Guns and Hospitals strange bedfellows.

Cerberus Capital: Profiting From Guns and Gun Violence
Posted: 10/09/2013 8:12 pm

Many successful businesses benefit from vertical integration and supply chain management. By controlling markets and inputs of a product you can limit competition, keep costs low and profits high. But when it comes to the health industry, the idea of hospitals having an interest in deadly firearms and ammunition, a major source of injury and death, makes even the most hardened Wall Street executives feel uncomfortable.

Annually, the American gun industry has firearm and ammunition sales that total an estimated $4 billion. While this sales number is relatively low firearm injuries and death remain very high. Every year over 30,000 Americans, including approximately 3,000 kids, are killed from firearms. In addition, thousands of Americans are injured and not killed in gun-related incidents, at a rate of about 23/100,000 individuals. Should the same group of individuals profit when a gun is sold and when a gun is used to hurt someone? That is exactly what Cerberus Capital Management is doing.

According to the Cerberus website, Stephen Feinberg founded Cerberus Capital Management in 1992 after spending several years with Gruntal & Co. Feinberg prides himself on being private and values that quality in others. At a shareholder meeting in 2007, Feinberg was quoted as saying, “If anyone at Cerberus has his picture in the paper and a picture of his apartment, we will do more than fire that person. We will kill him. The jail sentence will be worth it.” Kind of frightening coming from the managing director of the largest conglomerate of firearms and ammunition in the U.S.. This value for privacy makes sense when you examine the web of companies Cerberus has created and their conflicting missions.

Cerberus entered the gun market with the purchase of Bushmaster in 2006. From there, Cerberus founded the Freedom Group and purchased Remington, at the time Remington was the largest domestic producer of shotguns and rifles. Freedom Group moved on from there, acquiring other firearm-industry companies including ammunition, silencer and body armor producers ( DPMS/Panther Arms, Marlin, H&R, The Parker Gun, Mountain Khakis, Advanced Armament Corp., Dakota Arms, Para USA and Barnes Bullets). By Freedom Group’s own account, they are the largest manufacturer of commercial firearms and ammunition. In the second quarter of 2013 alone, Freedom Group and its affiliates had net sales totaling $353 million. Some gun industry experts suggest that their domestic retail product share is around 20 percent.

Freedom Group is the owner and manufacturer of many of the guns used in recent high profile mass shootings. For example, the Washington Naval Yard shooter, Aaron Alexis, used a Remington 870 shotgun, the D.C. snipers and Newtown, Conn., Sandy Hook Elementary School shooters both used a Bushmaster AR 15 assault rifle and the Webster, New York shooter used a Bushmaster semiautomatic rifle when he killed volunteer firefighters responding to a fire.

After establishing its presence in the firearm industry, Cerberus moved on to a variety of other industries. Operating under another affiliate, AB Acquisition, Cerberus acquired the Supervalu, Inc. grocery store chains, including Shaws, Albertsons, Acme, Jewel-Oscos and Star Market. In addition, in 2010, Cerberus acquired Caritas Christi Health Care for $830 million and reorganized under the name “Steward Health.” According to Steward Health’s own claims, the organization has over 17,000 employees and providing health services to over 150 communities. Each year the organization serves over one million patients in the New England area. In addition, Cerberus bought an interest in Covis Pharma, a pharmaceutical company, in 2011.

As the owner of one of the largest networks of hospitals in the New England area, Cerberus, acting through Steward Health, is treating many gunshot victims. Nationally, 16.5 percent of all spinal cord injuries are caused by gunshot injuries. Patients who are shot four or less times spend a median of 2.5-3 days in the hospital. Patients with five or more wounds, or three or more anatomic regions, have a median length of stay of 8 days. This adds up to quite a hefty hospital bill.

According to USA Today and a study by Ted Miller for Pacific Institute for Research and Evaluation, medical care for fatal gunshot wounds cost an average of $28,700 per patient in 2010. When you add in non-fatal injuries, this price tag reaches an aggregate cost of $3.2 billion annually. In 2010, $1.4 billion of the total gunshot wound health costs were paid by taxpayers through Medicare and Medicaid programs. But society pays more for a gunshot wound than just health care costs. Miller’s study estimated that in 2010 the government and, ergo, the American people lost $5.4 billion dollars of tax revenue by gunshot victims missing work, $4.7 billion was paid in court costs, $180 million in mental health care costs for gunshot victims, $224 million in insurance claim processing, and $133 million spent in responding to shootings. However, the cost to the people and relying on government handouts seems to be of little concern to Cerberus. In 2007, the company purchased Chrysler. Shortly thereafter, Chrysler declared bankruptcy and received billions of dollars in bailout money.

Meanwhile the killing and gun sales just keep mounting. While there was talk of selling Freedom Group after the Newtown, Conn. massacre, and embarrassing news stories linking Bushmaster and Steward Health, it appears now that it was only PR talk and that Cerberus and their “family” of gun companies will stay in the highly profitable and integrated “merchant of death” and “provider of health care” businesses. Profits before people seems to be the Cerberus Capital way.

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