Federal Medicaid cuts could drive rural hospitals to seek private equity funding – a financial model that has gutted hospitals in Connecticut and other parts of the country and compromised patient safety and care, U.S. Senator Chris Murphy, (D-CT) , warned state lawmakers in a new report.
“The [One Big Beautiful] bill includes major cuts to Medicaid in the form of work requirements, changes to the ways states can collect money to pay for their share, and limits on who has access to Medicaid funds,” Murphy wrote.
“This means hospitals will inevitably become more distressed, especially hospitals already struggling in disadvantaged and rural communities. They have no choice but to turn to the private sector for an influx of capital. Private equity is likely to be the first to step in as they target distressed companies with little recourse.”
Federal Medicaid spending in rural areas is estimated to decrease by $137 billion over a 10-year period under the bill, according to KFF.
Across the country, the cuts would hit rural hospitals at a time when community hospitals have shut down, or are seeking a buyer, after their private equity-funded holding company filed for bankruptcy.
In Connecticut, Waterbury Hospital, Manchester Memorial Hospital, and Rockville General Hospital, owned by private equity-funded Prospect Medical Holdings, have pared down patient services and are at risk of shutting down unless a buyer steps in.
Prospect filed Chapter 11 bankruptcy proceedings Jan. 11 in the U.S. Bankruptcy Court, Northern District of Texas. Prospect Medical did not immediately respond to a request from Connecticut Public on the status of the potential hospital purchases.
Connecticut Public previously reported on unsafe staffing at the ICU, doctors hiring attorneys to get paid, abuse allegations, and rusty equipment in operating rooms.
A claim filed July 9 by the Connecticut Office of the Attorney General with the bankruptcy court in the Northern District of Texas said due to Prospect’s “disinvestment and neglect, Rockville has shuttered all but its emergency room and behavioral health services, performing no inpatient surgeries.
A Senate report in Jan. said that nationally, six Prospect-owned hospitals shut down when private equity firm Leonard Green & Partners exited after extracting more than $424 million in dividends and saddling Prospect hospitals with more than $3 billion in liabilities.
“This report has one inescapable conclusion: private equity’s sole purpose of fattening its bottom line is inherently incompatible with quality health services,” U.S. Sen. Richard Blumenthal, (D-CT), said in a statement. “As the report reiterates, Prospect Medical, which owns a number of facilities in Connecticut, used its hospitals as its personal piggy banks.”
“Underlying problem” leading hospitals to seek private equity
“If hospitals were paid fairly for their Medicaid patients, if there was no hospital tax, if commercial insurance companies didn't abuse hospitals by denying services and didn't give all these people high deductible plans, you wouldn't have had Steward, you wouldn't have had Prospect Medical Holdings,” said Kurt Barwis, CEO of Bristol Health, a cash-strapped rural hospital.
Bristol Health’s struggles were exacerbated by claims denial by Medicare Advantage and financial reserves depleted by COVID-19 pandemic, Barwis told Connecticut Public.
At risk of closure, Barwis turned to Impact Advisors for help, a Chicago-based health care management consulting firm funded by private equity.
“We had lost $20 million, $20 million, then $11 million,” Barwis said. “Not having any cash and having somebody willing to go at risk, because they're backed with private equity, was a big deal for us.”
By risk, Barwis was referring to more than $2 million in consulting fees that the hospital would pay the firm, if they hit certain financial milestones – and Barwis said they did.
“For this fiscal year through June 30, we have a Sept. 30 year end, so three quarters of the fiscal year, we’re in the black, by about $2 million,” he said.
Now, Bristol Health makes a monthly payment of $50,000 to Impact Advisors for the consulting work as “I didn't, simply did not have the resources and the expertise in my team,” Barwis said.
Referring to the report from Murphy’s office Barwis said “all of a sudden, everything's focused on the bad actors or the problems, but not enough focuses on the underlying problems that actually created these hospitals to get in that situation. I don't think any board of directors, any trustee, would want to put their hospital ultimately in that situation [where assets are stripped by private equity investors], but the cards are stacked against you.”
