Senators debut legislation introducing penalties for healthcare 'looters'
The Corporate Crimes Against Health Care Act would introduce legal consequences for over-aggressive private equity dealmaking.
Photo: John Baggaley/Getty Images
U.S. Senators Elizabeth Warren, D-Mass., and Ed Markey, D-Mass., both progressive members of the Senate, have introduced legislation they say is intended to root out corporate greed and private equity abuse in the healthcare system.
They cited a McKinsey study suggesting that, over the last decade, private equity fund assets have more than doubled, totaling $8.2 trillion in 2023.
While private equity funds have purchased companies in nearly every sector of the economy, Warren and Markey said their dealmaking in the healthcare sector poses risks to patient health and raises questions about potential abuse of taxpayer dollars.
"Private equity companies routinely load up portfolio companies with usurious debt, sell off valuable assets, and extract exorbitant dividends and fees – regardless of how their investments perform," the senators said.
They added that lax corporate accountability and transparency laws have provided cover for private equity's practices.
WHAT'S THE IMPACT?
The Corporate Crimes Against Health Care Act would seek to create a new criminal penalty of up to six years in prison for executives who "loot" healthcare entities like nursing homes and hospitals if it results in a patient's death.
It would also provide state attorneys general and the Department of Justice 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 healthcare firm experiences serious, avoidable financial difficulties. It would authorize an associated civil penalty of up to five times the clawback amount.
One feature of the bill is that it would prohibit payments from federal health programs to entities that sell assets or use assets for a loan collateral made to a real estate investment trust (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 healthcare entities; and remove the 20% pass-through deduction, passed in the 2017 Trump tax cuts, for all REIT investors.
Additionally, it would require healthcare providers receiving federal funding to publicly report mergers, acquisitions, changes in ownership and control, and financial data, including debt and debt-to-earnings ratios.
The bill would then mandate a Department of Health and Human Services Office of the Inspector General report to Congress on the harms of corporatization in healthcare.
THE LARGER TREND
Private equity in healthcare saw its second highest year on record in 2022, closing on roughly $90 billion worth of deals, according to a 2023 report from consulting firm Bain and Co.
Around the same time, AHIP released a brief on private equity investments in healthcare, saying the need of these firms to achieve high returns, including through the use of provider consolidation, directly conflicts with the goal of lowering costs.
Over the past decade, there has been a rise in private equity investments in fee-for-service healthcare ventures, according to the brief.
AHIP contends that some private equity firms look to turn a quick profit by acquiring fee-for-service medical providers, such as physician specialties and ambulance services. They then sell their shares within three to seven years with the aim of delivering a 20% to 30% return in profit in that time frame, the association for insurers said.
Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.
