Regulators explore impact of hospital 'greed'

BOSTON — The financial meltdown of Steward Health Care System is prompting federal and state regulators to look into the impact of private equity investment in community hospitals, nursing homes and other health care facilities, which critics say is leading to higher patient costs, poor care and reduced staffing.

The Federal Trade Commission, U.S. Department of Justice, and Department of Health and Human Services have launched an investigation into the “impact of greed” in health care and plan to review details of recent transactions the agencies say may be harming patient health, worker safety and the quality of care for patients.

“When private equity firms buy out healthcare facilities only to slash staffing and cut quality, patients lose out,” said FTC Chair Lina M. Khan said in a statement. “Through this inquiry the FTC will continue scrutinizing private equity roll-ups, strip-and-flip tactics, and other financial plays that can enrich executives but leave the American public worse off.”

Steward’s management has filed for bankruptcy. On Monday, Judge Christopher Lopez ordered the company to put its 31 U.S. hospitals up for sale — including eight in Massachusetts — beginning this month to pay off liabilities owed to creditors.

Rep. Lori Trahan, a Westford Democrat, is among those who support the investigation and wrote to federal regulators this week urging them to take “strong action” to address the issue of private equity at Steward and other health care operators.

“As private equity investments continue to rise in the healthcare industry, there has been an increase in bad actors using the healthcare system to make a quick profit at the expense of our hospital system,” Trahan wrote to the agencies. “These predatory private equity companies have placed stakeholder profits squarely above the communities they are supposed to serve.”

Trahan said the use of private equity practices “like sale-leaseback models, roll-up models, and dividend recapitalization by bad private equity actors has no place in the healthcare industry.”

Specifically, she cited the role of the private equity firm Cerberus Capital Management in Steward’s finances in Massachusetts and other states. Cerberus created Steward after buying St. Elizabeth’s and five other Catholic hospitals in Massachusetts in 2010, according to the company’s website.

She said acquisitions and sale-leaseback deals in Ohio, Pennsylvania and Arizona benefited Cerberus and Steward’s executives and shareholders, but the hospital systems in those states themselves were “crumbling.”

“There are countless other real-world examples of the harm these practices have had on our communities,” Trahan wrote.

Steward is the largest private for-profit hospital chain in the country. Among its eight hospitals in Massachusetts are Holy Family hospitals in Methuen and Haverhill. It is also one of the state’s largest employers with more than 30,000 workers, according to its website.

Its management cited an increase in operating costs and insufficient federal government-program reimbursement among the factors leading to the Chapter 11 bankruptcy filing. The company owes creditors more than $9 billion, according to filings in U.S. Bankruptcy Court.

On Beacon Hill, Gov. Maura Healey and state lawmakers have also taken aim at the private equity model in the wake of Steward’s bankruptcy. In March, a legislative panel held an oversight hearing to consider the problem and hash out possible policy changes.