Two private equity firms’ efforts to wring profits out of hospitals in underserved communities put patients in danger, according to a new report released Tuesday by a powerful Senate committee.
The 162-page report by the Senate Budget Committee comes as Americans continue to express outrage over the role of corporations in the U.S. healthcare system, following the December killing of the CEO of the nation’s largest health insurer. And its findings add to a chorus of lawmakers trying to address the detrimental impact of private equity ownership on critical U.S. hospitals — a subject that has been the focus of a two-year CBS News investigation.
“Private equity has infected our health care system, putting patients, communities, and providers at risk,” said Sen. Sheldon Whitehouse, a Democrat from Rhode Island who led the investigation with Sen. Chuck Grassley, a Republican from Iowa.
“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,” Whitehouse said.
In September, another Senate committee took the extraordinary step of voting to hold Ralph de la Torre, the CEO of Steward Healthcare, in contempt of Congress when he refused to appear after receiving a subpoena. CBS News has documented how he and private equity investors extracted hundreds of millions of dollars from the company prior to it declaring bankruptcy last May.
The Senate’s latest investigation unearthed thousands of documents detailing the financial maneuvers of two private equity firms: Leonard Green & Partners and Apollo Global Management. Investigators concluded that the private equity’s financial model may pose “a threat to the nation’s health care infrastructure, particularly in underserved and rural areas.”
“In the course of its investigation, this Committee obtained over a million pages of new documents that shine light on the business dealings of these PE-owned hospital operators and underscored concerns about the detrimental effects of PE ownership on hospitals and their patients nationwide,” Senate investigators wrote, noting their findings should serve as a roadmap for reform.
A spokesperson for Leonard Green said they haven’t received the report but disagreed with the committee’s findings shared by CBS News.
An Apollo spokesperson said the company has invested billions in the hospital companies it’s acquired, which has been used to improve facilities, expand services, upgrade technology and hire new staff.
Accusations of financial mismanagement
In 2010, Leonard Green & Partners acquired a California-based hospital company called Prospect Medical Holdings. As executives at Leonard Green and leadership at Prospect Medical sought to drive profits, the Senate committee documented what it said was “overwhelming evidence of financial mismanagement” that has led hospitals in five states to cut services or close altogether.
Prospect Medical hospitals that have shut down include Delaware County Memorial in suburban Philadelphia, which closed in 2022, a year after Leonard Green shed its stake in Prospect Medical.
CBS News
The report noted that same year, Prospect Medical CEO Sam Lee “invested heavily” on upgrades to his property in Aspen, Colorado, one of two homes he owns worth a combined $20 million, according to records obtained by Senate investigators.
Investigators said they also obtained documents that showed Leonard Green “exercised significant control” over Prospect Medical’s finances and operations.
In addition to holding a majority of seats on Prospect Medical’s board, executives at Leonard Green granted stock options to officials at Prospect Medical for reaching financial goals, but did not provide similar incentives for “improvements to patient quality and safety,” the report noted.
Meanwhile, Prospect Medical issued hundreds of millions of dollars in dividends to its leadership, including a $457 million payout in 2018. CBS News previously reported Lee took home about $90 million while Leonard Green shareholders were paid a total of about $275 million, payments that depleted the company’s cash reserves, according to Senate investigators.
“By 2019, the company faced $2.8 billion in liabilities, underperforming hospitals and the collapse of critical healthcare services in the communities it served,” Senate investigators wrote.
The company told the Senate Budget Committee that it rejected any implication that Prospect Medical was operated in a financially irresponsible fashion, or that Leonard Green “has put their financial interests ahead of the interests of the hospital system and the communities they serve.”
A Leonard Green spokesperson denied Prospect Medical was struggling when it exited its position, writing in a statement the company was “in strong financial condition with access to over $500 million to support its operations.” The Leonard Green spokesperson said it enabled Prospect Medical to invest in previously closed or failing hospitals.
“In the last three years’ of Leonard Green’s investment alone, over $200 million was invested to improve and expand hospital operations,” the spokesperson said.
In a statement, a Prospect Medical spokesperson said the report drew false conclusions and omitted key facts.
“The Committee drew general conclusions about the quality of care at our hospitals without ever reviewing information from those hospitals, which is where the focus on care takes place, rather than at the corporate level,” the spokesperson wrote in a statement, noting the company has invested more than $750 million in its hospitals and provided more than $900 million in charity and uncompensated care to patients.
“Nearly all the hospitals Prospect acquired were cash-starved, neglected, in disrepair and on the verge of closure or bankruptcy,” the spokesperson wrote. “In nearly every instance, no one else wanted to acquire them, and many were headed to closure.”
Pennsylvania recently moved to take control of Prospect Medical’s hospitals in the state to prevent the company from further shutting down services. In a lawsuit filed in November, the state’s attorney general alleged years of the company’s mismanagement and neglect have left hundreds of thousands of Pennsylvanians without care.
And problems at Prospect Medical’s hospitals have persisted. The day after Christmas, a water main break at another suburban Philadelphia facility caused a flood, and then a fire, that forced the evacuation of 38 patients.
“Unfilled promises and underinvestment”
The Senate report also traced what investigators called “unfilled promises and underinvestment” at Ottumwa Regional Health Center, at a facility in rural Iowa operated by a hospital company owned by Apollo Capital Management.
Among their most alarming findings, investigators say “financial factors” may have contributed to the continued employment of a male nurse who sexually assaulted at least nine female patients while they were sedated, before he died of a drug overdose.
“It was uncovered that staff were concerned about [the nurse’s] behavior before his death and escalated at least some of these concerns, but no substantive actions were taken in response,” wrote the Senate investigators, citing the cost of replacing a nurse and the lack of adequate staffing.
“The Ottumwa community has personally felt the impact of private equity on their health care system,” said Grassley. “The diminishing quality of care, service availability and care capacity at the hospital is forcing Ottumwa residents to travel significant distances in order to receive appropriate treatment.”
According to the report, Apollo told the committee that rural hospitals “have faced challenges for decades, in part driven by underinvestment,” and that it planned to do “the opposite by investing in and supporting companies” like the one that operates Ottumwa.
In a statement, an Apollo spokesperson told CBS News that as a result of its investments, quality of care has improved and the hospital company it owns has not had to close a single facility.
Yet, the committee said its findings reflected continued underinvestment. The report alleges Apollo and its partners failed to meet certain legally binding commitments since they acquired the hospital in 2015, including maintaining access to services, establishing and implementing an outpatient substance abuse treatment program, and continuing its charity care obligations.
“Regardless of the challenges in running rural hospitals, Apollo has profited immensely from its ownership of the portfolio of hospitals that contains [Ottumwa], while failing to make committed and necessary investments at [Ottumwa],” the Senate investigators wrote, noting the hospital was one of about 220 U.S. hospitals operated by hospital companies owned by Apollo.
