Philadelphia had closed, a spike in infant mortality quickly followed. To prevent this, Jefferson brought on eight Hahnemann ob-gyns and expanded its obstetric unit. Hospitals across the city hired more staff and adjusted workflow patterns.

Temple and Pennsylvania Hospitals soon saw their E.R. volume increase by about twelve per cent, while at Jefferson, which is only a mile from Hahnemann, volume climbed by twenty per cent, adding almost twelve hundred visits a month. At all three E.R.s, the number of ambulance visits at least doubled. Unable to walk, drive, or take public transportation, patients who arrive in ambulances tend to be sicker and poorer than those who come by other means. Ambulances typically take patients to the nearest hospital. But the E.R.s were now frequently so crowded that the staff requested that patients go elsewhere. Studies of Black cardiac patients have shown ambulance diversion to be responsible for elevated numbers of deaths. Kory London, an emergency-medicine physician at Jefferson Health, told me that the E.R. became the scene of “daily human tragedies.”

Most Philadelphia hospitals use an electronic record-sharing system, but Hahnemann had never taken part in it. Once the hospital closed, doctors at other medical centers had difficulty obtaining records for Hahnemann patients. “There were patients who had complex social histories, who were receiving many kinds of subspecialty care,” London said. “They’d lost heart doctors, kidney doctors, and ended up in our emergency department. We had to understand as best we could what was going on with them.”

Anastasia Cavanaugh, who has a chronic illness, had been seeing doctors at Hahnemann for years. “Knowing who your doctor is, that is one control you have,” she told me. When the offices of several of her specialists closed abruptly, Cavanaugh, who had publicly funded insurance, despaired. “I cried for three days,” she said. By January, 2020, Cavanaugh hadn’t been able to see a doctor since Hahnemann closed. She feared that she’d have to visit an emergency room in flu season—a frightening prospect for the immunocompromised—in order to refill her prescriptions. “I was calling UPenn,” she recalled. “The ‘emergency appointment’ was a month and a half away. It was a very stressful time. I didn’t know if I could get my medications on time.”

In Philadelphia, as elsewhere across the country, people of color have borne the brunt of the coronavirus pandemic. In March, 2020, city officials entered negotiations with Freedman to reopen Hahnemann to house covid patients during an anticipated surge. But Freedman asked for more than four hundred thousand dollars a month to lease the facility—a rate that he said was “very reasonable.” The talks quickly broke down. Responsibility for the care of coronavirus patients fell heavily on the remaining hospitals in the area, including Temple, which converted a seven-story pavilion to a coronavirus clinic, and erected a tent outside the E.R. There have been some hundred and fifty thousand confirmed infections in the city, and more than thirty-six hundred deaths.

“What I feel about this whole event is that it’s moral injury at a corporate level,” Lia Logio, the internist, said. “Health care is supposed to be about taking care of the patients. Helping people to have long, flourishing lives, with limited illness and limited pain. Somehow, it isn’t a priority.”

When I spoke to Freedman by phone last summer, he had returned to California, where he had bought a new eight-thousand-square-foot house south of Los Angeles, with twenty-foot ceilings and a stone spa, for nearly seven million dollars. He was in the midst of two lawsuits with Tenet Healthcare, which he believes misled him about Hahnemann’s financial situation. Freedman estimates that he has personally lost at least ten million dollars on the Hahnemann deal. He was asked to step down from his board position at the University of Southern California. “That really hurt me,” he said.

But St. Christopher’s Hospital had been sold, for fifty million dollars, and MidCap Financial had been repaid in full. Now Freedman was trying to reinvent himself. As we spoke one afternoon, there was an audible breeze on Freedman’s end of the line. The family’s Maltese, Snow, barked in the background. Freedman’s confidence was undimmed. “I’m working on some things that I think could be meaningful,” he said. “I would like to go back to working in health care someday. I have a lot of knowledge. I’ve seen a lot of bad things. Unfortunately, the solutions demand a lot of capital.” ♦

Private equity acquisitions targeted large, high-margin hospitals over 15-year period

Private-Equity Cash Piles Up as Takeover Targets Get Pricier - WSJ

From 2003 to 2017, private equity firms focused their acquisition crosshairs on larger hospitals with higher operating margins and greater patient charge-to-cost ratios, according to a new review of healthcare investments published in Health Affairs.

These private equity (PE)-owned hospitals also saw greater increases to their operating margins and charge-to-cost ratios over the course of the 15-year study period than their non-PE-owned counterparts.

Combined with a decrease in all-personnel staffing ratios, the study’s researchers said these data make a case for further investigation into how PE investment may be influencing operational decisions to boost profits and secure favorable exits.

“[Short-term acute care] hospitals’ large size, stable cashflow environment and prevalence of valuable fixed assets (that is, properties) make them highly desirable targets for acquisition, researchers wrote in Health Affairs. “Broadly speaking, PE acquisition of hospitals invites questions about the alignment of the financial incentives necessary to achieve high-quality clinical outcomes.”

To inform that discussion, the researchers reviewed PE deal data collected by Pitchbook, CB Insights and Zephyr. They also collected information on hospital characteristics and financials from the Centers for Medicare and Medicaid Services’ (CMS) Healthcare Provider Cost Reporting Information System database and the American Hospital Association’s Annual Survey.

Their efforts yielded 42 PE acquisitions involving 282 different hospitals during the 15-year time period. These deals were most frequent among hospitals in Mid-Atlantic and Southern states.

Of note, 161 of the acquired hospitals were tied to a single deal: Bain Capital, Kohlberg Kravis & Roberts and Merrill Lynch Global Private Equity’s roughly $33 billion (more than $21 billion cash, $11.7 billion debt) acquisition of HCA Healthcare in 2007.

The study outlined differences between the PE-acquired hospitals and others that were not acquired before any of the deals (in 2003) and after (in 2017).

Nearly three-quarters of hospitals acquired by PE were for-profit in 2003, versus about a quarter of those that were not acquired, the researchers wrote. By 2017, those respective proportions had increased to 92.3% and 25.3%.

Acquired hospitals were significantly larger in terms of beds and total discharges both in 2003 and in 2017. In fact, while acquired hospitals increased in size during the 15-year window, other hospitals decreased in beds and discharges by 2017.

Nurse staffing ratios were similar on both ends of the study period for both categories of hospitals. However, all-staff ratios were lower among the soon-to-be-acquired hospitals in 2003 and saw a slight decrease over the years, whereas hospitals that had not been acquired instead recorded an increase over time.

In terms of financials, the researchers reviewed measures including net patient revenue per discharge, total operating expenses per discharge and the percentage of discharges paid out by Medicaid. Differences among these three areas were not significant with the exception of a larger 15-year increase in total operating expenses per discharge among non-PE hospitals.

The primary financial differences between the PE and non-PE hospitals were instead found among the organizations’ percent operating margins and charge-to-cost ratio, the researcher wrote.

In 2003, both measures were higher among the soon-to-be acquired hospitals. By 2017, the percent operating margin and charge-to-cost ratio increased 66.5% and 105% among the PE-acquired hospitals, respectively, versus changes of -3.8% and 54.2% for the non-PE hospitals.

These and the study’s other findings outline the playbook an investor could follow to identify a profitable hospital and increase its margins, the researchers wrote.

“Post-acquisition, these hospitals appeared to continue to boost profits by restraining growth in cost per patient, in part by limiting staffing growth,” they wrote.

The trends affirm findings published in a 2020 JAMA Internal Medicine study, which similarly tied PE acquisition to moderate income and charge-to-cost ratio increases over the same time period, the researchers wrote.

The data also contrast “the prevailing narrative” that PE investors target distressed businesses to extract value for a quick turnaround sale, they wrote. Outside of a few outlier acquisitions, the researchers said that PE’s goal for short-term acute care hospitals appears to be the opposite—operations refinement and further profit improvements among potential top performers.

Still, the differing structure of PE investments warrants questions as to whether these groups are promoting high-quality outcomes alongside their high margins, Anaeze Offodile II, M.D., an assistant professor at the University of Texas MD Anderson Cancer Center and the study’s lead author, said during an accompanying Health Affairs podcast.

In contrast to the public market, PE investments often lean on leveraged buyouts that are higher risk and higher reward, he said. Partners are targeting a three-to-seven-year exit window for their investments and often need to hit 20% to 30% annualized returns.

More investigation is needed to determine whether these economic incentives come in tandem with better care or are instead hindering patient outcomes, he said.

“The question becomes ‘Are there unintended consequences or tradeoffs invited due to pursuit of profitability?’” Offodile said during the podcast. “I think someone could make the same argument that if there is a value enhancement strategy by PE firms, then it behooves them to actually raise the level of care delivery up because that enhances the value and engineers a better sale.

“In seeing that sort of exploratory result and how it challenged the prevailing narrative, we’re glad that we took this sort of [setting the] stage approach, and I look [forward] to seeing what we find—which we’re doing now—with respect to quality, spending, access domains,” he said.

Study: Higher Death Rates and Taxpayer Costs at Nursing Homes Owned by Private Equity

About 1 in 10 nursing homes in California and nationwide are owned by private equity (PE) investors, and new research suggests that death rates for residents of those facilities are substantially higher than at institutions with different forms of ownership.

Essential Coverage

Researchers from New York University, the University of Chicago, and the University of Pennsylvania found that the combination of subsidies from Medicare and Medicaid alongside incentives for PE owners to increase the value of their investments “could lead high-powered for-profit incentives to be misaligned with the social goal of affordable, quality care [PDF].” The researchers — Atul Gupta, Constantine Yannelis, Sabrina Howell, and Abhinav Gupta — reported that nursing homes owned by private equity entities were associated with a 10% increase in the short-term death rate of Medicare patients over a 12-year period. That means more than 20,000 people likely died prematurely in homes run by PE companies, according to their study, which was published in February by the National Bureau of Economic Research (NBER).

In addition to the higher short-term death rates, these homes were found to have sharper declines in measures of patient well-being, including lower mobility, increased pain intensity, and increased likelihood of taking antipsychotic medications, which the study said are discouraged in the elderly because the drugs increase mortality in this age group. Meanwhile, the study found that taxpayer spending per patient episode was 11% higher in PE-owned nursing homes.

Double-Checked, Triple-Checked, Quadruple-Checked

The researchers were stunned by the data. “You don’t expect to find these types of mortality effects. And so, you know, we double-checked it, triple-checked it, quadruple-checked it,” Atul Gupta, a coauthor of the NBER study, told NPR reporter Gabrielle Emanuel.

There’s nothing new about for-profit nursing homes, but private equity firms are a unique subset that in recent years has made significant investments in the industry, Dylan Scott reported in Vox. PE firms typically buy companies in pursuit of higher profits for shareholders than could be obtained by investing in the shares of publicly traded stocks. They then sell their investments at a profit, often within seven years of purchase. They often take on debt to buy a company and then put that debt on the newly acquired company’s balance sheet.

They also have purchased a mix of large chains and independent facilities — “making it easier to isolate the specific effect of private equity acquisitions, rather than just a profit motive, on patient welfare.” About 11% of for-profit nursing homes are owned by PE, according to David Grabowski, professor of health care policy at Harvard Medical School. The NBER study covered 1,674 nursing homes acquired in 128 unique transactions.

While the owners of many nursing homes may not be planning to sell them, they also have strong incentives to keep costs low, which may not be good for patients. A study funded by CHCF, for instance, found that “early in the pandemic, for-profit nursing homes had COVID-19 case rates five to six times higher than those of nonprofit and government-run nursing homes. This was true of both independent nursing homes and those that are part of a corporate chain.”

Nationallyabout 70% of nursing homes are operated by for-profit corporations, 24% of nursing homes are nonprofit, and 7% are government-owned. Corporate chains own 58%. In California, 84% of nursing homes are for-profit, 12% are nonprofit, and 3% are government-owned, according to the CHCF report.

Growing PE Investment in Health Care

Given the dramatic increase in PE ownership of nursing facilities coming out of the COVID-19 pandemic, the higher death rates are troubling. The year-over-year growth between 2019 and 2020 is especially striking. Before the pandemic, 2019 saw 33 private equity acquisitions of nursing homes valued at just over $483 million. In 2020, there were 43 deals valued at more than $1.5 billion, according to Bloomberg Law reporter Tony Pugh.

And PE interest in health care is not restricted to nursing homes, explained Gretchen Morgenson and Emmanuelle Saliba at NBC News. “Private equity’s purchases have included rural hospitals, physicians’ practices, nursing homes and hospice centers, air ambulance companies and health care billing management and debt collection systems.” Overall, PE investments in health care have increased more than 1,900% over the past two decades. In 2000, PE invested less than $5 billion. By 2017, investment had jumped to $100 billion.

Industry advocates argue that the investments are in nursing homes that would fail without an influx of PE capital. The American Investment Council said private equity firms invest in “nursing homes to help rescue, build, or grow businesses, often providing much-needed capital to strengthen struggling companies and employ Americans,” according to Bloomberg Law.

The Debate Over Staffing

A bare-bones nursing staff is implicated in poorer quality at PE-owned nursing homes, both before and during the COVID-19 pandemic. Staff is generally the greatest expense in nursing homes and a key place to save money. “Labor is the main cost of any health care facility — accounting for nearly half of its operating costs — so cutting it to a minimum is the fastest profit-making measure owners can take, along with paying lower salaries,” journalist Annalisa Merelli explained in Quartz.

Staffing shrinks by 1.4% after a PE purchase, the NBER study found.

The federal government does not set specific patient-to-nurse ratios. California and other states have set minimum standards, but they are generally “well below the levels recommended by researchers and experts to consistently meet the needs of each resident,” according to the journal Policy, Politics, & Nursing Practice.

According to nursing assistant Adelina Ramos, “understaffing was so significant [during the pandemic] that she and her colleagues . . . often had to choose which dying or severely ill patient to attend first, leaving the others alone.”

Ramos worked at the for-profit Genesis Healthcare, the nation’s largest chain of nursing homes, which accepted $180 million in state and federal funds during the COVID-19 crisis but remained severely understaffed. She testified before the US Senate Finance Committee in March as a part of a week long look into how the pandemic affected nursing homes.Before the pandemic, we had this problem,” she said of staffing shortages. “And with the pandemic, it made things worse.”

$12.46 an Hour

In addition, low pay at nursing homes compounds staffing shortages by leading to extremely high rates of turnover. Ramos and her colleagues were paid as little as $12.46 an hour.

“The average nursing home in the US has their entire nursing home staff change over the course of the calendar year. This is a horrible way to provide good, quality nursing home care,” Grabowski told NPR, speaking of his March 2021 study in Health Affairs.

Loss of front-line staff leads to reductions in therapies for healthier patients, which leads to higher death rates, according to the NBER study. The effect of these cuts is that front-line nurses spend fewer hours per day providing basic services to patients. “Those services, such as bed turning or infection prevention, aren’t medically intensive, but they can be critical to health outcomes,” wrote Scott at Vox.

Healthier patients tend to suffer the most from this lack of basic nursing. “Sicker patients have more regimented treatment that will be adhered to no matter who owns the facility,” the researchers said, “whereas healthier people may be more susceptible to the changes made under private equity ownership.”

Growing Interest on Capitol Hill

In addition to the Senate Finance Committee hearings, the House Ways and Means Committee held a hearing at the end of last month about the excess deaths in nursing homes owned by PE. “Private equity’s business model involves buying companies, saddling them with mountains of debt, and then squeezing them like oranges for every dollar,” said Representative Bill Pascrell (D-New Jersey), who chairs the House Ways and Means Committee’s oversight subcommittee.

The office of Senator Elizabeth Warren (D-Massachusetts) will investigate the effects of nursing-home ownership on residents, she announced on March 17.

The hope is that the pandemic’s effect on older people will bring more attention to the issues that lead to substandard nursing home care. “Much more is needed to protect nursing home residents,” Denise Bottcher, the state director of AARP’s Louisiana office, told the Senate panel. “The consequence of not acting is that someone’s mother or father dies.”