Private equity firms that invest in hospitals will now face increased oversight in Massachusetts under a new law signed by Gov. Maura Healey on Wednesday, after the scandal-plagued ownership of nine hospitals in the state exposed significant risks to patient care.
The new law would increase transparency in the opaque financial dealings between hospitals and investment groups that own them. Healey signed it right before the close of the year’s state legislative session.
The law will increase financial penalties for hospitals, private equity investors, real estate investment trusts and other entities for failing to submit required financial reporting to the state on time. Fines for not submitting information on time will soar from $1,000 to $25,000 per week, and the law also removes the annual cap of $50,000.
The attorney general’s office and Massachusetts Health Policy Commission will also gain more investigative power over private equity deals and the commission will have the power to demand testimony regarding pricing, financial stability and ownership structure from private equity investors and healthcare real estate trusts.
The law comes as a victory for the state after two hospitals closed last year when their owner, Dallas-based Steward Health Care, declared bankruptcy. Steward, which owned more than 30 hospitals across the country, was one of the state’s largest hospital operators.
For two years, CBS News has been investigating the detrimental impact that private equity ownership can have on U.S. hospitals — especially those serving areas of high need and few resources. While Steward’s hospitals struggled, CBS News found evidence of lavish spending by CEO Ralph de la Torre, including the purchase of a $40 million yacht in 2021, a $7 million Texas horse ranch in 2022, and two corporate jets valued at $95 million.
Healy said at a news conference that the new law will “close loopholes in our regulatory processes so that for-profit providers like Steward Health Care are subject to the same transparency rules as nonprofit providers.” She added, “as attorney general, I spent years in court trying to hold Steward to this standard, and I’m glad that our laws will no longer be exploited in this way.”
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The law will also bar the Department of Public Health from granting a license to establish or maintain an acute care hospital that has leased its main campus from a real estate investment trust — a strategy favored by the private equity industry that Steward used to siphon money away from direct patient care.
“Before Steward Health Care ultimately collapsed, executives spent years hiding their financial information from state regulators, putting patients and our health care system at risk,” said state House Speaker Ronald J. Mariano during the news conference. “That’s why ensuring that our institutions are equipped to monitor the health care landscape, and to guard against trends and transactions that drive up costs without improving patient outcomes, is so important.”
Earlier this week, the U.S. Senate Budget Committee released a scathing 162-page report on two private equity firms’ efforts to wring profits out of other hospital companies in underserved communities that put patients in danger.
“As our investigation revealed, these financial entities are putting their own profits over patients, leading to health and safety violations, chronic understaffing, and hospital closures,” said Sen. Sheldon Whitehouse, a Democrat from Rhode Island who led the investigation with Sen. Chuck Grassley, a Republican from Iowa.
This comes after another Senate committee took the extraordinary step in September of voting to hold de la Torre, the CEO of Steward Health Care, in contempt of Congress when he refused to appear after receiving a subpoena to testify on the company’s financial failures.
Through a spokesperson, de la Torre has previously denied wrongdoing.
“Dr. de la Torre did everything in his power to help Steward Health Care overcome numerous industry headwinds and challenges, including personally purchasing necessary equipment and supplies in order to address the needs of patients and personally guaranteeing loans for the company with his assets,” the spokesperson said in a statement.
