Pascrell Seeks Answers on Wall Street Takeover of Health Care
Requests Government Accountability Office data on private equity’s destructive control
Washington, DC, June 2, 2021
Tags: Health Care
U.S. Rep. Bill Pascrell, Jr. (D-NJ-09), the Chairman of the House Ways and Means Subcommittee on Oversight, continued his probing of Wall Street’s destructive and increasingly dangerous control over American health care, asking the Government Accountability Office (GAO) to examine the relationship between private equity investments and subsequent bankruptcies or closures of health care facilities across the United States.
“The exponential growth in PE investments across the health care system over the last several years has been associated with a host of trends that are negatively impacting the American people. Among them are an increase in surprise out-of-network billing, an increase in nursing home mortality rates, and the shuttering of critical access and safety net hospitals and other critical health care providers,” Pascrell writes Comptroller General Gene Dodaro.
Data and studies have found that during the pandemic, nursing homes owned by private equity firms demonstrated higher rates of infection and death. In New Jersey, the infection rate among nursing home residents was 24.5 percent higher than the statewide average and 57 percent higher at public facilities. The COVID-19 fatality rate was 10.2 percent higher at nursing homes owned by private equity firms compared to the statewide average. Private equity owned nursing homes also had a disproportionate number of resident and staff COVID-19 cases and deaths.
Between 2008 and 2018, private equity deals in health care more than doubled. In 2008, the U.S. saw 325 private equity deals and in 2018, that number grew to 788 deals, representing more than $100 billion in total. Private equity firms choose to enter markets that are highly fragmented, like individual physician practices, in order to consolidate and scale for better negotiating power. But this negotiating power allows quality of care issues and the practice of surprise billing to proliferate. Two private equity firms alone own 30 percent of the market for emergency services in hospitals. One of these groups roughly doubled its charges to patients once it took over management of an emergency department.
Pascrell recently convened a Ways and Means Oversight hearing which revealed a disturbing lack of transparency, declining standards of care, and horror stories from hospitals and nursing homes controlled by Wall Street. Pascrell expanded on the hearing’s findings in an April 2021 op-ed in the Bergen Record of New Jersey.
Rep. Pascrell has been a leading voice in Congress on forcing private equity and Wall Street to play by the rules. In April 2018, he wrote a widely-disseminated op-ed for USA Today on how private equity firms destroyed Toys R Us, and warned that without proper reforms, more cherished retailers would be driven under by unregulated private equity practices.
Pascrell is also the main House sponsor of H.R. 1735, the Carried Interest Fairness Act of 2019, legislation to close private equity firms’ favorite loophole in the federal tax code. The carried interest loophole allows these Wall Street outfits to pay the lower capital gains rate on their lucrative income (15 or 20%), rather than paying ordinary income rates (up to 37%) that all other Americans pay on their earnings from work. The ability of private-equity and hedge fund financiers to use the loophole worsens income inequality, as this tiny subset of executives make up some of the wealthiest citizens in the world.
The text of Rep. Pascrell’s letter to GAO is provided below.
June 1, 2021
The Honorable Gene L. Dodaro
Comptroller General of the United States
Government Accountability Office
441 G Street, N.W.
Washington, D.C. 20548
Dear Comptroller General Dodaro:
I write today to request information about private equity (PE) investments in the health care industry. The exponential growth in PE investments across the health care system over the last several years has been associated with a host of trends that are negatively impacting the American people. Among them are an increase in surprise out-of-network billing, an increase in nursing home mortality rates, and the shuttering of critical access and safety net hospitals and other critical health care providers. These patterns demand further attention so that policymakers can protect patients and better understand the consequences to the health care delivery system. Further, reports about bankruptcies or closures following PE buyouts are concerning because of their far-reaching impact on patients, families, health care workers, and communities.
A recent Committee on Ways and Means Oversight Subcommittee hearing examined PE investments across the health care industry. Expert witnesses highlighted the need for further evaluation related to PE ownership to ensure that taxpayer-funded programs providing payments to PE facilities ultimately promote access to high-quality care. Such examination is particularly needed due to the strategies PE firms often rely on to maximize profit and operationalize efficiencies, such as leveraged buyouts and related-party transactions.
Although there are limited public data documenting PE ownership of health care facilities and evaluating the outcomes of such investments, various press reports have detailed troubling instances of PE-acquired health care facilities that subsequently closed or filed for bankruptcy. Because leveraged buyouts load debt onto individual health care companies, if those companies do not grow fast enough or bring in enough money to keep up with projections, they can quickly end up bankrupt. In some cases, these bankruptcies result in facility closures, and, in others, companies that file for bankruptcy proceed through a restructuring process that can have ramifications for daily operations.
In both instances, it is the workers, patients, suppliers, communities, and other stakeholders that may suffer from these bankruptcies and closures—not the investors themselves. According to one study, an estimated 20 percent of public companies that go private through leveraged buyouts ultimately declare bankruptcy within 10 years, compared to two percent of a control group that did not experience this transition. These trends merit further investigation on a more holistic basis, as the closure or bankruptcy of health care facilities threatens the health of communities, raising significant concerns about access to care.
Accordingly, I request that the Government Accountability Office (GAO) conduct a longitudinal analysis to examine the relationship between PE investments and subsequent bankruptcies or closures of health care facilities across the United States. Specifically, to the extent feasible, I request that GAO address the following questions, distinguishing, where relevant, between situations that result solely in bankruptcies and those resulting in closures of health care facilities or providers:
Thank you for your attention to this important matter. If you have any questions about this request, please contact Zachary Baron of the Committee on Ways and Means Majority staff at (202) 225-3625 or Zach.Baron@mail.house.gov.
 See, e.g., Max Fraser, Public Health, Private Equity, and the Pandemic, CUNY New Labor Forum (Sept. 2020), https://newlaborforum.cuny.edu/2020/09/04/public-health-private-equity-and-the-pandemic/; Aimee Picchi, Private Equity Rushed into Health Care—Now, a Nurse Warns: “Be Scared,” CBS News (July 29, 2019), https://www.cbsnews.com/news/private-equity-rushed-into-health-care-now-a-hospitals-fate-raises-fears/; Peter Whoriskey and Dan Keating, Overdoses, bedsores, broken bones: What happened when a private-equity firm sought to care for society’s most vulnerable, The Washington Post (Nov. 15, 2018), https://www.washingtonpost.com/business/economy/opioid-overdoses-bedsores-and-broken-bones-what-happened-when-a-private-equity-firm-sought-profits-in-caring-for-societys-most-vulnerable/2018/11/25/09089a4a-ed14-11e8-baac-2a674e91502b_story.html.
 Briana Spegele et al., Risky Loans Secure Private-Equity Payouts Despite Downturn, The Wall Street Journal (Dec. 17, 2020), https://www.wsj.com/articles/risky-loans-secure-private-equity-payouts-despite-downturn-11608216781?mod=hp_featst_pos3.
 Alicia McElhaney, LBOs Make (More) Companies Go Bankrupt, Research Shows, Institutional Investor (July 26, 2019), https://www.institutionalinvestor.com/article/b1gfygl4r8661f/LBOs-Make-More-Companies-Go-Bankrupt-Research-Shows.