|Posted:||June 8, 2022 01:00 PM|
|From:||Senator Anthony H. Williams and Sen. John I. Kane, Sen. Timothy P. Kearney, Sen. Amanda M. Cappelletti|
|To:||All Senate members|
|Subject:||For-Profit Healthcare Reform: Preventing Exploitive Real Estate Splits|
We will soon introduce legislation to prevent a troubling trend in private equity fund-managed health systems – monetizing health facility real estate for short-term profit. This trend has affected multiple Pennsylvania hospitals and nursing homes, and is most recently demonstrated in Delaware County, where health care is under siege. Crozer Health, Delaware County’s major hospital system, is on the brink of collapse, jeopardizing healthcare access for Delco’s 576,000 residents.
In 2016, an out of state private equity firm purchased the Crozer nonprofit health system in Delaware County, converting the four hospitals to for-profit facilities managed by one of the firm’s portfolio company, Prospect Medical Holdings.
Since then, the private equity firm recouped its investment through a debt-funded dividend scheme. Medical Properties Trust, an REIT controlled by the Prospect’s private equity owners, took on hundreds of millions of dollars in debt to purchase the real estate of Crozer’s 4 hospitals from Prospect, giving Prospect a windfall to pay its private equity owners $645M in dividends. In tandem, the private equity firm committed Prospect to artificially high leases with Medical Properties Trust in order to secure the debt the trust took out to pay for the real estate.
In 2019, the private equity firm sold its controlling stake in Prospect to Prospect’s CEO for $12M, successfully completing the firm’s exit strategy. Delaware County was left with a for-profit health system burdened by impossible lease obligations, destined to fail.
This legislation will increase transparency and prevent extortionate lease-back agreements by requiring for-profit health systems to provide notice of real-estate splits, provide essential information to and receive approval from the Attorney General for such transactions. Preventing this harmful business practice will ensure a healthier business model for hospitals and health systems. It will reduce the increased costs and bad outcomes these private equity real estate deals impose on workers, patients, and communities.
This legislation is one in a package of bills being introduced to combat negative impacts on Pennsylvania communities caused by trends in for-profit health system management. We urge you to co-sponsor this bill to reduce the cost of healthcare and to end harmful healthcare business practices.
Introduced as SB1274