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Senate Co-Sponsorship Memoranda
Senate of Pennsylvania
Session of 2023 - 2024
Regular Session
MEMORANDUM
| Posted: | March 22, 2023 02:25 PM |
|---|---|
| From: | Senator Timothy P. Kearney and Sen. Anthony H. Williams, Sen. Amanda M. Cappelletti, Sen. John I. Kane |
| To: | All Senate members |
| Subject: | For-Profit Health Systems Reform: Preventing Harmful Healthcare Deals |
| We intend to introduce legislation to protect Pennsylvania hospitals, hospices, and nursing homes and the patients, employees, and communities they serve from the growing threat of unscrupulous owners and exploitative financial deals that lead to the failure of these essential institutions. In recent years, private equity firms employing leveraged buyout strategies have increasingly entered and grown in the healthcare sector, growing from 325 private equity deals in 2010 to over 1,400 in 2021 across the US. An increasing share of Pennsylvania’s health care facilities have been purchased by private equity firms that promise to maintain services, jobs, and keep the doors open. However, oftentimes private equity firms employ financial strategies and deals that undercut hospital operations, short- and long-term feasibility, affordability, and access to healthcare in the communities they serve. Prospect Medical Holdings’ purchase and operation of Crozer Health in Delaware County and Paladin Healthcare Capital’s purchase and operation of the former Hahnemann Hospital in Philadelphia are two of the latest examples of this trend and its consequences. Such financial strategies include spinning off the real estate of a hospital or nursing home to a private entity through sale-leaseback agreements. The liquidation of real estate makes the health system owners cash rich while greatly destabilizing the health system itself. A related type of transaction, dividend recapitalization, involves a for-profit health system saddling itself with debt in order to pay massive dividends to its shareholders. Another strategy, roll-ups, involves a health system purchasing nearby practices one by one to avoid the scrutiny of US anti-trust laws, then raising the prices of health services once the system has market power. These kinds of wealth extraction strategies are motivating irresponsible owners – whether private equity or other investors – to purchase health systems in the first place. Pennsylvania’s current laws assume that the owners of our health systems are interested in running hospitals and nursing homes in the long-term, not running away with cash in the short term at the expense of their enterprises. Our legislation proposes a process for evaluating large financial transactions involving health systems and allowing for intervention when they pose a threat to public. Our legislation would require for-profit health systems to file notice and documentation to the Office of the Attorney General before completing critical transactions – including but not limited to sale-leaseback agreements, purchases or sales health system facilities or real estate, dividend recapitalization, private practice roll-ups, and changes in majority owner equity stakes. If such a transaction threatens the sustainability of health services and access to healthcare, the Office of the Attorney General would be able to challenge the deal in court for violating the defined public interest. This framework allows for evaluating deals on a case-by-case basis to determine what is in the best interest of patients, communities, and their right to accessible and affordable healthcare. It provides transparency and accountability for all taxpayers whose dollars fund the American healthcare system. Please join us in creating a better policy to protect Pennsylvania’s health systems and access to healthcare for all Pennsylvanians. |
Introduced as SB548