In Wake of Steward Collapse, New State Law Takes Aim at Private Equity in Health Care

In a groundbreaking move, Massachusetts has introduced a pioneering legislation aimed at curtailing the influence of private equity in the health care sector. This comes as a response to the downfall of Steward Health Care, which saw the closure of hospitals in Dorchester and Ayer, and even resulted in substantial patient losses. The new law, signed by Governor Maura Healey, sets a precedent by regulating private equity investments within hospitals, aiming to prevent future financial debacles.

Preventing Profiteering in Health Care

Central to this legislation is the prohibition on hospitals selling their primary campus to outside investors. This aims to stop the real estate flips that contributed significantly to Steward’s collapse. The law introduces financial oversight requirements for equity investors in health care, mandating that ownership and governance information be submitted to state watchdog agencies.

The Massachusetts Law: Key Features

• Prevents sale of primary hospital campuses to outside investors
• Mandates annual financial oversight hearings for investors owning 10% equity or more
• Requires filings of ownership and governance information
• In some cases, calls for audited financial statements

This regulatory framework, touted as a first-in-the-nation effort, opens doors for future legislative reforms both in Massachusetts and across the country, paving the way for a new era of transparency.

Reactions and Implications

According to Eileen Appelbaum, co-director for the Center for Economic and Policy Research, “The Massachusetts bill has a lot of weaknesses but it’s a big step forward over what we had in the past and what other states have done. And it’s a message to other states — hey, you can regulate.”

David Seltz, executive director for the state’s Health Policy Commission, described the law as a means to “pull back the veil” on ownership, making it a pivotal shift in how health care investments are managed. Previously, researchers resorted to scouring the internet to gauge the extent of private equity’s role in Massachusetts health care.

Room for Improvement and Further Steps

Despite the breakthroughs, the new law stops short of completely eradicating profit-driven business practices in health care. Some experts, like Mary Bugbee of the Private Equity Stakeholder Project, argue that more robust reforms are needed to curb these practices decisively.

• Curb profit-driven decision-making detrimental to health care systems
• Limit long-term leasing agreements that have financially crippled institutions

For Zirui Song, an associate professor at Harvard Medical School, the new law is just the beginning. “It’s a substantial meaningful step in the right direction,” he notes, urging for further actions to tackle complex investment structures still predominant in the industry.

Moving Forward: Legislation in Planning

State Senator Cindy Friedman of Arlington expressed a commitment to advancing more stringent regulations. She plans to introduce a new bill that includes bond requirements for notifying transactions, aiming to further cement Massachusetts as a leader in health care reform.

Friedman stated, “This was a compromise; it took the first step. Now we have to keep going.” Such determination is echoed by leaders in other states observing Massachusetts’s pioneering approach with interest.

National Reactions and Comparisons

Efforts in other states have faced setbacks. California’s Governor, Gavin Newsom, vetoed a similar proposal, emphasizing the challenges in rolling out stringent controls over private equity’s influence. States like Minnesota, Oregon, and Connecticut have also struggled to introduce comparable legislation.

• California vetoed legislation requiring state approval for specific investments
• Similar efforts floundered in Minnesota, Oregon, Connecticut

Connecticut State Senator Dr. Saud Anwar underscored the need for coherent federal, state, and local regulations to shield patients from profit-centric motives. He warns of the “greed of private equity”, which often disrupts critical medical services and undermines patient welfare.

The Way Forward: Regulatory Inspiration

Other states are inspired by Massachusetts’s bold stance. Rhode Island and Louisiana legislative processes indicate growing momentum toward adopting similar, if not more rigorous, measures. Louisiana’s Michael Echols aims to hold equity executives accountable under new provisions, potentially altering the financial landscape of health care investments.

The new Massachusetts law, despite having room for refinement, signifies a crucial pivot in health care legislation. With states watching closely, the protection of critical health care resources from exploitative investments might become a significant focal point in future policy-making discussions.

Source: https://www.bostonglobe.com/2025/01/20/business/steward-hospital-sale-law-private-equity/