BOSTON — Corporate health care executives could face pay cuts and even jail time under a new proposal aimed a preventing the “looting” of hospitals by private equity firms, which comes in response to the financial meltdown of Steward Health Care System.
The “Corporate Crimes Against Health Care” proposal, filed on Tuesday by U.S. Sen. Elizabeth Warren, would authorize federal and state prosecutors to “claw back” compensation to private equity executives within a 10-year period if a hospital under their ownership has “serious, avoidable financial difficulties.”
“We must hold private equity firms accountable for driving companies like Steward into bankruptcy,” Warren, a Cambridge Democrat, told reporters on Tuesday outside of St. Elizabeth’s Medical Center in Brighton. “It’s time to empower regulators to prevent what happened with Steward from ever happening again.”
Warren said the bill, if approved, would set tough new federal guidelines for health care executives who “endanger patient safety and access to care” — including criminal penalties with the possibility of up to six years in prison for violators.
“People go to prison for manslaughter, when they recklessly put lives in danger,” Warren said. “The same should be true for corporate raiders when their actions cause people to die.”
The legislation also calls for tougher reporting requirements for health care providers that receive federal funding, to help identify looming financial issues.
Steward, the largest private for-profit hospital chain in the country, operates 31 hospitals across eight states — including Holy Family Hospital in Methuen and Haverhill — and employs more than 30,000 people, according to its website.
The company has filed for federal Chapter 11 bankruptcy protection to pay down $9 billion in outstanding liabilities owed to vendors and creditors. On June 3, U.S. Bankruptcy Judge Christopher Lopez ordered the company to put its hospitals up for sale — including eight in Massachusetts — beginning this month.
Steward’s management has cited an increase in operating costs and insufficient federal government-program reimbursement among the factors leading to the Chapter 11 bankruptcy filing.
But Warren and others have criticized the private equity firm Cerberus Capital Management’s role in Steward’s finances. Cerberus created Steward after buying St. Elizabeth’s and five other Catholic hospitals in Massachusetts in 2010, according to the company’s website.
The company turned around and sold the land under the hospitals for more than $1.2 billion even as the hospitals under its management struggled financially.
“Ultimately, Cerberus made a profit of $800 million from the sale,” Warren said. “Meanwhile, Steward’s CEO and hospital team aren’t paying the bills.”
Warren cited the recent death of a woman at St. Elizabeth’s who allegedly bled to death after giving birth because the hospital didn’t have the equipment needed to stop the hemorrhaging. The equipment had been repossessed by the medical supplier because of Steward’s unpaid bills, Warren said.
“I’ll put it bluntly: turning private equity and greed loose in our health care system kills people,” she said in Tuesday’s remarks. “We need real accountability.”
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at cwade@cnhinews.com