Private equity piles on debt to pull cash from health firms

March 26, 2021

Topics: Quote of the Day

By Sabrina Willmer
Los Angeles Times, March 24, 2021

Healthcare companies are taking on more debt to pay dividends to their private equity owners, just a year after the start of a pandemic that plunged the industry into crisis.

Healthcare firms have already borrowed about $3.7 billion in 2021, partly to fund payments to private equity owners, more than double the amount issued all of last year, according to data from S&P Global Market Intelligence.

Dividend recapitalization is one reason wealthy investors are drawn to private equity, as they don’t have to wait years for a payout.

But critics including the Private Equity Stakeholder Project say the strategy destroys value.

“By saddling companies with debt to extract cash for themselves, private equity firms put those companies at risk for restructuring, bankruptcy, or cost cutting to make up the interest payments and pay off that debt,” said Eileen O’Grady, a coordinator at the nonprofit.

https://www.latimes.com…

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Comment:

By Don McCanne, M.D.

Borrowing money to pay out dividends. That is distributing profits that never existed. And in health care, who ultimately pays those dividends? The patient, usually indirectly through private insurance premiums.

With single payer Medicare for All the private insurers would be removed from the equation, and our own government program presumably would pay based on legitimate costs and fair profits. It would not pay for funds borrowed to create artificial profits.

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