And Not A Single American Physician In This Bailed-Out Beezie....?

Prospect |  On March 22, the Steward hospital chain sent a letter to Pennsylvania Governor Tom Wolf, saying it would close Easton Hospital, in the state’s Lehigh Valley, on March 27 unless it received a government bailout to keep it operating.

Steward’s letter read: “If the Commonwealth has no interest in assuming all operating expenses and liabilities of Easton Hospital, Steward Health Care will proceed immediately on planning to close the facility.” The threat paid off: On the 27th, the state guaranteed Easton $8 million for April and a likely $24 million through the month of June. The bulk of the funds, Wolf said, would be covered by the federal bailout package that President Trump had signed into law that very day.

How Easton had descended to such dire straits is a good question, inasmuch as its owner—the private equity firm Cerberus Capital Management—is hardly a candidate for taxpayer-funded assistance, and is responsible for loading down the hospital with an unpayable level of debt.

The Easton story is likely to be just the first of many. After compelling hospitals to take on huge piles of debt through leveraged buyouts, private equity firms—currently sitting on $1.5 trillion in uninvested cash from investors—are poised to line up for taxpayer bailouts.

Steward has claimed that Easton Hospital has been financially distressed for months, that competition from other larger hospitals is fierce, and that the postponement of all elective surgeries has further cut into revenues. It had worked out a deal to sell the hospital to St. Luke’s University Network, but the deal has slowed down due to the COVID-19 crisis.

But why is Easton Hospital struggling so much more than other hospitals?

After compelling hospitals to take on huge piles of debt through leveraged buyouts, private equity firms are poised to line up for taxpayer bailouts.

Size matters, but its private equity buyout history matters more. In March 2017, Cerberus acquired Easton, along with seven other hospitals, in a leveraged buyout for an undisclosed amount from Community Health Systems (CHS). While we don’t know how much debt Steward took on in order to buy out Easton, the typical private equity buyout includes debt financing in the range of 50 percent to 70 percent of the purchase price, which the acquisition, in this case Easton Hospital, is expected to repay. We do know that at the time of the sale, Steward sold the property of all eight hospitals to a real-estate investment trust, Medical Properties Trust (MPT), and pocketed $304 million in return.

Since then, Easton Hospital has had to pay rent on property it had owned for the 127 years of its existence. How much of Easton’s revenues have been used to pay down debt Steward incurred to acquire it and to pay rent on its facilities—revenues that could have been used to financially stabilize the hospital?