Murphy: People Are Dying In These Hospitals And Nursing Homes So Out Of State Executives Can Get Rich

WASHINGTON-U.S. Senator Chris Murphy (D-Conn.), a member of the U.S. Senate Health, Education, Labor, and Pensions (HELP) Committee, on Thursday spoke on the U.S. Senate floor on the role private equity has played in the commodification of health care at the expense of patients, doctors, nurses, and local communities. In his remarks, Murphy explained how private equity's obsession with profit has no place in health care and leads to worse quality care and higher costs.

"A Wall Street investment bank owning your children's pediatrician would have sounded silly to Americans a generation ago," Murphy said. "But today, the role of private equity and hedge funds and big banks in health care ownership is one of the most important stories in health care. And by and large, it's bad news for patients. Right in front of our eyes, the defining purpose of our health care system is being transformed. Our hospitals and our nursing homes, our hospice care, even our kids' pediatric practices, now exist often for the primary purpose of making obscene amounts of money for investors. It's not about keeping us healthy. It's about return on investment.

Murphy described how Prospect Medical Holdings purchased three hospitals in Connecticut-Rockville General, Manchester Memorial, and Waterbury Hospital- and ran them into the ground: "Two years after their purchase, the hospitals in Rockville, Manchester, and Waterbury hadn't seen much of any improvement or investment. In fact, they were beginning to fall into greater disrepair. As the three of them entered some pretty dire financial straits, Prospect didn't make further investments, they took out a $1.1 billion mortgage, and made these hospitals the collateral. Now, surely, they put some of that money, they used the hospitals as collateral, they raised $1.1 billion, surely they put that money back into the hospitals to pay for repairs and improve their financial situations? You know the story. They didn't do that. In fact, half of that loan - they used the hospitals for collateral - half of that loan went to dividends to investors and executives across the country in California, where Prospect was located."

Murphy continued, calling out Prospect's CEO for getting obscenely rich while the hospitals he bought were saddled with millions in debt and unpaid taxes: "$90 million went straight to one person, the CEO. Let me guarantee you, $90 million would have made a huge difference at Waterbury Hospital. It would have saved lives. But Waterbury Hospital was used as collateral so that Sam Lee, the CEO, could make $90 million. Next to nothing went toward a single one of the 16 hospitals that Prospect owns across the country. Prospect owes the state of Connecticut $67 million in unpaid taxes. They owe the low-income city of Waterbury - which struggles to pay its elementary school teachers - $10.5 million. None of that money went to pay the taxes they owe Connecticut and the city of Waterbury. Prospect's CEO made $90 million while his company refused to pay taxes. But maybe, you ask, the CEO really needed the money. Well, he didn't. It's just greed. This guy Sam Lee, I don't know him, but he owns not one, but two luxury homes in Los Angeles. They are worth more than $15 million combined. Each of them has its own pool, one even has its own private basketball court. They're 11 minutes from each other. Sam Lee pillaged three Medicaid hospitals in Connecticut so he could have two mansions 11 minutes apart."

Murphy underscored how Prospect's commodification of Connecticut's healthcare, and Steward Health Care's similar failures in Louisiana and Massachusetts, are emblematic of the larger, destructive impact of private equity on America's healthcare system: "But here's the real problem. Sam Lee isn't the exception - he's the rule. We just finished up a set of hearings and meetings on Steward Health Care, which used the same playbook as Prospect to run their hospitals into the ground while their out-of-state CEO also cash out. The hospitals Steward bought in Louisiana and Massachusetts were gutted. A nurse testified before our committee this month that they put dead babies in cardboard boxes because they wouldn't pay for the kind of temporary coffin that would normally be used for a dead child. The nurses would leave during the day to go to local stores to buy basic supplies on their own dime because they didn't have them in the hospital. The elevators in these Steward Health Care hospitals stopped working. Why? Well in this case, it's because that CEO, Ralph de la Torre, who ignored a Congressional subpoena to appear before the HELP committee this month, could buy a $40 million, 190-foot yacht with six bedrooms that costs $4 million a year just to keep in the water. Dead babies in cardboard boxes so that a CEO could burn $80,000 a week on a crew and shrimp cocktail and champagne for his private yacht. That is obscene. That is revolting. But, that is our choice. That's the health care system that our laws currently allow to exist. What's happening at Prospect and Steward is happening all over the country."

Murphy concluded: "Now let's be clear - this is not the only problem in the American health care system. We have a lot of work to do to increase quality and reduce cost. But this new phenomenon - the financialization of healthcare and the rapidly increasing ownership of healthcare institutions by private equity - has happened virtually overnight, with little public discussion, and it has made all of the failures that already existed in our healthcare system 100 times worse. It's been a boon to the private yacht industry, but it's been largely miserable for patients. It might feel like the train has left the station, but it has not. It's not too late to turn it around. Congress can and should act."

Last week, Murphy spoke at a HELP hearing, "Examining the Bankruptcy of Steward Health Care: How Management Decisions Have Impacted Patient Care." Earlier today, he voted to hold Steward Health Care CEO Ralph de la Torre in contempt of Congress.

A full transcript of Murphy's remarks can be found below:

"When I was growing up, I had a pediatrician. His name was Dr. Cartlon. He was kind, he was reassuring. His advice and his comfort meant a lot to my parents, who were young parents and in need of a steady shoulder to lean on when their kids were born. I remember Dr. Cartlon distinctly, even though he retired when I was pretty young, and I remember that he was a really important part of our family's support system; he was an important part of our community and family identity.

"My kids don't have a pediatrician. They have many pediatricians. That's because the big pediatric practice that we use decided that it was inefficient and not cost effective to assign one pediatrician to every family. Every time we book an appointment, we go see a different doctor at this practice. They're all competent. Our kids are healthy. And this 'very efficient system'- it does mean that we probably get in to see a doctor faster than when my parents were trying to find a last-minute appointment with only a very busy Dr. Cartlon.

"It's an efficient system. But it's hollow. I don't know any of the doctors' names. We have no relationship with one pediatrician. It's clinical,it's not personal. And while we get good care, I admit it leaves you feeling a little bit empty, a little bit alone, if you're just a number, or a name, in an appointment book. Without a Dr. Cartlon that you can count on, that experience is a little less assuring.

"So, I got curious, and I looked up who owns this very competent, very efficient pediatric practice that we use. What I learned is that the primary investor in our children's pediatric practice… is Goldman Sachs. A Wall Street investment bank owning your children's pediatrician would have sounded silly to Americans a generation ago. But today, the role of private equity and hedge funds and big banks in health care ownership is one of the most important stories in health care. And by and large, it's bad news for patients. Right in front of our eyes, the defining purpose of our health care system is being transformed. Our hospitals and our nursing homes, our hospice care, even our kids' pediatric practices, now exist often for the primary purpose of making obscene amounts of money for investors. It's not about keeping us healthy. It's about return on investment. And that's what I want to spend a few minutes talking to my colleagues about today.

"Historically, you could count on your doctor's office and your nearest hospital to be locally owned, likely to be not-for-profit, and trust that the reason they existed was to make sure patients got the care they needed. The people that owned the health care institutions you counted on lived in your community. They didn't answer to New York private equity firms or Los Angeles investment companies. They were accountable to you. To their neighbors.

"That really mattered! It made you feel safe. It reassured you that you or your loved ones were in good hands. Because ultimately, that's the only thing that mattered. When we're at our most vulnerable, whether that be because of something joyous like a pregnancy or something more worrying like a difficult diagnosis, all we want to know is that the priority at that institution, that we or our loved one is at, is that we're being taken care of. That the primary motivation of the person taking care of us is taking care of us.

"But increasingly that is no longer the case. Let's just take for today private equity firms: companies that buy up companies, extract as much rent from them as possible, and then quickly turn them over to the next highest next bidder. Over the past decade, private equity investors have spent more than $1 trillion acquiring hospitals, nursing homes, and physician practices. You can see here in this chart that private equity firms acquired six times as many medical practices in 2021 compared to just a decade earlier in 2012. The reach today of private equity in our healthcare system is enormous. Think everything from specialists, like OB-GYNs and anesthesiologists, to generalists, like primary care providers, to emergency services and urgent care. You might not even know that the new doctor you're seeing, or the place where you're getting your blood work done, is owned not by anybody in your community, but by a far-off private equity firm.

"To understand why this is so dangerous, you just have to understand what private equity is all about - and how it makes a very small number of people a ton of money. The playbook is pretty simple: private equity firms invest in companies, largely through borrowed money, and then flip them for a quick profit to enrich themselves and their investors. It's called buy, strip, flip.

"Buy - The private equity firm uses a leveraged buyout, normally, meaning they put up a small amount of their own money and borrow all the rest, immediately saddling their new purchase with huge amounts of debt.

"Strip - They comb through the balance sheets to find as many cost-cutting opportunities as possible. They lay off workers. They stop paying vendors. They even might sell the land underneath the company that they bought, giving themselves a big one-time payout, leaving the company to pay rent on the space that they used to own.

"And then flip - They find a new buyer, or they get bailed out by somebody, sometimes even government, and walk away richer than before and completely insulated from any legal or moral fallout from the consequences of their actions.

"Short-term profit is the priority, and in the healthcare system, that comes with real risk and downside. Because at the moment you are most vulnerable, you want to make sure the priority is taking care of you.

"Let me tell you a story to give an example about how all this works. Prospect Medical Holdings is a safety net hospital operator - which means they provide health care to people who are on Medicaid and people who don't have insurance. Prospect was acquired by a private equity firm in 2010, and currently owns 16 hospitals in this country - in Pennsylvania, California, Rhode Island, and Connecticut. Before we get into the details, let's talk about how a private equity firm buys a hospital. They raise capital from investors, but a huge portion of the money they raised, as I mentioned before, is borrowed. So, from the start, the hospital that they're buying is millions of dollars in debt, additional debt, and is immediately responsible for generating revenue to pay that debt. Debt that the hospital didn't acquire. Debt that is on the hospital because the ownership company borrowed the money in order to buy the hospital. Sometimes that means taking a bad financial situation and ultimately replacing it with an even worse one.

"So in 2016, this company Prospect bought three hospitals in my state - Rockville General, Manchester Memorial, and Waterbury Hospital - for a total of $150 million. Combined, these hospitals serve about 600,000 patients. They employ about 4,000 people. For most of the people who live in this area, these hospitals are their best, and sometimes their only, option. Access to emergency rooms, especially if you live in one of the more rural parts of the state, can be a matter of life and death. Many of the patients are on Medicare or Medicaid and they might not have access to transportation that would allow them to get to a hospital further away. I should note that 80% of Prospect's revenues come from Medicare and Medicaid reimbursement - meaning this company, and the hospitals it owns, are largely funded by us, by taxpayers.

"Now, these hospitals in Connecticut, I'll admit, weren't in great financial shape when they were bought. But they were hopeful that these new owners with lots of money at their disposal would bring an infusion of investment-that's what was promised-and would help right the ship. Two years after their purchase, the hospitals in Rockville, Manchester, and Waterbury hadn't seen much of any improvement or investment. In fact, they were beginning to fall into greater disrepair. As the three of them entered some pretty dire financial straits, Prospect didn't make further investments, they took out a $1.1 billion mortgage, and made these hospitals the collateral. Now, surely, they put some of that money, they used the hospitals as collateral, they raised $1.1 billion, surely they put that money back into the hospitals to pay for repairs and improve their financial situations?

"You know the story. They didn't do that. In fact, half of that loan - they used the hospitals for collateral - half of that loan went to dividends to investors and executives across the country in California, where Prospect was located. $90 million went straight to one person, the CEO. Let me guarantee you, $90 million would have made a huge difference at Waterbury Hospital. It would have saved lives. But Waterbury Hospital was used as collateral so that Sam Lee, the CEO, could make $90 million. Next to nothing went toward a single one of the 16 hospitals that Prospect owns across the country.

"Prospect owes the state of Connecticut $67 million in unpaid taxes. They owe the low-income city of Waterbury - which struggles to pay its elementary school teachers - $10.5 million. None of that money went to pay the taxes they owe Connecticut and the city of Waterbury. Prospect's CEO made $90 million while his company refused to pay taxes. But maybe, you ask, the CEO really needed the money. Well, he didn't. It's just greed. This guy Sam Lee, I don't know him, but he owns not one, but two luxury homes in Los Angeles. They are worth more than $15 million combined. Each of them has its own pool, one even has its own private basketball court. They're 11 minutes from each other. Sam Lee pillaged three Medicaid hospitals in Connecticut so he could have two mansions 11 minutes apart.

"But here's the real problem. Sam Lee isn't the exception - he's the rule. We just finished up a set of hearings and meetings on Steward Health Care, which used the same playbook as Prospect to run their hospitals into the ground while their out-of-state CEO also cash out. The hospitals Steward bought in Louisiana and Massachusetts were gutted. A nurse testified before our committee this month that they put dead babies in cardboard boxes because they wouldn't pay for the kind of temporary coffin that would normally be used for a dead child. The nurses would leave during the day to go to local stores to buy basic supplies on their own dime because they didn't have them in the hospital. The elevators in these Steward Health Care hospitals stopped working. Why? Well in this case, it's because that CEO, Ralph de la Torre, who ignored a Congressional subpoena to appear before the HELP committee this month, could buy a $40 million, 190-foot yacht with six bedrooms that costs $4 million a year just to keep in the water.

"Dead babies in cardboard boxes so that a CEO could burn $80,000 a week on a crew and shrimp cocktail and champagne for his private yacht. That is obscene. That is revolting. But, that is our choice. That's the health care system that our laws currently allow to exist. What's happening at Prospect and Steward is happening all over the country. I'm not saying that every private equity firm is as rapacious as those that I'm talking about today.

"And private equity firms will tell you that these hospitals or nursing homes were inefficient before they bought them. And they'll claim that the private equity ownership increased efficiency and quality. But here's maybe the most important thing to tell you. It's just not true. Yes, as I explained with regard to my own pediatric practice, efficiency - profit-maximizing efficiency - is often not good for the well-being or the peace of mind of patients. My kids' pediatrician practice is efficient, but it doesn't deliver the same kind of satisfaction or peace of mind as it does when you have a reliable pediatrician.

"But more importantly, there's actually no evidence that private equity ownership increases quality or reduces cost. In fact, as I'm going to tell you, the evidence suggests exactly the opposite is true. A recent study from Harvard Medical School asked a simple question: Are patients at hospitals acquired by private equity receiving worse care than patients at hospitals not owned by private equity? Researchers analyzed insurance data from almost 5 million Medicare hospitalizations for ten years, and the findings were stunning, though not surprising.

"After a hospital was acquired by a private equity firm, there was a 25% increase in complications for patients. Patients experienced 27% more falls, 38% more bloodstream infections. The rate of surgical site infections was double that of hospitals not owned by private equity. Those are stunning numbers. This is not patient care being 5% worse, 10% worse- you're talking about infection rates after surgeries doubling just because a private equity firm owns it rather than the hospital being in the hands of the local community. And why? Because when private equity takes over, it is mostly not about the patient. It's about the profit. How do you maximize profit really quickly-and you've got to do it really quickly because you have to start paying back those loans you took out to buy the hospital, you've got to start getting ready to flip the asset, you've got to make the CEOs even richer-what do you do? You fire employees to cut costs, you force the remaining doctors and nurses to just see more patients for less time, you cut corners on supplies and equipment, you discharge patients much more quickly if that makes you more money.

"Okay that's quality, but what about cost? It turns out that private equity ownership is driving up costs for premium payers and taxpayers. One study looked at what happens when a private equity firm engages in a roll up strategy, otherwise known as buying up lots of small doctor groups in the same market. That study found that in 8 out of 10 specialties they looked at - from oncology to primary care - the price of care went up after these private equity roll ups by as much as 16 percent. So when private equity buys up a health care practice, quality goes down, satisfaction goes down, cost to consumers and the government goes up.

"This begs a larger question. How has capitalism gone so far off the rails? How have the rules of our economy become so unmoored from the common good and any conception of morality? No one in this country would endorse a health care system in which nurses at a hospital are forced to go to the local CVS because the emergency room ran out of Pedialyte just so the hospital owner could pay for the expensive upkeep of a luxury boat. Nobody in this country thinks it's okay for a hospital CEO to refuse to pay taxes so that he can more easily make his mortgage payments on his two luxury homes 11 minutes away from each other.

"These private equity CEOs, who are hurting people in order to fund their lavish lifestyles - most of them don't think they're doing anything wrong. They think that they are just playing by the rules, and to an extent, they're right. Because our government - our culture, our society - has deemed it okay for people to make a fortune even when it comes at the expense of hurting other people.

"Listen, there are parts of the economy where maximizing profit aligns with maximizing quality - but health care is not one of them. People are dying in these hospitals and nursing homes so that the executives can get rich. That is not right. And we don't have to accept it.

"We can build a free-market economy that has guard rails to protect against the worst kind of immoral greed and excess. I don't begrudge anyone making money. But if you're making money off of the most sacred parts of our economy - like our Medicaid hospitals - and if you're making money basically by funneling taxpayer dollars to your own pocketbook - there has to be a limit. And today, I'm just outlining the problem. But make no mistake - there are solutions. Congress and the President do not need to accept this trend of private equity ownership in our healthcare system - and the abuse it allows.

"For instance, the Biden-Harris administration and the FTC, through Chair Lina Khan, are taking these risks seriously. They're filing antitrust suits against private equity-backed healthcare monopolies. Here in the Senate, the Health Committee, as I just mentioned, just finished a hearing on the abuses of that one company, Steward Health Care, and we heard outrage from both Democrats and Republicans on the committee. When that CEO refused to testify, ignored the subpoena, Republicans and Democrats voted to sanction him for that illegal action. Congress can take a stand and limit or restrict private equity or investor ownership of health care institutions that receive a bulk of their revenue from federal programs like Medicare and Medicaid.

"Now let's be clear - this is not the only problem in the American health care system. We have a lot of work to do to increase quality and reduce cost. But this new phenomenon - the financialization of healthcare and the rapidly increasing ownership of healthcare institutions by private equity - has happened virtually overnight, with little public discussion, and it has made all of the failures that already existed in our healthcare system 100 times worse. It's been a boon to the private yacht industry, but it's been largely miserable for patients.

"It might feel like the train has left the station, but it has not. It's not too late to turn it around. Congress can and should act."

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