Bill would make private equity deals that contribute to patient deaths a crime

Two senators want private equity firm executives to go to prison if they take cash out of a hospital or long-term care facility in certain ways and financial stress then contributes to the death of a patient.

Sen. Elizabeth Warren, D-Mass., and Sen. Edward Markey, D-Mass., introduced S. 4503, the Corporate Crimes Against Health Care Act bill, Tuesday.

Warren and Market have been especially interested in private equity involvement in health care in recent weeks because of problems at Steward Health, a private equity-owned hospital company that has been having severe funding problems. The Boston Globe has suggested that a mother treated at one of Steward’s hospitals died partly because a vendor repossessed equipment that could have helped her.

S. 4503 bill would cover situations in which private equity firms, or “covered parties,” acquire hospitals or long-term care facilities, or “target firms.”

The bill would also define “triggering events,” such as instances when a target company is late in paying salaries or making loan payments, and types of “unjust enrichment” that create aggravating circumstances.

Unjust enrichment could occur if a private equity obtained compensation from an acquired firm by charging the acquired firm for services not rendered, arranging for a sale-leaseback of real estate or equipment, or taking so much cash out that the acquired firm had interest coverage over 100%.

If a private equity firm “contributed to a triggering event that results in the death or injury of a patient or patients,” then the responsible executives could go to prison for 1 to 6 years.

A state attorney general could also claw back cash from the private equity firm.

If a target firm went bankrupt and pension funds were at risk, covering pension fund funding shortfalls would take priority over other obligations.

Related: Senator Warren asks regulators to watch for ‘serial roll-ups’ in health care

Regulators at the Federal Trade Commission have also expressed concerns about private equity firms’ involvement in health care, because of fears that it reduces the level of competition.

Private Investment Works, an arm of the American Investment Council, a private equity industry group, said S. 4503 is “nothing but political opportunism.”

One study found that hospitals’ financial performance improved after private equity acquisitions, and another study found that the hospitals improved operating efficiency without compromising health care quality, according to Private Investment Works.

“Injecting critical capital into health care systems in Massachusetts and across the United States, private equity is making strategic but limited investments to support high-quality, accessible care for Americans,” the group says.