I've learned much from perusing the comments submitted by the public regarding private equity's harmful ownership of healthcare companies. Anonymous commented yesterday on the damage done in oncology services by private equity underwriters (PEU):
Private Equity in Healthcare is creating a barrier for patients to healthcare services. This has become apparent and problematic specifically in the Oncology sector.
The cost to operate center requires a long-term commitment to be effective for patients and communities. There are few "new center" developments and builds in the US, so private equity must "acquire" practices and or physicians. The cost to do so for service lines like radiation oncology are prohibitive, so they enter into MSO or PSA contracts and collect a percentage with no real value added. The promise of investment and increased efficiencies to struggling service lines and physicians are often enticing, but these practices and their viability can't be controlled by private equity.
Recently, we saw what happens when this model fails with the bankruptcy of Genesis Care:
Many of these facilities failed to reopen or be re-acquired due to location and the cost needed to make facility improvements. Private equity investment and involvement in oncology must be carefully looked at and reviewed. There is already disproportionate access in the US to cancer services. These short-lived models have the potential to restrict access to patients.
Private equity had two rounds with 21st Century Oncology/Genesis Care. Vestar Capital owned the firm from 2008 to 2017 when it first declared bankruptcy. 21st Century Oncology paid Vestar over $1.2 million per year in management fees from 2012-2014 ($3.8 million total for the period).
Deal and management fees paid to Vestar:
During 2010, we paid $2.0 million to Vestar Capital Partners V, L.P. for additional transaction advisory services in respect to the incremental amendments to our senior secured revolving credit facility, the additional $15.0 million of commitments to the revolver portion, and the complete refinancing of the senior subordinated notes. We paid approximately $0.6 million, $1.3 million and $1.3 million in management fees to Vestar for the years ended December 31, 2008, 2009 and 2010, respectively.
We paid approximately $1.6 million and $1.2 million in management fees to Vestar for the years ended December 31, 2011 and 2012, respectively.
We incurred approximately $1.3 million and $1.3 million in management fees to Vestar for the years ended December 31, 2013 and 2014, respectively.
And what did those $8.6 million in management fees buy? Settlements with the Justice Department for fraudulent billing.
December 2015:
21st Century paid $19.75 million to settle allegations that it violated the False Claims Act by billing for medically unnecessary laboratory urine tests, and for encouraging physicians to order these tests by offering bonuses based in part on the number of tests the physicians referred to its laboratory.
21st Century Oncology, has agreed to settle allegations that they performed and billed for procedures that were not medically necessary. Pursuant to the settlement agreement, 21st Century shall pay the United States $34,695,243 to resolve these allegations. Headquartered in Fort Myers, 21st Century has offices in 16 states.
KKR backed GenesisCare bought 21st Century Oncology in 2019 after it emerged from bankruptcy. KKR's ownership lasted until June 2023 when the firm declared bankruptcy.
My wise friend sent me a story on venue shopping for bankruptcy cases and the rise of the Southern District of Texas as the preferred court for corporate financial resets. SEC filings show twelve 21st Century Oncology firms, all based in Florida. Of the firm's numerous subsidiaries, none were incorporated in Texas in 2016.
So how does a PEU owned oncology firm in Florida declare bankruptcy in the Southern District of Texas? Forum shopping. The court wiped $1.5 billion off GenesisCare's balance sheet.
Consider how long private equity underwriters were involved with this one cancer care company. Seventeen years. And the Feds are finally seeking public input on PEU ownership?
Yes, a number of things smell in this story. The greed and leverage boys can stink up an industry. It isn't called PEUReport for nothing...
Update 4-16-24: Jesse's Cafe Americain quoted the damage done by those with hardened hearts. It not only harms patients but impairs the careers of enterprising regulators wishing to constrain such bad behavior. Truly odiferous!
Update 4-18-24: Boring Business on X offered statistics on private equity in healthcare. Private equity owned 20% of the healthcare firms that went bankrupt in 2023 and own 90% of those at risk for failure.
Update 4-22-24: TPG and Amerisource Bergan purchased OneOncology from General Atlantic. I have seen the damage TPG and Welsh, Carson, Anderson and Stowe majority ownership did to my hospice employer. One FTC comment informed me of OneOncology's shift from one PEU to another. My comment addressed damage done to hospice quality care.
