“The people of East Palestine have told me that they want their community back,” Gov. Mike DeWine said as he appeared at the committee hearing remotely from the East Palestine High School library. “They want things to go back to the way they were before the train wreck. Members of the committee, Norfolk Southern has an obligation to restore this community. It was their train, their tracks, their accident. They’re responsible for this tragedy.”
Here’s a list of those who testified at the hearing:
Ohio Gov. Mike DeWine
Norfolk Southern CEO Alan Shaw
Jennifer Homendy, Chair, National Transportation Safety Board
David Comstock, Chief, Ohio Western Reserve Joint Fire District
Clyde Whitaker, Legislative Director, Ohio State SMART-TD
Ian Jefferies, CEO, Association of American Railroads
U.S. Senator Sherrod Brown
U.S. Senator J.D. Vance
Misti Allison, resident of East Palestine
We streamed the full committee hearing, which you can watch in the video below:
She said the derailment has put a scarlet letter on her town.
Later in the hearing, Shaw addressed the concerns of Allison when Sen.Ted Cruz asked him what his answer is to her and other moms who are concerned about their health and safety.
“I am terribly sorry for the impact that this has had on the community. I know that it has been traumatic, I was there during the vent and burn. I saw the plume, and I know what it looked like,” said Shaw. “There is ongoing testing by the EPA, Ohio EPA and the Pennsylvania Department of Environmental Protections and they all show the water and air is safe to breathe.”
Shaw also mentioned that Norfolk Southern is working with state and local authorities to set up funds to cover long-term health care, property valuations and ongoing water monitoring in the community.
Throughout the hearing, many questioned Shaw regarding the recent train derailment, including Senators JD Vance and Cruz. Their questions can be watched below:
Prior to the hearing, Gov. DeWine and Lt. Gov. Jon Husted issued a letter to Shaw.
“It is our expectation that you will champion all good faith efforts to improve rail safety, and we are calling on you today to work with legislators to ensure the best possible policy outcomes in these proposals,” the letter declares.
Gov. DeWine’s offices says the letter “points to various proposals brought forward by the Ohio Legislature and Congressional Representatives, including two bipartisan bills in Congress — the Rails Safety Act of 2023 and the RAIL Act.”
You can read the full letter from Gov. DeWine in the document below.
President Biden is defending his administration’s response to troubles in the banking industry and assured Americans that the financial system remains stable and not “about to explode.”
Speaking in Ottawa at a joint press conference with Canadian Prime Minister Justin Trudeau, Mr. Biden said his administration’s actions kept the banking system safe.
“I think we’ve done a pretty damn good job,” Mr. Biden said in response to a reporter’s question. “People’s savings are secure and even those beyond the $250,000 [limit] of the FDIC are guaranteed and the American taxpayer is not going to have to pay a penny. The banks are in pretty good shape.”
Mr. Biden’s remarks come two weeks after the stunning collapse of Silicon Valley Bank and Signature Bank sparked fears of a looming economic crisis.
The Federal Deposit Insurance Corp. covers bank deposits up to $250,000 in the event the institution collapses. However, Mr. Biden this month ordered the FDIC to go beyond that amount and cover all deposits at Signature and Silicon Valley banks.
While Mr. Biden warned that it will take time for things to calm down, he said there is no indication of economic calamity triggered by the banks’ failures.
“I don’t see anything on the horizon that’s about to explode,” Mr. Biden said.
In the aftermath of the two bank collapses, other financial institutions stepped in to save First Republic Bank from failing. A group of 11 banks deposited $30 billion in the beleaguered mid-level lender in an effort to prop it up.
Anxiety continues to grow about the health and safety of the nation’s banking system. Shares of small, regional banks have been hit hard as investors worried they could also collapse, though there is no indication of system-wide concerns.
President Biden on Friday warned that the U.S. stands prepared to “act forcefully” to protect its citizens from attacks after a suspected Iranian-made drone was used in an attack that killed an American contractor and wounded at least five troops in Syria.
In remarks during a joint press conference with Canadian Prime Minister Justin Trudeau in Ottawa, Mr. Biden offered his condolences to the families of those lost in the attack and commended the U.S. military for its response.
“Make no mistake, the U.S. does not … seek conflict with Iran but be prepared to act forcefully to protect our people,” he said. “That’s exactly what happened last night.”
The Defense Department said in a statement the drone used in the attack against a U.S. base in Syria on Thursday appeared to be of Iranian origin and U.S. Central Command said the attack was carried out by “groups affiliated with Iran’s Islamic Revolutionary Guard Corps (IRGC).”
Mr. Biden said he was briefed on the attack while aboard Air Force One en route to Canada and ordered a series of air strikes targeting those responsible.
The U.S. carried out those retaliatory strikes late Thursday, with two Air Force F-15E fighter jets targeting a munition warehouse and an intelligence-collection site in eastern Syria.
An opposition war monitor said the death toll from U.S. strikes included at least 11 Iranian-backed fighters — including six at an arms depot in the Harabesh neighborhood in the city of Deir el-Zour and five others at military posts near the towns of Mayadeen and Boukamel, the Associated Press reported.
Just hours after the retaliatory U.S. strikes, an American military base in northeastern Syria came under rocket fire, officials said. Pentagon officials did not say who they believe to be responsible for the Friday morning attack, but the timing of the assault on the Green Village site suggests that Iran-backed militias may be involved.
No Americans were injured and no equipment was damaged in Friday’s attack, officials said, but one of the rockets struck a nearby home. Two women and two children suffered minor injuries, the Pentagon said.
Military officials in the region suggested that the U.S. is prepared for larger strikes if the attacks continue.
“We’re going to continue to keep up our efforts to counter terrorist threats in the region and partnerships with Canada and other members of the coalition to defeat ISIS,” Mr. Biden said.
The U.S. force is in Syria as part of a mission to suppress Islamic State, but it has been caught up in the confusing struggle for control of Syria, which includes Syrian government forces, Kurdish groups, Islamist radicals such as ISIS, Syria rebel forces and Russian and Iranian elements supporting the regime of President Bashar Assad.
A militia with ties to Iran is believed to have been responsible for the deadly attack at the main coalition military base in Northeast Syria, with the drone strike coming when the base’s main air defense system was “not fully operational,” U.S. military officials said.
– Ben Wolfgang contributed to this story, which was based in part on wire service reports.
American trade and economic policy have undergone a significant shift since 2016. While the George H.W. Bush, Bill Clinton, George W. Bush, and Barack Obama administrations pursued and maintained free-trade agreements that were similar in nature, such as the North American Free Trade Agreement and the Trans-Pacific Partnership, it’s been different since Donald Trump was inaugurated in 2017 and Joe Biden in 2021. But while both Trump and Biden have veered away from an older free-trade model, the similarities largely end there. Where the Trump administration tended to act unilaterally and deploy tariffs aggressively, the Biden administration is deeply engaged in a multi-lateral effort to forge economic agreements to boost working and middle-class incomes at home while checking the economic predations of China and Russia.
That new approach was evident on March 23 when National Security Advisor Jake Sullivan spoke at an event in Sausalito, California, sponsored by the William & Flora Hewlett Foundation, that focused on what a future “post-neoliberal” economic order would look like. (The Washington Monthly is a Hewlett grantee.) The long-time Biden foreign policy adviser emphasized the importance of “ensuring that the gains that flow from global growth actually reach working people, middle-class people here in the United States.”
“And from my perspective,” Sullivan said, “that has to be a national security priority as well as a domestic economic priority, because the American middle class is the foundation of our capacity to project strength in the world.”
The idea of strengthening America’s economic agreements to bolster the American middle class has been a concern of this magazine. Much of what Sullivan had to say about the Biden administration’s efforts to negotiate new economic agreements, especially in Europe, on issues like climate change, labor standards, and competition policy echoes the vision for a “New Atlantic Alliance” that Wesley Clark, the retired general and former NATO supreme allied commander, articulated in 2021 in these pages and that other authors in the Washington Monthly have been advocating since 2019. (See here, here, here, here, and here.) If the world wants access to this Atlantic market—which approaches half of the world’s GDP—they’ll need to conform to its standards.
Sullivan noted that an agreement on aluminum and steel currently being forged between the E.U. and the U.S. could be “the first of its kind” to put greenhouse gases at the heart of a trade agreement. “We think that if we can prove it out with steel and aluminum, it could begin to be applied to other sectors of the economy as well.”
Sullivan was interviewed via Zoom at the inaugural “New Common Sense” conference by Rana Foroohar, the global business columnist and associate editor at the Financial Times.
He noted that the National Security Council, which he chairs, maintains a keen interest in antitrust policy, also a long-time concern of this magazine. In response to a question posed from the audience by Paul Glastris, the Monthly’s editor-in-chief, Sullivan pointed out that the Biden administration’s vigorous approach to battling illegal economic concentration strengthens the middle class and can alleviate supply chain problems. “From the National Security Council’s perspective, the competition agenda that (Biden) is pursuing has a critical national security nexus and international economic dimension,” he said.
The importance to foreign policy of the CHIPS and Science Act, the Inflation Reduction Act, and the Bipartisan Infrastructure Law was something Sullivan pointed to repeatedly. He noted that these Biden administration achievements bolstered American foreign policy goals of battling climate change, waging an economic and national security struggle with China, and ensuring a supply of raw materials and finished products to bolster American national security.
Describing Biden as “the most pro-labor president in generations,” Sullivan underscored that shoring up labor in the U.S. was central to each of the president’s domestic initiatives. “The instinct and intuition of our President is to ensure that whatever we do on this front lifts the standards and creates more opportunity for union workers in the United States to be able to benefit from every public dollar that is being invested under the IRA, under the CHIPS Act, under the infrastructure law, and under every other measure that that he has passed,
Sullivan underscored the new approach to global economics that the administration is taking in his discussion of the Indo-Pacific Economic Framework, a policy model for approaching trade and other issues with American allies in south and east Asia. “The kind of traditional free trade model pursued under previous administrations is not tailored to the economic realities that we face today,” Sullivan observed. “That goes for large macro trends like the nature of supply chains: Are workers at the center of our economic arrangements? IPEF does put workers at the center of them.”
Sullivan acknowledged that the Biden approach differs dramatically from earlier eras, noting that the tariff reductions negotiated in 1990s trade agreements stemmed from an era of high import duties, which have since decreased dramatically and are no longer the drag on global growth that they once were.
He also questioned the tenets of previous administrations that bet that freer trade would necessarily promote broad middle-class wealth and lead to more democratization around the globe. The Biden administration’s new approach, Sullivan said, recognizes “that markets alone are neither solving for global public goods like the climate crisis nor efficiently allocating capital in ways that ensure that we sustain the kind of industrial strength we need for our economic and national security.”
A plea deal will allow two men charged with trafficking her daughter to walk free, outraging many involved with the case.
SAN ANTONIO — Irma Reyes changed clothes in the back seat of the pickup: skirt, tights, turtleneck, leather jacket. All black. She brushed her hair and pulled on heels as her husband drove their Chevy through predawn darkness toward a courthouse hundreds of miles from home.
She wanted to look confident — poised but hellbent. The outfit was meant to let Texas prosecutors know just what kind of formidable mother they’d be crossing that morning.
Weeks earlier, Reyes learned about the plea deal. State lawyers planned to let the two men charged with sex trafficking her daughter walk free.
She’d barely been able to eat or brush her teeth since, her mind racing: Why are they doing this? Can I get the judge to stop it? Don’t they know my daughter matters?
Reyes’ daughter was 16 in 2017, when men she knew only as “Rocky” and “Blue” kept her and another girl at a San Antonio motel where men paid to have sex with them. Now, the cases against Rakim Sharkey and Elijah Teel — the men police identified as the traffickers — have seen years of delay, a parade of prosecutors, an aborted trial and, ultimately, a stark retreat by the government.
They are among thousands of cases under a cloud of dysfunction at the office of Texas Attorney General Ken Paxton, whose legal troubles include a criminal investigation by Justice Department officials in Washington. Trafficking cases in particular have come under scrutiny and cast doubt on how the agency, which fights court battles affecting people far beyond Texas, uses millions of state tax dollars on an issue that Republican leaders trumpet as a priority while attacking Democrats’ approach to border security.
For Reyes, her daughter, and other victims and families, the politics take a backseat to their pain. To them, the plea deal is a case study in how the agency’s troubles are undercutting justice for vulnerable victims.
A spokeswoman for the attorney general’s office, Kristen House, declined to answer questions about the deal, the actions of prosecutors, and other details of the case involving Reyes’ daughter.
“It’s like a nightmare that I can’t wake up from,” Reyes told The Associated Press.
The case was ready for trial years before that January day Reyes and her husband made their way to the San Antonio courthouse, said Kirsta Leeburg Melton.
“You will not find a stronger corroborated case,” said Melton, who oversaw the attorney general’s human trafficking unit until late 2019 and now runs the Institute to Combat Trafficking. “And I’m sick. It’s wrong.”
In the courthouse, Reyes’ stomach churned as she thought of the deal for the two men: five years of probation. The original charges carried potential sentences of decades in prison.
“I need to puke,” said Reyes, 45, her heels clicking down the hallway to the bathroom.
Inside the crowded courtroom, she waited on a back bench for hours, watching people charged with drug crimes and drunken driving draw harsher sentences.
One of the defendants walked in and sat for a while on the same bench. Just one person separated them, but he seemed not to recognize Reyes. She squeezed her husband’s hand.
When the judge got to their case, she summarized its twists and turns: years lost to the pandemic, delays due to “turnover in the attorney general’s office,” days of testimony last year only for several people to catch COVID-19 and prompt a mistrial.
A defense attorney for Sharkey said his client was in a “strong position” for acquittal but would accept the deal to put the case behind him. Reyes listened in disbelief as the new prosecutor told the judge that Reyes’ daughter — now a 22-year-old with whom she keeps up a steady stream of text messages — was “on the run.”
Sharkey and Teel pleaded “no contest” to aggravated promotion of prostitution. The judge, Velia Meza, sentenced the men to seven years of probation, despite prosecutors recommending five, adding that they’d be strictly supervised but wouldn’t have to register as sex offenders.
Then, it was Reyes’ turn. Meza would allow a victim impact statement.
Reyes walked slowly to the front of the court, clutching her handwritten statement. She thought of her daughter: a beautiful soul who blasts Beyoncé and loves her dogs, a fighter who overcame a lifetime of struggles to get sober, a woman who took the witness stand just months earlier against the man charged with trafficking her.
Reyes reached the waiting bailiff. She took the microphone.
Reyes’ daughter lost a brother when she was young. Then her estranged father died. She was bullied at school.
The AP is withholding the young woman’s name, in keeping with its policy to avoid identifying victims of sexual assault and other such crimes. Reyes told AP she spoke about this story with her daughter, who did not want to comment or be interviewed directly.
Reyes said that as a girl, her daughter would run away from the large family’s South Texas home. By her teens, she started using drugs and getting psychological care through the juvenile justice system. In September 2017, she was sent to a rehabilitation center.
Court records show it was only days after Reyes’ daughter and another girl ran away from rehab that their photos were advertised online for “dates” out of a motel room off the interstate. They met “Blue” outside a motel, where they couldn’t afford a night’s stay. He introduced them to “Rocky.” The pair rented the girls a room, helped set up meetings with men who’d pay for sex, and collected half the money at the end of each day, according to the records.
Reyes’ daughter later testified that when one of the men hit her, she got scared and called her mom. Reyes found the phone number advertised on Backpages.com, a classifieds website later shut down by law enforcement. She called police; officers found the girls at the motel that night.
Ten days after running away, Reyes’ daughter was in a juvenile lockup talking to a detective who would spend months tracking down the men.
“We’re able to get the surveillance video. We were able to get room receipts. We were able to get cellphones, which were extracted for data,” detective Manuel Anguiano told AP. “I don’t think I’ve ever worked a case that had more evidence.”
Several people who worked on the case told AP they were outraged by the attorney general’s office’s final resolution.
“It’s absolutely an unfortunate outcome,” said Cara Pierce, who oversaw the agency’s human trafficking unit until August 2022. “This was a triable case when I left.”
Sharkey’s lawyer, Jason Goss, maintains the jury would have acquitted his client but told AP he had no choice but to plead no contest to the reduced charge because the potential sentence of 25 years to life was too risky. Teel’s attorney, Brian Powers, didn’t respond to phone messages and emails seeking comment.
After getting out of the detention facility, Reyes’ daughter lived away from home for a while, then returned to her mother’s house on a quiet, residential block.
She barely left her spartan bedroom, Reyes said, and couldn’t talk about what had happened. Reyes in turn got anxious when her daughter was around men. They avoided crowds.
Reyes coaxed her back into the world. She brought her treats – Flamin’ Hot Cheetos and Limón Lays – and the book “Women Who Run with the Wolves.”
Gradually, they ventured out, taking morning walks in a nature preserve, watching the birds while eating lunch in Reyes’ car. But the young woman still had panic attacks, sometimes shutting herself in the bathroom.
That’s where she was when Connie Spence, a prosecutor who signed on to the case in summer 2020, arrived to talk, Reyes said. Spence got down on the floor, speaking calmly as the young woman hyperventilated.
After that, Reyes said, her daughter began weekly counseling. She started volunteering at a library and museum. She reenrolled in school and, last June, mother and daughter drove together to San Antonio to testify.
“They built a bond somehow,” Reyes said. “Connie gave her hope.”
On the witness stand, Reyes’ daughter struggled to breath and had difficulty recalling details from years before. But over hours of testimony she recounted how she came to be having sex to at the motel to pay “Rocky.” She testified that he got mad after she spoke to other men there, taking her into a room and hitting her across the face.
Asked to identify “Rocky,” the young woman pointed across the courtroom at Sharkey.
Four days later, Reyes and her daughter were relaxing in the summer heat on their patio when Spence called to tell them the judge had declared a mistrial because four people in the courtroom caught COVID-19.
They told themselves testifying would be easier the second time. All three women agreed to go back to court as many times as needed.
But it would be the last time they spoke to Spence.
She left the attorney general’s office the following month, according to personnel files obtained under public records laws. Spence’s resignation letter gives no reason. She didn’t respond to calls and messages seeking comment.
Spence left amid a wave of seasoned prosecutors quitting over practices they said were meant to slant legal work, reward loyalists and drum out dissent. The next month, the office dropped a separate series of trafficking and child sexual assault cases after losing track of one of the victims.
In October, Reyes was introduced to new lead lawyer James Winters — the last of eight prosecutors to handle the case for the attorney general’s office, court records show. Reyes said her daughter told Winters she would testify again.
The lawyer later asked that the case be postponed again, but the judge refused. Reyes didn’t hear from prosecutors again until early January, when Winters called about the plea deal. It was a couple weeks after her daughter had left home.
In the silence, she’d grown pessimistic about the case. They had a fight, Reyes said. The young woman went to stay with a friend’s family.
Reyes worried about her daughter and whether she might turn to old habits. She spent Christmas with the family, but left soon after.
Still, a victim’s advocate told prosecutors that Reyes could get her daughter to court, internal office messages obtained by AP show. Reyes doesn’t understand why Winters later told the judge her daughter was “on the run.”
Winters, who referred emailed questions to an attorney general’s spokesman, submitted his resignation letter three weeks after appearing in court for the plea deal, which was first reported by Texas Public Radio.
In San Antonio, Reyes clutched her jacket around her shoulders as she reached the front of the courtroom and took the microphone for her victim impact statement.
She’d spent lunch writing out what she wanted to say, but rage got the better of her planning. She looked at the men accused of trafficking her daughter and two other girls, at the lawyers flanking their clients, at men who’d also gotten probation on charges of soliciting and paying the girls for sex.
Reyes began speaking quietly, the statement still crumpled under her jacket.
“Rakim, can you look at me?” she said, as Sharkey examined his hands. “You have daughters. Going on your third. Exactly the number of victims.”
She told one of the men who’d paid for sex that she’s glad his family left him.
And she gestured at Winters, the prosecutor. “He doesn’t represent me. I represent myself right now. I’m not afraid of you.”
Reyes spoke for nearly five minutes, her voice rising as she turned to face the courtroom and beseeched people who were being trafficked to come forward.
“There are victims out there that this minute are being pimped by these types of guys, this type of trash,” she said. “And the trash is supposed to be disposed. But they’re lucky today.”
“What these people do to their victims — nothing will ever fix that,” she said. “We just try to hold on.”
Reyes cried on the way home, but the drive otherwise passed in silence. Her husband, who doesn’t speak much English, hadn’t followed everything in court. Reyes didn’t know how to explain.
She also didn’t know how to tell her daughter, who’d already lost hope the men would go to prison.
Reyes wanted her to come home, to talk in person. But her daughter’s bedroom was empty.
Reyes felt isolated and got little rest, with violent nightmares. She kept the blinds drawn. She struggled to breathe and fantasized about feeling nothing.
Two days after the hearing, Reyes sat alone in her bedroom, where crosses line the walls. She felt abandoned by the prosecutors, by the judge, by her family, by God. She thought about how she would take her own life. The idea seemed soothing. Her thoughts grew specific. But then she thought of her children and called a crisis hotline.
“I just swim into my thoughts,” she said. “It’s like a big ocean once you let your mind wander. But pulling yourself back up, that’s where I have to be aware that I don’t dive too deep.”
Reyes turned 46 the next week. She spent her birthday at the doctor’s office. She cried uncontrollably. The doctor prescribed anti-anxiety medicine.
Reyes is in therapy. She’s signed up for dance classes and walks her dogs in the nature preserve, hoping her daughter will join them soon.
She’s still grasping for closure. Reyes filed complaints with the attorney general’s office, the state bar association and the U.S. Department of Justice, although none will reopen the criminal case. Perhaps her best hope from the legal system is a civil lawsuit that she hopes her daughter will one day be ready to bring.
She and her daughter talk more lately. Their texts are filled with worry but also jokes and photos.
One day, Reyes’ son shook her awake at 3 a.m. A sheriff’s deputy was on the phone and said her daughter had called 911 having a panic attack; she said she wanted to go home.
I’ve lived this before, Reyes thought. She asked the deputy to wait with her daughter.
Then she pulled on shoes, climbed into the pickup and drove out into the night.
EDITOR’S NOTE — This story includes discussion of suicide. If you or someone you know needs help, please call the National Suicide Prevention Lifeline at 1-800-273-8255.
Associated Press photographer Eric Gay and videojournalist Lekan Oyekanmi contributed to this report.
If you want to know what happens after a private equity firm plunders one of its hospital acquisitions, visit Delaware County in southeast Pennsylvania. Earlier this month, Crozer Health laid off 215 workers, or 4 percent of the workforce, at its four hospitals in the suburban Philadelphia county amid reports it is late paying its bills, including rent on its hospitals.
Crozer’s owner is a privately held company, Prospect Medical Holdings, headquartered in Los Angeles. Prospect Medical’s purchase of Crozer in 2016 was financed by Leonard Green & Partners, which is an L.A.-based private equity firm with over $70 billion worth of assets in its portfolio that siphoned nearly a half billion dollars from Crozer in the last half-decade.
In addition to the new layoffs, Crozer announced plans to end drug and alcohol treatment at its 313-bed flagship teaching hospital in Chester, a small city in Delaware County some 20 miles from downtown Philadelphia. Chester is over 70 percent Black, with high poverty, unemployment, and substance abuse rates after decades of deindustrialization.
Those moves came after two years of Crozer cutting services. Last fall, the Pennsylvania Department of Health cited inadequate staffing at Crozer’s facilities and ordered it to close its emergency room at 168-bed Delaware County Memorial Hospital in Upper Darby, the second largest hospital in its system. Before the closure order, Crozer had shuttered the facility’s maternity ward, a severe blow in a small city of 85,000 that’s over a third Black and where 75 languages are spoken in the public schools.
Faced with the Pennsylvania Health Department order, Crozer CEO Anthony Esposito—the fifth chief executive officer installed by Prospect Medical in three years—ordered the shutdown of all in-patient care at the hospital, leaving only its out-patient services. The county immediately challenged the move in court as a violation of the original 2016 agreement when Prospect Medical bought the previously non-profit Crozer-Keystone Health System. That agreement included Prospect Medical’s promise to keep all hospitals in the system open for at least 10 years.
“For decades, Delaware County Memorial has been the hospital of choice for that community,” said Frances Sheehan, president of the Foundation for Delaware County, which provides grants and services to community organizations promoting public health. “People walked to the hospital. They walked to their doctor appointments. Having an E.R. up and running was critically important for an aging population. This was a major, major blow to the community.”
Prospect Medical refused to comment for this story through a spokesperson at Blanco + Hopkins & Associates, LLC, a Los Angeles-based public relations firm representing the company.
Cutbacks and closures at community hospitals in low- and moderate-income communities have become routine in the United States. Most are in large cities, inner-ring suburbs, and rural areas with older populations, stagnant incomes, and rising health care needs. Many of these non-profits are called safety net hospitals because most of their clientele are on Medicare and Medicaid, uninsured, or struggling financially.
Some safety net hospitals survive by merging into larger non-profit systems. But a growing number of them have been gobbled up by private equity firms, often interested in making outsized profits and cashing in on their investment quickly rather than maintaining health care services in underserved communities. An estimated 38 percent of the nation’s 5,200 community hospitals are now under private ownership compared to 20 percent a decade ago.
Prospect Medical’s acquisition of Crozer with financial backing by Leonard Green offers a textbook example of how private equity extracts wealth from struggling health care systems. It often does so in ways that leave the health care systems more vulnerable to the financial headwinds they already face. When the 2016 acquisition of what was then known as Crozer-Keystone Health System was announced, Prospect assumed $260 million in debt and pension liabilities for the 6,000-employee company, which had posted operating losses of over $40 million in the previous two years.
But the financial engineers at Leonard Green, which held the majority equity stake in Prospect Medical, had other ideas. In July 2019, Prospect executed a $1.55 billion sale and leaseback deal with Medical Properties Trust, a publicly traded real estate investment trust headquartered in Birmingham, Alabama. The arrangement covered Prospect Medical’s hospitals in Pennsylvania, Connecticut, and California.
Prospect’s statement to Medical Properties Trust investors when the deal was announced echoed its claims made earlier to state and local officials in Pennsylvania. “This transaction allows us to unlock the value of those assets and focus our efforts on our core business—operating hospitals and implementing our coordinated-regional-care population health model,” said Samuel S. Lee, CEO of Prospect Medical. “Having Medical Properties Trust available for long-term capital provides us with a significant and experienced potential source of funding for improvements to our existing facilities.”
While Prospect Medical did use some of the proceeds to pay down debt, almost half of the rest—$457 million, according to an analysis by the public-interest group Private Equity Stakeholder Project—was used to pay dividends to Prospect’s shareholders at Leonard Green. Meanwhile, individual hospitals in Prospect’s system were saddled with huge rents with so-called escalator clauses for the buildings they used to own. In other words, they were saddled with new debt.
In Crozer’s case, the rents totaled $35 million a year, according to Sheehan of the Foundation for Delaware County. That’s a significant burden for a system with $660 million in revenue in 2021 at its two major hospitals, according to filings with the Pennsylvania Health Care Cost Containment Council. To put that $35 million in perspective, it is more than enough to pay the annual salaries of the 215 people laid off this month.
Prospect Medical has stopped making those payments. In its annual report, Medical Properties Trust, the new owner, which is publicly traded and must report financial data to the Securities and Exchange Commission, revealed it has written off $283 million in losses for bad debt real estate, including $171 million for the Pennsylvania properties rented by Crozer.
Those high rent payments may have been why non-profit ChristianaCare, in Wilmington, Delaware, last year walked away from negotiations to buy Crozer Health from Prospect Medical, which is now trying to unload the system. A spokesperson for ChristianaCare refused to comment. “We hope they will sweeten the deal for another buyer to walk back in,” said Sheehan of the Foundation for Delaware County. “I don’t think they’ve sweetened it enough.”
Those hoping to spare their safety net hospitals from the predatory practices of private equity and other financial firms should look at Rhode Island. In the nation’s smallest state, where Prospect Medical and the privately held Steward Health Care (backed by the private equity firm Cerberus Capital Management) also operate, a law passed in 1997 gave Rhode Island’s attorney general and health department veto power over hospital acquisitions.
“When Leonard Green tried to sell its stake in Prospect, the attorney general in Rhode Island required them to set up an escrow to make sure pensions were paid,” said Sam Arnold, a legislative aide to Tim Kearney, the Pennsylvania state senator who represents half of Delaware County. Senator Kearney is preparing legislation to give the state’s attorney general and health department similar authority. Arnold told me that Leonard Green “needed to have skin in the game since they were leaving Prospect with this huge debt and no resources to pay for it.”
Kearney’s legislation allows state officials to challenge transactions that do not serve the public interest as well as stop recapitalizations and real estate sales “when it’s clear it will destabilize the finances of the health care system,” Arnold said. The goal is “to stop sales to irresponsible owners with track records of raiding hospitals.”
Of course, that won’t help Crozer, which is on the cusp of bankruptcy. Perhaps here, too, Pennsylvania and other states with hospital systems victimized by private equity may follow in the footsteps of Rhode Island.
In November, Prospect Medical agreed to sell its two major hospitals and six ancillary facilities in Rhode Island, known locally as CharterCARE Health Partners, to an Atlanta-based non-profit called The Centurion Foundation, organized in July 2021 to own and operate health care facilities. Prospect Medical’s Rhode Island operations were not included in the 2019 sale and leaseback arrangement that Leonard Green executed with Alabama-based Medical Properties Trust.
But Rhode Island officials reviewing the deal should scrutinize any new non-profit that suddenly appears on the scene and helps smooth a private equity deal. “Centurion focuses on reinvesting operating profit into its facilities, people, and communities it serves,” says the organizations’ joint press release issued by CharterCARE Health Partners and The Centurion Foundation. But its ability to do that will depend entirely on how much it pays Prospect Medical for the real estate, which will drive how much those facilities will pay in rent to retire the bonds Centurion must sell to buy the properties.
I called Centurion, which was launched just two years ago, to learn more about its founders. I wanted to know whether it had a conflict-of-interest-free relationship with Prospect Medical and Medical Properties Trust and whether it is negotiating with either company to execute a deal in Pennsylvania similar to the CharterCARE one in Rhode Island. The Centurion Foundation’s CEO, Greg Grove, a former investment banker, had a 30-year career at The Guardian Foundation, a non-profit with the mission of rescuing the flailing finances of nursing homes bought and flipped by private equity firms.
Grove said he would put me in contact with someone with more knowledge about the situation. I was called a few hours later by Gary Hopkins of Blanco + Hopkins, the same P.R. firm that represents Prospect Medical. He said there would be no comment. Is it a coincidence that the same PR firm represents both The Centurion Foundation and Prospect Medical?
Fortunately, Rhode Island’s attorney general and health department will have the final say on whether the CharterCARE-Centurion Foundation deal is in the public interest. That’s how it should be when private equity funds and their hospital operator partners are eyeing their next target.