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There is growing alarm that Wall Street players are increasingly buying up hospitals, nursing homes and other providers for “outsized returns.” These investors have little or no knowledge of healthcare, many say, and treat it simply as a financial asset to be bought and sold, not a social good.
These findings are documented in research by ILR Professor Rosemary Batt and Eileen Appelbaum, co-director of the Center for Economic and Policy Research.
In their new study, Batt and Appelbaum describe how investors are undermining the financial stability of hospitals and nursing homes by selling their real estate and pocketing the proceeds for themselves, rather than reinvesting the money into improving patient care. The study was published on August 1 by the Institute for New Economic Thinking and the Center for Economic and Policy Research.
The perpetrators, the researchers say, are private equity firms in partnership with “real estate investment trusts,” known as “REITs.” Both are Wall Street mutual funds that most people have never heard of, but have increasingly penetrated the healthcare industry.
Their tactic is known as a sale-leaseback. Private equity firms buy health care providers, load them with debt, and plan to exit within four to five years. REITs are their handmaidens, Batt said. REITs buy the real estate and lease it to hospitals or nursing homes in long-term leases that typically increase by 3% per year. Sale-leasebacks provide quick returns for private equity firms and stable long-term returns for REITs.
Batt, the Alice H. Cook Professor of Women and Labor at the ILR School, offers an example: “Take the Steward Health Care System. Cerberus Capital, a private equity firm, bought six Catholic hospitals in the Boston area in 2011. The Massachusetts Attorney General oversaw the hospitals’ conversion from nonprofit to for-profit status and monitored Cerberus’ compliance with charitable care and investment requirements for five years. As soon as the attorney general’s oversight expired, Cerberus sold the hospital property for $1.25 billion to a health care REIT, Medical Properties Trust. But the hospitals were left broke.”
“Hospitals were suddenly paying inflated rents on properties they had owned for more than 100 years. To pay rent on prime city properties, private equity owners required deep cuts in staff, supplies and equipment. Yet , the Steward system was deeply affected. red, the worst financial performance of all Massachusetts hospitals in 2019, before the pandemic.”
REITs control more than $3.5 trillion in assets in the US, but pay no taxes because the law defines them as passive investors. “However, their actions are anything but: their aggressive actions and expensive rents undermine the ability of health care providers to survive and serve the needs of patients, according to Batt. Appelbaum said, “No we should subsidize financial actors who make exorbitant profits. at the expense of patients and workers. Policymakers need to review their tax-exempt status and monitor their behavior.”
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