Private equity created a ‘nightmare' in CT hospitals, staff say. Lawmakers seek to prevent a recurrence

Yahoo

26-05-2025

Connecticut lawmakers and officials are seeking through several proposed bills to restrict private equity's role in Connecticut hospitals.
But there are differences of opinion of how far regulations should go.
'We've all seen what can go wrong when private equity is allowed to strip mine our local hospitals and health care institutions,' said Attorney General William Tong. 'And we've seen growing challenges with access and affordability of care due to unprecedented levels of consolidation in health care delivery in Connecticut.'
Tong added, 'there is no question that Connecticut can and should strengthen oversight and transparency around these transactions and acquisitions.'
Gov. Ned Lamont said in an email that the state needs to have a role in overseeing large financial transactions involving health care practices and facilities 'to ensure the crucial services these facilities provide continue to be readily available for our residents.'
The governor said there has been a real change in how the health care system is being operated with an increased share owned or managed by out-of-state, for-profit companies.
'By updating our laws, we can enable the state to have proper oversight of significant health system transactions and ensure that our systems continue to provide quality, accessible, and affordable health care for all,' the governor said.
Sen. Saud Anwar, Senate chairman of the Public Health Committee, adamantly wants to restrict private equity firms from buying hospitals in the state.
Under one bill, private equity could hold only a minority role in the outpatient setting, an arrangement which would require a management agreement with medical groups.
'I think passing these bills is the responsible thing to do under the current circumstances where we have three hospitals that have been bankrupted by private equity and also the infrastructure of radiology services in the state of Connecticut has been harmed by private equity,' Anwar said. 'So much more harm to our patients has happened through private equity takeover of health care entities.'
The impact of private equity in health care has been on display in Connecticut recently as Prospect Medical Holdings, a private equity company, filed for Chapter 11 bankruptcy this past January. An investigation of the United States Senate Committee on the Budget conducted last year that included Prospect found that private equity in health care prioritized profits over patient care.
Prospect, which operates Manchester Memorial, Rockville General and Waterbury Hospital, has faced fiscal challenges in many of its hospitals in the state, from delayed payments to physicians and vendors to a shortage of health care providers.
Private equity regulation
There are currently four bills regarding private equity up for consideration by the state legislature.
SB 1507 prohibits private equity companies and real estate investment trusts from acquiring or increasing direct or indirect ownership interest in or operational or financial control over a hospital or health system, according to the bill's analysis. The analysis states that the bill also requires the Office of Health Strategy to evaluate whether the attorney general should be allowed to petition the Superior Court to appoint a receiver to manage hospitals in financial distress or operational crisis.
HB 6873, the governor's bill, which focuses on the strengthening of the review of health care entity transactions, would expand the list of transactions that require prior notice to the attorney general, according to the bill's analysis.
It requires parties to give notice for a material change transaction or a series of them over a five-year period involving a health care entity with total assets or annual revenues or anticipated annual revenues of $10 million or more, the analysis states. This notice is required for private equity entities, but not venture capital firms exclusively funding start-ups or other early-stage businesses, the analysis further explains.
Material change transactions include a corporate merger, the acquisition of 20% or more of an entity's assets or operations or the formation of certain types of entities such as a management services organization for the purpose of administering contracts with providers, carriers or certain others, according to the bill's analysis.
'We have an opportunity to have a look at some of the transactions which could result in the challenges with monopoly of the market,' Anwar said. 'We need to look at some of those aspects. Also a part of the bill is the restriction of insurance companies to own practices.'
Other bills related to private equity include HB 7050 and SB 1539, which refer to the modification of the state's Certificate of Need program for health care entities. Those programs are administered by the Office of Health Strategy and Health Systems Planning Unit.
HB 7050 would allow the HSPU to implement an expedited CON review process for applications for services, facilities or equipment that address an unmet need in the applicant's geographic area, according to the bill's analysis.
SB 1539 also requires CON approval if a private equity company acquires a controlling interest in a health care facility, the analysis states.
Anwar cites one important aspect of the bill which prohibits the HSPU from granting a request for intervenor status in any public hearing for a group practice's CON application.
'If some small group practice is going to open we don't want intervenor status for large hospitals,' he said. 'That is reducing opportunities for entrepreneurship because we are seeing clinicians leave our state.'
Prospect
The call to restrict private equity is in response to the effect of Prospect Medical Holding's impact on its three hospitals, leaving state officials raising concerns about profits being maximized over patient care.
The state Office of Health Strategy's latest Annual Report on the Financial Status of Connecticut's Short Term Acute Hospitals found that Prospect lost $86.4 million in Fiscal year 2023.
In 2022, Yale New Haven Health agreed in a tentative agreement to purchase Prospect's three hospitals for $435 million but that deal has been bogged down in lawsuits and Yale recently said the deal was no longer possible due to 'mismanagement.'
Meanwhile, bids are open for all three hospitals with a deadline of May 18.
In the meantime, nurses and unions at several of Prospect's hospitals in the state have told the Courant that their hospitals have been decimated, with some worried about the quality of care as they wait for a new owner to purchase the hospitals.
Ed Gadomski, Connecticut Healthcare Associates Internal Union Organizer, who represents the nurses and technicians at Waterbury Hospital, says almost all of its departments are understaffed with nursing-to-patient ratios well over the appropriate levels set by the Hospital Staffing Committee, which he has filed a complaint with the Department of Public Health that the hospital is violating the Hospital Staffing Law.
He has yet to hear from DPH on the matter, he said.
He added that antiquated supplies are used to treat patients and the Operating Room has a 50% vacancy rate.
'If they bring in another private equity owner, I believe there will be a mass exodus of staff because no one is going to stick around for a second nightmare,' Gadomski told the Courant. 'Private equity in our eyes are all the same. They prioritize profits over patient care.'
Gadomski said due to the understaffing it raises the risk of medical errors occurring, a major concern that is often on the forefront of his mind.
Zirui Song, associate professor of health care policy and medicine at Harvard University and Massachusetts General Hospital, said staffing cuts have been a common strategy after private equity acquisition of acute care hospitals.
'We believe from the academic standpoint, one of the primary explanations behind the findings of increased patient harm and increased transfer of patients to other hospitals and the reduced capacity to deliver care on the front line is the staffing cuts,' he said.
In an article in JAMA collaborating with several other doctors, Song found that based on an observation of 10,091 hospitalizations, 'Medicare beneficiaries admitted to private equity hospitals experienced a 25.4% increase in hospital-acquired conditions compared with those treated at control hospitals.'
The article found there was also a 27.3% increase in falls and a 37.7% increase in central-line bloodstream infections at private equity hospitals.
'On balance the evidence on private equity acquisitions of hospitals to date shows that these acquisitions are associated with increased hospital profitability, increased hospital charges, increased preventable patient harm and reductions in staffing,' Song told the Courant.
Sale leaseback agreements
Rep. Matt Blumenthal, D-Stamford, co-chair of the Government Administration and Elections Committee has also raised concerns about private equity, with the Government Administration and Elections Committee passing a bill that would ban the licensing of health care entities that have engaged in sale leaseback transactions involving a hospital.
Anwar said he expects to include language from that bill in the final bills on private equity.
In 2018, Prospect, then majority-owned by private equity firm Leonard Green & Partners, took out a $1.1 billion loan to fund a $457 million dividend for its executives and investors, the CT Mirror reported. The following year, to pay for the loan, Prospect sold the land and buildings from hospitals it owns in Connecticut, California and Pennsylvania to Medical Properties Trust for $1.4 billion, then leased back those hospitals from the trust, CBS News reported as cited by the CT Mirror.
Medical Properties Trust, a publicly traded real estate investment trust, or REIT, has built a $19 billion business on transactions like the one with Prospect, known as 'sale-leasebacks,' the CT Mirror reported.
'I do not think there is any conceivable way that any sale leaseback transaction could benefit the provision of health care in a hospital setting,' said Blumenthal. 'The only possible effect of the transaction is to load up the health care owner with debt to extract profit from the hospital at the hospital's expense.'
Massachusetts passed a law in 2024 that restricts the main campus of a hospital from being sold to a real estate investment trust.
Restricting private equity
Business owners and corporations have concerns about the complete restriction of private equity in health care.
While the Connecticut Hospital Association said in a statement that 'unregulated private equity has led to negative outcomes in the state' it also cautioned that any 'solution should avoid unintended consequences, such as discouraging modest yet important investments that can support and sustain health care delivery in Connecticut.'
Dr. Joe Cappa, a board certified gastroenterologist, wrote in his testimony in opposition to SB 1507 that the bill 'poses an existential threat to the continued existence of independent practices like mine.'
'The moratorium on future investment would ultimately lead to independent practices like mine selling to hospitals,' he said. 'This is the exact opposite of what the state needs.'
Amanda Gunthel, president of the Connecticut Association of Ambulatory Surgery Centers, wrote in her testimony against SB 1507 that the bill 'could make it incredibly challenging to respond to the tightened credit markets and high interest rates that continue to negatively impact the health care industry.'
Anwar said he expects the bills to come before the legislature in the next two weeks.
The CT Mirror contributed to this report.