Meet the States Fighting Private Equity’s Health Care Destruction
PLUS: D.C. gives initial approval to the largest stadium subsidy in U.S. history.
This is Boondoggle, the newsletter about how corporations rip off our states, cities, and communities, and what we can do about it. If you’re not currently a subscriber, please click the green button below to sign up. Thanks!
Editor’s note: Today’s main post was written by Sumitra Rajagopal, an intern at the American Economic Liberties Project.
In 2016, Prospect Medical Holdings, backed by private equity firm Leonard Green & Partners, bought Crozer Health in Delaware County, Pennsylvania, for $300 million. It promised to keep the system running for at least 10 years.
However, it did nothing of the sort. Instead, it sold off Crozer’s hospital properties, overwhelming the system with more than $200 million in mortgage debt and ignoring $150 million in pension obligations.
The result? Bankruptcy in 2025, nine years after the acquisition.
Prospect’s truncated tenure saw hundreds of layoffs, a temporary suspension of emergency services during the pandemic due to “staffing issues,” closing a maternity ward and hospice unit, and threatening to cut off paramedic services for municipalities that didn’t provide it with funds.
Ultimately, the two Crozer-owned hospitals in Delaware County were shuttered. The community lost its primary trauma center and only burn unit. More than 3,000 healthcare workers are expected to lose their jobs. The state tried to intervene, with the governor’s office authorizing more than $15 million just to keep Crozer’s doors open. But even after securing a promise from Prospect to maintain services through July 2025, the company broke its word again, filing for bankruptcy in January.
Sadly, this is a common tale when it comes to PE investments in health care facilities: In 2023, PE-owned facilities made up 21 percent of healthcare-related bankruptcies. Another 2023 study found that PE-owned hospitals saw increases in hospital-acquired conditions such as falls and infections. That’s no coincidence, considering that lowering nurse-to-patient ratios and reducing staff training are typical “efficiency” measures implemented by PE firms.
Even a recent study purporting to show the benefits of private equity hospital acquisitions did not dispute that they raise outpatient prices or that patient satisfaction declined after a takeover.
PE hospital closures are especially devastating for marginalized communities who rely on safety-net hospitals, which deliver care to patients regardless of their insurance status or ability to pay. Combined with Trump’s slashing of federal health insurance programs like Medicaid, closures of safety-net hospitals leave underprivileged communities with no affordable or accessible healthcare options.
The Pennsylvania state house recently passed a bill requiring for-profit and non-profit hospital operators to report potential mergers and acquisitions, but it failed to receive Senate support. In response, Rep. Lisa Borowski and Sen. Tim Kearny narrowed the bill’s scope, introducing the Health System Protection Act, which only applied to for-profit operators like PE firms.
It also bans sale-leaseback deals, in which the PE firm sells hospital real-estate and has the new owner lease it back to the hospital, typically at high rates, as a way to extract more money from the system. That bill also passed through the House and awaits Senate approval.
Pennsylvania Gov. Josh Shapiro urged lawmakers to take action on the issue in his 2025 budget address: “Pass the bills, put them on my desk, and stop letting private equity take advantage of our health care system.” Shapiro specifically called for an end to “harmful” sale-leaseback deals and transparency regarding sales, mergers, acquisitions, and bankruptcy claims.
Massachusetts faced a similar crisis in 2024 with the PE-backed hospital system Steward Health Care. In response to Steward filing for bankruptcy and the resulting financial crises for the eight hospitals it owned, the state passed House Bill 5159, which Gov. Maura Healey signed into law. With it, Massachusetts became the first state to prohibit sale-leasebacks of acute-care hospitals.
Oregon took things a step further with a new law that bans non-physician investors from controlling the medical side of health care practices. While the state already required physicians to hold at least a 51 percent stake in most practices, PE firms were getting around this requirement by having their own hired physicians technically hold clinical ownership. Behind the scenes, though, the firms pulled the strings through management service organizations (MSOs) and pocketed most of the revenue. This new law closes that loophole by targeting MSOs, putting real limits on private equity control.
More states need to follow in the footsteps of Massachusetts and Oregon and crack down on PE-owned healthcare. But all of this begs the question: Why are hospitals turning to PE for financing in the first place?
The truth is, hospitals are desperate. Labor costs remain high due to worker shortages (though hospitals also often bargain in bad faith with workers and turn to more expensive travel nurses to fill gaps). Equipment and medication prices have risen, in part due to tariffs. These expenses continue to increase faster than the rate of inflation.
Meanwhile, hospitals' profit margins are already thin due to increasingly high rates of un- and undercompensated care, driven by private insurers that administer Medicare Advantage and Medicaid managed care plans. Trump's “One Big Beautiful Bill” will further erode these margins by cutting Medicaid, Medicare, and premium subsidies for Affordable Care Act plans.
The projected loss in funding and hospital revenue from patients covered by Medicaid is devastating for hospitals, with estimates suggesting a 19 percent reduction in operating margins for those in Medicaid expansion states and a 56 percent reduction for safety net hospitals.
With numbers like that, private equity starts to look like the only way out. But lawmakers should be well aware that allowing further PE encroachment into their health care systems without sufficient oversight and protections for patients and workers creates a lot of potential for causing the very outcomes they hope to avoid.
UPDATE: The Washington, D.C., city council has given initial approval to what would be the largest professional sports stadium subsidy in American history, a $6 billion-plus deal to build a new facility for the NFL’s Washington Commanders. Though a second vote is technically required, the 9-3 margin on the first vote removes significant leverage from anyone looking to extract more concessions from the Commanders’ owners.
SIMPLY STATED: Here are links to a few stories that caught my eye this week.
A new Illinois law bans the use of artificial intelligence to provide mental health advice.
Non-profit hospitals are spending millions of dollars on sports stadium naming rights.
“How the Dallas Stars monopolized Texas youth hockey.”
North Dakota residents allege that oil companies are illegally withholding royalty payments owed for drilling on their land.
Union Pacific has proposed acquiring Norfolk Southern, which would create the nation’s only cross-country railroad network and put 40 percent of rail freight under the control of one corporation.
Thanks for reading this edition of Boondoggle. If you liked it, please take a moment to click the little heart under the headline or below. And forward it to friends, family, or neighbors using the green buttons. Every click and share really helps.
If you don’t subscribe already and you’d like to sign up, just click below.
Thanks again!
— Pat Garofalo
 |
|