Investors threaten health care providers’ financial stability: New study

There is growing alarm that Wall Street actors are buying up hospitals, nursing homes and other providers to “excess returns.” These investors have little knowledge of health care, many say, and are simply buying and selling a financial asset, not a social good.

These findings are documented in a study by ILR Professor Rosemary Batt and Elaine Applebaum, Associate Director of the Center for Economic and Policy Research.

by them A new studyBatt and Appelbaum describe how investors undermine the financial stability of hospitals and nursing homes by selling their real estate instead of reinvesting the money into improvements. Patient care. The study was published on August 1 by the Institute for New Economic Thought and the Center for Economic and Policy Research.

The perpetrators, the researchers say, are private equity firms affiliated with “real estate investment trusts” known as “REITs.” Both are Wall Street investment funds that people have never heard of, but have delved into over time. Healthcare industry.

Their strategy is known as a sale-leaseback. Private equity firms buy health care providers, load them with debt and plan to exit within a four to five year window. REITs are their servants, Baty said. Buy REITs real estate And for hospitals or nursing homes with long-term contracts, it typically increases by 3% annually. Sale-rental returns provide quick returns for private equity firms and stable long-term returns for REITs.

Butt, the Alice H. Cooke professor of women and work at the ILR School, offered an example: “Take the fed health care system. Cerberus Capital, a Private equity firmIn the year In 2011, they purchased six Catholic hospitals in the Boston area. The Massachusetts attorney general oversaw the hospitals’ conversion from nonprofit to for-profit status, and Cerberus met the charity’s care and investment requirements for five years. As the Attorney General’s supervision passed, Cerberus sold Hospital Property for $1.25 billion in healthcare REIT, Medical Properties Trust. But the hospitals were left in ruins.

“Hospitals were suddenly paying exorbitant rents on properties they had owned for more than 100 years. Private investors needed deep cuts in labor, materials and equipment to pay the capital rents. Still, the Steward system was in deep trouble. RED – Out of all hospitals in Massachusetts in 2019 The worst financial performance before the pandemic.

REITs control more than $3.5 trillion in assets in the U.S., but pay no taxes because the law defines them as passive investors. However, their actions are anything but—their aggressive behavior and expensive rents undermine their ability. Health care providers To survive and serve patient needs, according to Bhatt. “We shouldn’t be subsidizing financial actors who make exorbitant profits at the expense of patients and workers,” Applebaum said. Policymakers need to re-examine their tax-exempt status and regulate their behavior.