Deal Diary: The Turbulent Impact of Financial Players in Healthcare

In an era where healthcare and finance intersect with increasing frequency, the repercussions of investment decisions can ripple through communities, leaving behind a wake of outcomes both positive and negative. A recent examination into the actions of private equity firms within the healthcare sector sheds light on this complex relationship, highlighting the case of Cerberus’s involvement with Steward Health in Massachusetts as a focal point.

## The High Stakes of Private Equity in Healthcare

Fourteen years ago, Cerberus Capital Management made headlines with its acquisition of what would later become Steward Health, signaling a significant bet on the healthcare industry’s profitability. Fast forward to the present, and the investment firm has exited its position, pocketing an approximate $800 million in profit. However, this financial success story is overshadowed by the dire situation left in its wake. Steward Health now grapples with severe distress, including more than $50 million in back rent and the looming threat of additional facility closures. These developments are particularly alarming as they primarily affect patients in underserved areas, exacerbating the challenges of accessing quality healthcare.

A recent study illuminates another concerning trend: hospitals owned by private equity firms exhibit roughly 25% higher rates of hospital-acquired conditions. This uptick is largely attributed to “more efficient” staffing models, which is often a euphemism for understaffing, aimed at reducing operational expenses. Such practices underscore the potential risks of prioritizing profit margins over patient care.

## A National Response

The implications of private equity’s role in healthcare have not gone unnoticed. The Biden administration has initiated an investigation into the matter, signaling the gravity of the concerns at hand. Similarly, the Federal Trade Commission (FTC) is engaging the topic through workshops, and Congressional hearings are on the horizon. At the state level, Massachusetts officials are expressing vehement opposition to these developments, reflecting the broader apprehension about the influence of financial players in healthcare.

## The Perspective from the Field

At Weavil Law PC and Sierra Pacific Partners, our experience with healthcare and health tech transactions provides us with a unique vantage point on this issue. Private equity’s involvement has undeniably offered a path to liquidity for entities in the lower middle market, such as physician practices and ambulatory surgery centers (ASCs). This influx of capital has spurred innovation in service delivery and operations, contributing to the evolution of the healthcare landscape.

However, high-profile negative outcomes, exemplified by the Steward Health scenario, could precipitate legislative action. Potential regulations might mirror the anti-trust framework, scrutinizing the substantial effects of transactions on patient populations or even barring financial entities from certain healthcare transactions entirely. Such legislative measures would have wide-ranging implications, affecting hospital systems, telehealth platforms, traditional physician practices, and medspas, among others.

## Navigating the Future

As the healthcare sector continues to evolve, the role of financial players remains a topic of heated debate. The benefits of private equity, such as fostering innovation and providing necessary capital, are counterbalanced by the risks of prioritizing profit over patient care. For financial entities keen on remaining active in the healthcare space, the path forward requires careful consideration of their impact on public health and community welfare. The unfolding narrative of private equity in healthcare serves as a reminder of the delicate balance between financial gain and the fundamental ethos of medical care: to do no harm.

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