Friday, January 04, 2013

BLOGSCAN - When Private Equity Owns Hospitals

On his Not Running a Hospital blog, Paul Levy discussed reasons for concern when private equity firms purchase and operate hospitals.  He used the example of Steward Health Care, now a for-profit hospital system (which also employs physicians to provide direct patient care), which in turn is owned by Cerberus Capital Management.   The issue is pertinent due to recent discussion in the media about Cerberus' newly stated intention to sell the large firearms and ammunition business it assembled, Freedom Group.  This intention was only stated after the tragic multiple murders of children and teachers by gunfire from a weapon manufactured by Freedom Group at a Connecticut elementary school.  We have previously posted about questions raised when private equity buys hospitals and employs physicians, specifically about Cerberus and Steward Health Care, and have questioned whether a private equity group is a suitable owner and operator of hospitals and physicians' practices when said private equity group also owns a large firearms and ammunition business, and, for that matter, a military contracting company which has been accused or providing "mercenaries" (look here and here).    


Steve Lucas said...

It is important to remember that this is not the only financial structure that can benefit executives. Aultman Health Foundation, a non-profit, owns AultCare Insurance, a for profit, with all of the win at any cost baggage a for profit insurance company carries on display.

Discussing this with a friend who is involved in medicine he reminded me of two things:

A non-profit pays no taxes, so more money for the executives.

There is no corporate board, so more money for the executives.

Steve Lucas

Roy M. Poses MD said...

I agree that there have certainly been plenty of problems with how non-profit health care organizations have been run, and we have discussed many of them on Health Care Renewal. Being not for profit hardly guarantees good leadership and governance.

However, note that in general the compensation of executives of for-profit corporations seems even higher than that for comparable non-profit organizations.

Furthermore, eseentially all non-profits have boards, often called boards of trustees rather than boards of directors. These boards do generate expenses. Although most non-profit board members are not paid, a few are. For example, look here: