In response to the financial collapse of one of its largest health systems and the subsequent closure of two hospitals, Massachusetts has taken a pioneering step by enacting legislation aimed at monitoring and regulating private equity involvement in the healthcare sector. This new law, signed last week by Governor Maura Healey, seeks to prevent the type of profiteering that critics argue led to the downfall of Steward Health Care, resulting in hospital closures and patient fatalities. While the law does not ban private equity participation outright, it establishes a foundation for future reforms and provides transparency into the financial activities of investors in healthcare providers.

Details of the New Legislation

In the wake of these events, state lawmakers have introduced a groundbreaking law designed to address the issues caused by private equity firms in the healthcare industry. The legislation was prompted by the financial turmoil experienced by Steward Health Care, which saw the closure of hospitals in Dorchester and Ayer, along with reports of at least 15 patient deaths. The new law specifically targets one of the main methods through which Steward’s owners extracted funds—by prohibiting hospitals from selling their primary campuses to outside investors. This practice had previously saddled hospitals with unsustainable lease payments, contributing significantly to Steward's eventual bankruptcy.

The law also mandates ongoing financial oversight and reporting requirements for investors holding as little as 10% equity in healthcare providers. These investors will now be required to participate in annual oversight hearings and provide detailed ownership and governance information to state agencies. Additionally, the state may require audited financial statements from equity investors, ensuring greater transparency in the healthcare sector. This marks a significant shift from the previous lack of visibility, where researchers relied on public searches and investor podcasts to gather information about private equity investments in Massachusetts healthcare.

While the law does not entirely eliminate profiteering, it represents a substantial first step in understanding who benefits from the state’s critical healthcare infrastructure. Critics argue that true reform would involve curbing profit-driven decision-making altogether, but the law does curb one harmful practice: the sale and leaseback of hospital buildings. Such deals, often involving real estate investment trusts (REITs), have been linked to Steward’s financial troubles. For instance, Steward sold its Massachusetts real estate to Medical Properties Trust for nearly $1.3 billion, leading to burdensome rent payments that contributed to its bankruptcy.

Perspectives and Future Implications

From a journalist’s perspective, this legislation sends a powerful message to other states: regulation of private equity in healthcare is both possible and necessary. While the law is not without its limitations, it represents a meaningful step toward protecting patients and ensuring the stability of healthcare institutions. Experts like Dr. Zirui Song from Harvard Medical School emphasize that while further reforms are needed, this law provides crucial insight into the ownership structures within the healthcare industry, paving the way for more comprehensive measures.

State Senator Cindy Friedman, who supported a stronger version of the bill, sees this as a compromise but remains committed to pushing for additional restrictions. Meanwhile, other states are watching closely. Efforts in California, Minnesota, Oregon, and Connecticut to regulate private equity in healthcare have so far been unsuccessful, highlighting the significance of Massachusetts’ action. As other states grapple with similar challenges, this law could serve as a model for future legislative efforts aimed at safeguarding the well-being of patients and the integrity of healthcare systems.