How Private Equity Damages Health Care, Jobs, Pensions, Report Contends

Private equity, a favorite sector among asset allocators in recent years, has run into turbulence lately, with high interest rates hampering returns amid lower deal flow and asset sales.

Add to that a hostile Democrat in the White House. President Joe Biden has spoken about investigations of PE for antitrust violations, sentiments echoed by Sen. Elizabeth Warren (D-Massachusetts) and others.

In addition, PE has taken some knocks in popular culture, such as a book out last year called “These Are the Plunderers: How Private Equity Runs―and Wrecks―America,” by Pulitzer Prize-winning journalist Gretchen Morgenson and financial policy analyst Joshua Rosner.

The latest salvo is a study out from an advocacy group that accuses PE of damaging health care, jobs and pensions, and ranks individual states on these scores.

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The nonprofit group, called the Private Equity Stakeholder Project, seeks to aid communities and workers it says are harmed by private equity ownership. PESP declares that PE is bent on “turning a quick profit for investors regardless of the risks and consequences for communities across the country.” In its view, PE’s corporate takeovers lead to restructurings “often in ways that are harmful to workers, patients, customers, residents and ultimately state and local economies.”

Of course, private equity has pushed back. The American Investment Council, an advocacy organization for the private markets investment sector, blasted the PESP as “a biased, agenda-driven group.” Its CEO and president, Drew Maloney, said in a statement that the PESP’s PE project actually “highlights how states rely on private equity to support local jobs and small businesses, and deliver the strongest pension returns.”

One small, if maybe temporary, irony: Private equity of late is hardly a slam-dunk investment. PE returns were 6% over 12 months ending 3Q 2023, the latest figures available, per PitchBook, well below the 2017 to 2019 average of 15.6%.

Regardless, in Washington, private equity is increasingly the target of antitrust fire, although no massive effort has been launched, at least thus far.

The Federal Trade Commission, for instance, last fall sued PE firm Welsh Carson Anderson & Stowe and its portfolio company, U.S. Anesthesia Partners Inc. Welsh Carson has rolled up a bunch of smaller anesthesiology providers, and the FTC claimed care options diminished and consumer costs rose as a result. The health-care firm rejected the charges and insisted they were based upon “a lack of medical understanding.” The case has not reached a hearing yet.

The PESP ranks states according to its own measurement of risks to people and economies using scores on health, housing, pensions, jobs and other 12 other areas. The worst-ranked state is New Mexico, which has a private equity risk score of 100, meaning as bad as it gets.

For workers and jobs, for instance, the PESP lists how much of the private sector workforce is PE-controlled, then tracks layoff rates at those businesses from 2015 to 2022 and employee deaths and hospitalizations from 2018 to 2022. For retirement programs, it examines fees PE funds charge state pension investors. For health care, it’s how well PE-owned nursing homes are staffed, how debt collection is performed at PE-owned hospitals and what fees those hospitals charge.

The PESP rankings, of all 50 states, have negative results running the gamut from red states (Texas) to blue (Washington). The worst-ranked state, New Mexico, is solidly Democratic. Partisan orientation is based on control of the governorship, both houses of the legislature and party registration.

Per the PESP report, New Mexico has one of the biggest PE-controlled workforces, with among the most PE-company layoffs. The group suggests the state government mandate a 90-day advanced notice of mass layoffs and one week of severance for each year of employment to protect workers. The Public Employees Retirement Association of New Mexico (assets: $17 billion, as of mid-year 2023) has 17% of the portfolio in private equity.

The report warns that no escape is possible from PE’s influence, writing, “Today, there is not a single area of American life that is not directly impacted by private equity.”