How private equity is using the pandemic to extort taxpayers

In 2017, Cerberus Capital Management, a private equity firm, acquired Easton Hospital, a facility located in Pennsylvania’s Lehigh Valley, north of Philadelphia. Shortly after acquiring the hospital, Cerberus, through its Steward Health Care subsidiary, sold the property (but not the hospital itself) to a real estate investment firm, Medical Properties Trust. 

Easton Hospital’s property was packaged with seven other hospitals, which netted Cerberus $304 million. But now Easton Hospital had to pay rent to operate on the land it had owned for the last 127 years. 

Although the precise details are not public, it’s also likely that Cerberus saddled Easton Hospital with much of the debt it used to acquire the hospital. Typically, a private equity buyout “includes debt financing in the range of 50 percent to 70 percent of the purchase price, which the acquisition, in this case Easton Hospital, is expected to repay.”

So, for the last few years, Easton Hospital was forced to divert a significant portion of its revenue to paying rent and the debt imposed on it by Cerberus. Not surprisingly, it’s financial condition worsened. 

On March 22, as the pandemic shut down much of the nation and put a premium on hospital capacity, Cerberus sent a letter to Pennsylvania Governor Tom Wolf demanding the state assume “all operating expenses and liabilities of Easton Hospital” or the company would “proceed immediately on planning to close the facility.” 

The gambit worked. On March 27, the state announced it would provide Easton Hospital with an infusion of $8 million to keep the hospital open until at least June 30, 2020. But Cerberus said it was promised more money, and threatened to close the facility at midnight. At the time, five people had already died of COVID-19 in that area of the state. To avoid shuttering the hospital, Pennsylvania relented, and agreed to pay Cerberus $8 million in exchange for a promise to keep the “facility open and operating for at least the next four weeks.” To keep the hospital operating through June, the state will have to pay Cerberus $24 million. 

Where is the money coming from? Taxpayers. According to Wolf, “the bulk of funding for Easton Hospital was coming from the federal government, out of the $100 billion earmarked for struggling hospitals in the $2 trillion stimulus package signed by President Donald Trump on Friday.” 

The CEO of Cerberus is Stephen Feinberg, who has a net worth of $1.6 billion. Feinberg is a prominent Trump supporter and gave “nearly a million dollars to Rebuild America Now, the Trump-supporting super PAC known for its blistering attacks on Hillary Clinton.” Despite having no relevant experience, Trump is reportedly “seriously considering” Feinberg for “a senior role at the Office of the Director of National Intelligence.” 

It’s unlikely that Feinberg has received his last government bailout check. Cerberus “owns 37 hospitals (with over 7,900 beds), more than 25 urgent-care centers, 42 skilled-nursing facilities, and a network of physician groups.”

It is part of a growing trend of private equity investment in health care in the United States. 

The pandemic has put into stark relief how these billionaire investors have fundamentally weakened the health care system. 

Greed in the City of Brotherly Love

In 2018, Paladin Healthcare, a private equity firm run by Joel Freedman, purchased two hospitals in Philadelphia for $170 million. In early 2019, Paladin filed for bankruptcy for both Hahnemann University Hospital and St. Christopher's Hospital for Children. Hahnemann University Hospital, which “serves a primarily low-income community,” was shuttered in September, less than two years after the purchase. Paladin’s purchase of Hahnemann University Hospital was done “in partnership with a Chicago real estate firm,” leading many to speculate that Paladin was always more interested in developing the property than operating it as a hospital. 

The facility is now sitting empty, and the city approached Freedman in March to ask if he would allow it to be used — possibly as a quarantine facility — during the pandemic. In response, Freedman demanded the city pay him $1 million per month in rent. Freedman defended the price tag as “hugely, deeply, discounted rate compared to other known comparable situations.”

But Freedman was comparing it to other facilities that were being used as hospitals. Hahnemann University Hospital, however, “has been gutted and without beds for months — would have needed extensive work just to be used as quarantine space.”

The city rejected the offer, and the facility remains vacant. Philadelphia City Councilmember Helen Gym blasted Freedman’s greed during a health emergency:

That building would be in use but for [Freedman’s] demand to profit from this deal as much as possible while we’re in the midst of a global health crisis. I think that building being vacant right now as we face this is a complete symbol of what has gone wrong in the American health-care system and private equity.

Freedman owns a 5500 square foot home near Philadelphia’s Rittenhouse Square, which is currently on the market for $3.5 million. 

Muzzling critics

Hospital acquisitions were popular among private equity firms from 2000 to 2012. But many firms struggled to make money from those acquisitions and have turned their attention to more profitable slices of the health care economy. 

In particular, private equity has been gobbling up staffing service for emergency rooms and then taking the doctors out of the hospital’s insurance network. As a result, many people return home from the emergency room with massive bills they thought would be covered by their insurance company. This phenomenon is known as “surprise billing.” Today, two companies owned by private equity firms, Envision Healthcare and TeamHealth, have “a 30 percent share of the market for outsourced emergency room doctors.”

The law requires physician practices to “be owned by a licensed medical practitioner.” But entities like TeamHealth evade that requirement by “owning all the assets of the physician practices it acquires—the real estate, offices, equipment, supplies, inventory, and even accounts receivable.” The practices themselves “are owned by a doctor-led organization” set up by TeamHealth with “no assets and no possibility to exist on its own.”

Ling Min, an emergency room doctor, was outspoken about the poor safety practice and shortages of protective gear at PeaceHealth St. Joseph Medical Center in Bellingham, Washington. Because of his candor, Min was fired by his employer, which is not the hospital but TeamHealth. 

TeamHealth is a subsidiary of the Blackstone Group. The CEO of Blackstone, Stephen Schwarzman, is a fundraiser for Trump and a member of his inner circle. Some speculate that Min’s firing was a warning to other emergency room staff who lack adequate supplies and an effort to protect Trump. 

Cutting pay for doctors putting their lives at risk

Emergency room doctors are putting their lives at risk without adequate protective gear or sufficient ability to test patients. Private-equity owned ER staff services have responded by cutting doctors’ pay. 

Stat News reports that “Alteon Health, which employs about 1,700 emergency medicine doctors and other physicians who staff hospital emergency rooms across the country, announced it would suspend paid time off, matching contributions to employees’ 401(K) retirement accounts, and discretionary bonuses in response to the pandemic.” Alteon is owned by Frazier Healthcare Partners, a private equity firm. 

Alteon’s actions are “part of a nationwide trend of hospitals and health systems reducing benefits and even cutting pay rates for doctors — including those on the front lines of the crisis.”

A $3.6 billion bailout for billionaires

The president of the American College of Emergency Physicians is William P. Jaquis, who senior vice president at Envision Healthcare, a private-equity owned staffing company. On April 3, Jaquis wrote a letter to Alex Azar, the Secretary of Health and Human Services, requesting the agency “immediately distribute $3.6 billion to emergency physicians practices.” 

Jaquis says that, without billions in government cash, the same companies would start laying off workers. “Without immediate federal financial resources and support separate from what is provided to hospitals, fewer emergency physicians will be left to care for patients, a shortfall which will only be further exacerbated as they try to make preparations for the COVID-19 surge,” Jaquis wrote. 

Laura Wooster, a lobbyist for the American College of Emergency Physicians, said that private equity firms with billions in assets should get taxpayer funds. “If you start trying to parse big or small, independent or not, it’s going to get messy really quickly. This isn’t the time to figure out too late that unintended consequences left a rural emergency department understaffed because it happened to be staffed by one of the bigger groups,” Wooster told ProPublica.

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