re: Private equity ownership of hospitals made care riskier for patients, a new study finds

Sorry for wall of text but this issue hits close and pisses me off. I’ve witnessed it first hand as well. It’s amazing that PE ownership is allowed but local physician ownership is not. It’s simply the financial industry and hospital guild keeping out competition. At least local physician owners would have interests aligned with their patients. The financial engineering that goes on in these deals is incredible. Aquire asset. Take on debt. Sell off real estate to an affiliated company. Hobble the hospital with awful lease deals for the land/offices. Declare bankruptcy or spin off the dead assets. The layers of corporate entities involved would make Enron envious.
Paywall article below from The Atlantic so I pasted some text. It spells out exactly what I have witnessed. Hopefully this adds to the conversation.

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“One of the first private-equity hospital deals took place in 1996, when the PE industry was young and acquisitions in which investors borrow a lot of money to buy the target company were called leveraged buyouts, or LBOs. An investment firm called Forstmann Little & Company acquired the hospital chain Community Health Systems, or CHS, for close to $1.5 billion. The new owners began expanding it dramatically, buying more hospital companies and piling on more debt with each additional acquisition. This was and still is a common tactic in the private-equity playbook: Fold in other companies so it appears as though you’ve got a fast-growing business. Then you can flip it back to the public markets, via an initial public offering, before the problems that inevitably follow a debt-fueled acquisition binge show up in financial reports. By 2004, when Forstmann Little sold its interest in the hospital chain, it had tripled its early investment, Batt and Appelbaum estimated.

When private-equity investors see others using a certain tactic to make money, they copy it. In 2004, the firm Blackstone and other investors bought another hospital chain, Vanguard Health Systems—which later, following the “Big is better” mantra, acquired hospitals such as the Detroit Medical Center. In the ensuing years, Vanguard also added more than $1 billion of debt—money that was in part used to pay dividends to private-equity investors. Such actions have become known as “dividend recapitalizations”: The company borrows additional money not to invest in itself, but to pay the investors who control it. In 2006, three private-equity firms—Bain Capital, Kohlberg Kravis Roberts, and Merrill Lynch’s buyout unit—acquired HCA Healthcare, a publicly traded chain of hospitals and clinics, in what was then the largest LBO in history. Combined with dividend recapitalizations, HCA’s return to the public markets in a 2011 IPO resulted in the PE firms making more than three times their original investments in just five years. HCA, we should note, became highly profitable by reducing expenses and extracting more revenue from insurers.

“Yet many other hospital companies have struggled to operate with the debt they took on under private-equity firms’ control. As Batt and Appelbaum wrote in 2020, “The hospital chains faced major challenges in meeting loan obligations accumulated through LBOs of add-on acquisitions; and local health markets experienced instability caused by the pressure of high levels of debt in these national hospital systems and by the imperative to earn high returns for investors.”

So CHS, which had expanded rapidly under Forstmann Little’s control, began selling hospitals to pay down debt. The first deal came in 2016, when CHS spun off 38 struggling rural and small-town hospitals into a separate publicly traded company called Quorum Health Corporation. In the course of that split, the fledgling unit took on $1.2 billion of debt to pay a dividend to its outgoing parent firm. (In 2020, in the middle of the pandemic, Quorum declared bankruptcy.) CHS’s stock price plunged from $46 a share in mid-2015 to less than $3 today.
Even money-losing hospitals still have assets that investors can exploit. As it happens, Watsonville had been a Quorum hospital. In 2019, Halsen Healthcare, a small health-care-management firm, bought Watsonville and sold the hospital’s land and facilities to a real-estate-investment company called Medical Properties Trust, or MPT. Because of that deal, known as a sale-leaseback, Watsonville now had to pay about $4 million a year in rent to occupy a facility that it had previously owned. At that point, Watsonville’s financial position looked unsustainable, and the hospital filed for bankruptcy in 2021. (Using state money and other donations, a nonprofit established by local and county governments and community groups purchased the hospital last year.)“