With a host of Massachusetts hospitals and communities’ accessible health care put at risk by Steward Health System’s financial crisis, state policymakers are starting to assess the threat of profit-driven models in healthcare and how the issue may be legislatively addressed.

“Today, our healthcare system is at risk,” said Health Care Financing Committee co-chair Sen. Cindy Friedman. “The recent events concerning Steward Health System have exacerbated a crisis that has existed and exists across all aspects of healthcare delivery in the Commonwealth, from primary care to hospital systems to long-term care. And while there are many factors that are destabilizing the delivery system, the entry of profit-driven entities in healthcare has and does play a key role.”

The Joint Committee on Health Care Financing held a nearly five hour hearing with panelists from researchers to health care professionals Monday to discuss the growing role of private equity in funding health care — meaning companies who fund hospitals and health facilities and make profit by selling stock to private investors. Panelists discussed what role the state policy may be able to play in the management and oversight of the companies to protect against future collapses like Steward’s.

Steward, the third largest hospital system in Massachusetts, admitted to being millions in debt in rent, with unpaid contracts and other expenses in early 2024. Following ultimatums from state leaders, the company is looking to sell off all their hospitals in the state, but the future of all nine hospitals remains uncertain.

Current data suggests over 400 hospitals in the country are owned by private equity firms, said Zirui Song, associate professor at Harvard Medical School. Song cited a broad research study of looking at over 600,000 hospitalizations at private equity hospitals compared to over 4 million at other hospitals.

Hospitals acquired by private equity firms had a 5% rise in “hospital acquired complications or adverse events for patients” in their first three years, Song said, driven by a 38% increase in bloodstream infections from central lines and a 27% increase in patient falls. Surgical site infections doubled compared to the control, he continued, even though there was a decrease in surgeries done.

Similar negative health outcomes have occurred in nursing homes, said Robert Tyler Braun, health sciences researcher at Weill Cornell Medical College

While health risks increase, more panelists said, further research shows prices at the private equity hospitals are surging and staffing levels are suffering.

While many private equity firms pose themselves as “saviors” for struggling hospitals, Song said, many of the promised benefits just “haven’t panned out.”

“Let’s ask ourselves: does the saving of a hospital with private capital either necessitate or justify the staffing reductions or the patient harms that we found?” Song said.

David Seltz, Executive Director of the Massachusetts Health Policy Commission, said private equity can be particularly destabilizing in the health care industry because of the model’s “focus on short term return and the leverage of debt.”

The “pressure to produce high investment returns in a short time” can incentivize companies to take riskier options, Seltz said. The complex private model can allow the companies to avoid financial disclosures and transparency and insulate investors from legal liability, among other issues, he said.

Steward has been court ordered to turn over financial documents, a representative from CHIA and the HPC noted, but is currently appealing the decision.

Policy recommendations focused in on giving state agencies like the Attorney General and HPC greater enforcement, regulatory and oversight powers regarding mergers and transactions, measures to require greater transparency and disclosure from private equity firms, and others.

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Sarah Jaromin, a policy associate at the National Conference of State Legislatures, noted a number of bills and policies in other states aimed at the issue.

“There are a variety of policy levers that states are using relating to private ownership and healthcare,” said Jaromin. “These include but may not be limited to the general regulating mergers and acquisitions, increasing transparency of ownership, either for private equity for entities, and lastly related efforts like study committees, cost control measures, anti-competitive contracting provisions.”

“The need for urgent action cannot be greater,” said Seltz, noting the HPC has pledged to work with the committee to ensure legislative solutions this session.

U.S. Sen. Ed Markey has also scheduled a congressional hearing to explore the for-profit health care company model issue on a national level next month and has called on Steward CEO Ralph de la Torre to testify.

Zirui Song, director of research at the Harvard Medical School for Primary Care, testifies Monday before the Joint Committee on Health Care Financing. (Nancy Lane/Boston Herald)