In the wake of the Steward Health bankruptcy, Senator Warren introduces bill to penalize hospital looting, claw back unjust enrichment

On June 11, 2024 U.S. Senators Elizabeth Warren (D-Mass.) and Ed Markey (D-Mass.) introduced the Corporate Crimes Against Health Care Act of 2024 to root out corporate greed and private equity abuse in the health care system.^[1] This legislation is largely a response to the looting and subsequent bankruptcy of Steward Health Care in Massachusetts:

“In Massachusetts private equity greed and mismanagement by Ralph de la Torre and top executives drove Steward Health Care (Steward) — which operates eight hospitals in the state — into bankruptcy. The company’s problems began in 2016, when company executives and Steward’s then-private equity owner sold the hospitals’ real estate to Medical Properties Trust (MPT), a real estate investment trust, saddling the hospitals with extortionate rent payments that ultimately landed Steward in bankruptcy.”^[2]

For more on the controversy surrounding Steward Health Care, please see the Private Equity Stakeholder Project’s (PESP) July 2022 blog post on the subject.

The private equity industry has experienced rapid growth in recent years. Private equity and other private funds firms had less than $1 trillion in assets under management in 2004. They now manage more than $13.1 trillion and are growing quickly, including in their share of the healthcare sector.^[3]

This bill’s introduction comes at a time when private equity increasingly makes up a substantial portion of investment in U.S. healthcare companies, reaching an all-time high of 515 deals valued at $151 billion in 2021.^[4] These investments touch virtually every aspect of the healthcare industry, including hospitals, physician specialties such asgastroenterology and anesthesiology, emergency medicine, dentistry, travel nursing, durable medical equipment,behavioral health, disability services, and healthcare services for people in prisons and jails. Key provisions of the bill include:

• Providing state attorneys general and the DOJ with the power to claw back all compensation, including salaries, issued to private equity and portfolio company executives within a 10-year period before or after an acquired health care firm experiences serious, avoidable financial difficulties due to that looting.
• Authorizing an associated civil penalty of up to 5 times the clawback amount.
• Prohibiting payments from federal health programs to entities that sell assets or use assets for a loan collateral made to a REIT, with an exemption for current arrangements; repeal a rule in the Tax Code that allows taxable REIT subsidiaries to exert influence on the operations of health care entities; and remove the 20 percent pass-through deduction, passed in the 2017 Trump tax cuts, for all REIT investors.
• Requiring health care providers receiving federal funding to publicly report mergers, acquisitions, changes in ownership and control, and financial data, including debt and debt-to-earnings ratios.
• Mandating an HHS OIG report to Congress on the harms of corporatization in health care.
• Creating a new criminal penalty of up to 6 years in prison for executives who loot health care entities like nursing homes and hospitals, if that looting results in a patient’s death.

PESP was proud to endorse this legislation, and offered words of strong support in Sen. Warren’s press release:

“Private equity firms have made a killing out of looting vulnerable hospitals and putting patients and healthcare systems at risk. Grounded in the common-sense idea that U.S. healthcare systems should prioritize safeguarding our long-term health over short-term profits, this legislation is a necessary and timely solution to that problem.” – Chris Noble, Policy Director for the Private Equity Stakeholder Project^[5]

If you have questions about the Corporate Crimes Against Health Care Act of 2024 and how it relates to private equity, please contact PESP’s Policy Director, Chris Noble, at chris.noble@pestakeholder.org.

^[1] “Senators Warren, Markey Introduce the Corporate Crimes Against Health Care Act of 2024.” U.S. Senator Elizabeth Warren, 11 June 2024, https://www.warren.senate.gov/newsroom/press-releases/senators-warren-markey-introduce-the-corporate-crimes-against-health-care-act-of-2024.

^[2]Id.

^[3] “A routinely exceptional year,” McKinsey, Feb 2017.https://www.mckinsey.com/~/media/mckinsey/industries/private%20equity%20and%20principal%20investors/our%20insights/a%20routinely%20exceptional%20year%20for%20private%20equity/mckinsey-global-private-markets-review-february-2017.pdf ; “Private markets: A slower era,” McKinsey, February 20, 2024.https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/mckinseys-private-markets-annual-review

^[4] “Healthcare Private Equity Market 2021: The Year in Review” (Bain & Company, March 16, 2022), bain.com/insights/year-in-review-global-healthcare-private-equity-and-ma-report-2022/.

^[5] “Senators Warren, Markey Introduce the Corporate Crimes Against Health Care Act of 2024.” U.S. Senator Elizabeth Warren, 11 June 2024, https://www.warren.senate.gov/newsroom/press-releases/senators-warren-markey-introduce-the-corporate-crimes-against-health-care-act-of-2024.