Senators launch bipartisan probe of private equity’s growing role in U.S. health care

Two U.S. senators have launched a bipartisan investigation into secretive and powerful private-equity firms’ involvement in health care in the nation, demanding documents and information from executives associated with two hospital systems to assess how much profit they have generated through their complex financial arrangements and whether the deals harmed patients and clinicians.  

Sheldon Whitehouse, the Rhode Island Democrat who chairs the Senate Budget Committee, and Chuck Grassley, the Iowa Republican who is the committee’s ranking member, are spearheading the inquiry. It began in March when Grassley requested information from private-equity giant Apollo Global Management, owner of Ottumwa Regional Health Center, a Lifepoint Health facility in southeast Iowa where a male nurse assaulted at least nine sedated patients in 2021 and 2022. The nurse later died from an overdose at the facility.

“When it comes to our nation’s hospitals, a business model that prioritizes profits over patient care and safety is unacceptable,” Grassley said in a statement. “The shocking events at Ottumwa Regional Health Center prompted me to ask tough questions about how financial maneuvers by private equity and related companies have negatively impacted the resources, and thereby the patient care, at our rural hospitals. I look forward to working with Senator Whitehouse to get answers and ensure that our nation’s hospitals provide high-quality health care to the communities and patients they serve.”

With Whitehouse joining the investigation, it has expanded to include private-equity deals affecting two hospitals in his home state of Rhode Island. Those transactions involve Prospect Medical Holdings, an operator of 16 safety net hospitals in four states that was owned until recently by a group led by Leonard Green & Partners, a private-equity firm in Los Angeles. Of interest to Senate investigators are deals involving Prospect Medical’s ownership of Our Lady of Fatima Hospital in North Providence and Roger Williams Medical Center in Providence, and also facilities in Pennsylvania and California. 

“As private equity has moved into health care, we have become increasingly concerned about the associated negative outcomes for patients,” Whitehouse said in a statement. “From facility closures to compromised care, it’s now a familiar story: Private equity buys out a hospital, saddles it with debt, and then reduces operating costs by cutting services and staff — all while investors pocket millions. Before the dust settles, the private-equity firm sells and leaves town, leaving communities to pick up the pieces.”

Over the past decade, private-equity firms like Apollo have spent $1 trillion buying health-care businesses, including hospitals, nursing homes, physician practices and hospital staffing companies. To finance these deals, private-equity owners typically burden the companies they buy with debt, then slash company costs to increase earnings and appeal to potential buyers in a few years.

Academic studies show that private-equity firms’ involvement in health care is associated with significant cost increases for patients and payers, such as Medicare. A lower quality of care has also been associated with the firms’ investments in health care. A 2021 study of nursing home ownership by academics at New York University, the University of Chicago and the University of Pennsylvania found that death rates were 10% higher at facilities owned by private equity than by other owners, including for-profit companies, while compliance with Medicare standards of care declined. Taxpayer costs rose by 11% at the facilities.

Letters sent by Whitehouse and Grassley to five different parties nod to these problems, noting that ownership of health care entities by private equity “may result in negative outcomes for both frontline medical providers and patients ranging from staffing reductions to wholesale facility closures to substandard medical care.” The senators asked for documents and information about the complicated financial arrangements that allowed the firms to extract money from the hospital systems they own. “The American people deserve to understand the potential impact of private-equity firms in the delivery of their health care,” the letters state.

The senators seek to shed light on deals involving Lifepoint Health, owner of the Ottumwa Regional facility and more than 60 other mostly rural hospitals nationwide, and its owner Apollo Global Management, a private-equity firm run by Marc Rowan who co-founded the firm in the early 1990s with Leon Black. 

Letters have also gone out to Prospect Medical, Leonard Green & Partners and Medical Properties Trust, a real estate investment trust that has been involved in multiple deals with private-equity firms allowing them to sell off hospital real estate holdings for cash.

The companies did not immediately respond to requests for comment about the letters.

The senators want information about a common private-equity practice in which the companies they own take on significant debt, then use the money raised by these debt issues to pay cash to the private-equity firms. These deals enrich the firms but can hobble the companies shouldering the debt.

During the time it owned Prospect, for instance, the Leonard Green group loaded more than $1 billion in debt onto the operation. In 2018, the group received a cash payment of $457 million from Prospect even though the company generated a net loss of more than $240 million that year and reported unfunded pension liabilities of $260 million, according to a lawsuit filed against Prospect last month by Rhode Island Attorney General Peter Neronha.

His suit aims to enforce conditions of a 2021 agreement that allowed Leonard Green to sell its stake back to Prospect only if certain financial requirements were met. Among them were requirements that Prospect “provide for a full a financial commitment to the Rhode Island hospitals that covers operational and capital expenses for the next five years.” In his suit, Neronha contends those conditions have not been met. 

Other complex financial deals that allow private-equity firms to drain cash from the companies they buy are also under scrutiny in the Senate investigation. These arrangements include the sales of real estate on which these companies’ hospitals stand, enriching the private-equity owners who receive cash from the sales but saddling the hospitals with higher rent costs, potentially imperiling their future operations.

Private-equity deals are often shrouded in secrecy. Because the companies owned by these firms are private, there is less information about their operations than is available from public companies. The way the deals are structured often obscures private-equity ownership and protects the firms from liabilities associated with practices at the companies they own. 

The new information request to Rowan at Apollo Global Management reiterates questions asked of his firm by Grassley last March, which Grassley and Whitehouse said in their letter to Rowan have not been answered. “The limited information and documents that have been provided to date have given rise to additional questions and concerns about financial transactions impacting Ottumwa Regional Health Center and the people of Iowa,” the letter to Rowan stated. Instead of answering Grassley’s questions, the letter continued, “Apollo has continued to hide behind Lifepoint.” Apollo “has an obligation to provide full and complete responses to the committee,” the letter stated.

In their letter to Lifepoint, the senators asked for an internal document prepared for the special committee of its board that appears to have identified deficiencies “that may have contributed to the shocking events against patients at Ottumwa.” 

The senators’ letters seem designed to connect arcane financial engineering by private-equity firms with declining health care quality or access in the United States. The Senate Budget Committee has broad authority to investigate “matters that affect the content or determination of amounts included in or excluded from the congressional budget or the calculation of such amounts,” the letters explained.

“Access to quality health care is not a partisan issue,” one of the letters noted, adding that the Budget Committee is “performing an objective and independent review of the impacts that private-equity ownership has had on quality of care and hospital operations.”