The CEO of Steward Health Care has come under fire for purchasing a $40 million yacht as his health system owes approximately $50 million in rent, and Massachusetts officials grapple with the possibility of sudden hospital closures. According to one Massachusetts General Hospital leader, that yacht only tells a fraction of the story.
Edward Hoffer, MD, is an associate professor of medicine at Harvard Medical School and senior scientist at Massachusetts General Hospital, both based in Boston. Additionally, he serves as chair of the Marion (Mass.) Board of Health. He discussed Dallas-based Steward's financial woes in a Feb. 19 op-ed in local newspaper The Wanderer.
"While a 190-foot yacht catches attention, it is only a symptom of a deeper problem," Dr. Hoffer said. The deeper problem: private equity's growing interest in healthcare.
Private equity firms buy companies at low costs, pull "as much cash as they can" from them and then resell or declare bankruptcy, Dr. Hoffer said. They must improve profits to be able to sell, leading them to cut costs — for example, substituting aides for nurses — and raise prices. In order to increase revenue, these firms encourage physicians to run well-paid but potentially unnecessary tests and procedures, leading to "surprise" out-of-network bills for patients, Dr. Hoffer wrote.
A recent study published in JAMA found that patients treated at private equity-acquired hospitals are 25.4% more likely to develop hospital-acquired conditions — a phenomenon researchers attributed, in part, to these hospitals' decreased staffing presence.
Steward is a "textbook example" of a private equity acquisition gone wrong, according to Dr. Hoffer. The system was formed in 2010 after private equity firm Cerberus Capital Management acquired Boston-based Caritas Christi's six hospitals and affiliations. The firm vowed to turn the hospitals around but sold the land and buildings to a real estate trust, "saddling the hospitals with hundreds of millions in annual rent," Dr. Hoffer said.
The transaction was the first of a buying spree around the country, with Steward acquiring hospitals in other states, including Texas, Ohio and Florida. "Many of these have since been closed, doubtless after the PE investors had pulled as much money out as possible," Dr. Hoffer wrote.
"So, Steward's CEO has a very expensive yacht, and communities around the country are dreading the closure of what is often their only nearby hospital," he said. "Tell your state legislators that private equity has no place in health care, certainly not without very strict guidelines and oversight."
View Dr. Hoffer's full op-ed here.