Newport Beach pediatrician sues hedge fund he partnered with, alleges managers put profits before patients

The creator of one of Orange County’s largest pediatric practices filed a lawsuit against the hedge fund he had partnered with to financially weather the pandemic, claiming it endangered patients by putting profits ahead of care, threatened to ruin his reputation and then fired him for speaking out.

Dr. Steve Abelowitz of Newport Beach started Coastal Kids in 2001, and since then it has expanded to nine locations in eight cities, including Irvine, Santa Ana, Laguna Hills and Ladera Ranch. The company found success, but like many others its future became uncertain amid the emergence of the COVID-19 pandemic four years ago.

Abelowitz had been advised by colleagues that getting into business with a hedge fund could lead to compromises in patient care for the sake of profit. Despite these warnings, he enlisted the support of private equity firm Summit Partners, L.P. and their management company, Pediatric Associates Holdings LLC, in December 2020, according to the wrongful termination and defamation suit he recently filed against them in Orange County Superior Court.

Steve Abelowitz, M.D.

(Courtesy of the Headshot House)

When he entered that deal, Abelowitz took care to retain majority ownership of Coastal Kids, appointed himself chief medical officer and put in provisions that made him the only person in the organization with the authority to fire him. But in spite of these precautions, the Newport Beach pediatrician claims his worst fears were realized soon after partnering with the hedge fund.

Representatives for Pediatric Associates described Abelowitz’s suit as baseless.

“Pediatric Associates is dedicated to enhancing the lives of children, their families and communities by delivering the highest quality of pediatric health care and service in a compassionate and healthy environment,” a spokesperson for management company said in a statement Friday. “... The allegations contained in this lawsuit are completely without merit, and we will defend ourselves vigorously.”

Hedge fund ownership of care facilities growing in the U.S.

Since 2013, medical practices have increasingly become a target for acquisition by private equity firms, according to studies published by the American Medical Assn.’s open access medical journal, JAMA Network. Roughly 8% of private hospitals in the U.S., about 460, are currently owned by hedge funds, according to research by the Private Equity Stakeholder Project, a watchdog group monitoring hedge funds.

“The healthcare system should serve patients,” California Atty. Gen. Rob Bonta said in a statement in support of Assembly Bill 3129, a proposed law that would give his office oversight over the purchase of medical practices by hedge funds. “Yet too often, private equity has served corporate profiteers by maximizing their profits at the expense of access, quality, and affordability of healthcare for Californians.”

Abelowitz said Pediatric Associates began making decisions that should have been left to medical staff and was responsible for a drop in both the number of support employees and the quality of their training. He and his attorneys allege patients’ vitals weren’t being properly recorded, and there were multiple cases when children were given the wrong vaccines.

They also accuse Pediatric Associates of taking vaccines provided by the Centers for Disease Control that were supposed to be administered to uninsured or underinsured kids and giving those to patients with private insurance instead.

The plaintiff also claims children dealing with mental health issues were given low priority because those visits tended to take more time while generating less revenue. Their appointments were intentionally double booked, forcing clinicians to spend no more than a few minutes with those patients.

Pediatric Associates began sending representatives on unannounced visits to care facilities. Abelowitz claims this “discouraged clinician independence,” and coupled with a shortage of qualified support staff, resulted in a high turnover rate among the pediatric group’s physicians. The hedge fund’s management company also enlisted a triage and call center in Mexico to field patient calls. As a result, some complained they had to wait hours on the phone.

Christina Nguyen and her daughter, Allison, signed up for care with Coastal Kids in Irvine shortly before the company partnered with Pediatric Associates. She was beyond satisfied at first, she said, and especially impressed by Abelowitz’s personal investment in his patients’ well-being.

She recalled how distraught she felt when Allison once came down with a 102-degree fever as a toddler. Fearing the worst, Nguyen dialed Abelowitz directly.

“I didn’t trust anyone but him, so I gave him a call,” Nguyen, a single mother, said. “And he just happened to be at his son’s graduation at Tulane. And he picked up the phone.”

That kind of accessibility, in addition to the Newport Beach-based pediatrician’s balance of professionalism and personality, are largely why Nguyen and her daughter had been loyal to Coastal Kids. But Nguyen said that over the past year or so, she and other patients with the pediatric group have noticed a decline in the kind of service and care they’ve been getting.

Appointments she tried to set have gotten postponed and repeatedly rescheduled for months. And it became more difficult to reach anyone at the pediatric group over the phone. When Nguyen’s daughter came down with a 104-degree fever about a month ago, she recalled spending between 30 minutes to an hour on hold with her 4-year-old daughter lying weak and in a pool of sweat beside her.

“She was in bed. I had ice packs everywhere,” said Nguyen, who is Asian American and a practicing Jew. “I put ice in her socks. I needed to get that fever down. I sound like a crazy Jewish mom right now, but I had one phone ringing for the Coastal Kids in Newport Beach, one phone ringing for Coastal Kids in Irvine and the other one was to a family member.”

She said she wasn’t able to get through to anyone at Coastal Kids over the phone at the time. So she reached out to Abelowitz’s wife via WhatsApp, and they got him to call Nguyen just as he was getting off of an international flight back to Orange County. He set her at ease, guided her through the emergency and “saved my daughter’s life twice,” Nguyen said.

But in recent months Abelowitz stopped taking appointments or showing up at his practice’s locations, appearing to drop off the face of the earth to Nguyen and other Coastal Kids members. That’s because Pediatric Associates barred him from seeing patients and banned him from the premises of the company he started, according to his suit.

Suing for ownership of the company he created

Abelowitz claims he repeatedly had issues with policies he felt were negatively affecting patients but received little more than lip service. According to the lawsuit, representatives for Pediatric Associates tried to coerce him into handing over his shares in the company in May 2023 and January 2024.

During the latter meeting in Newport Beach, the pediatrician was told he was being investigated for a complaint of abuse. However, there was no record of any complaint or grievance in Abelowitz’s employee file, according to his suit.

Regardless, Abelowitz claims that supposed complaint was used by Pediatric Associates as a pretext to manipulate provisions in their agreements and wrongfully fire him. The management company later held a virtual meeting with Coastal Kids physicians and declined to provide specifics regarding his termination but insinuated that the situation was similar to another involving a clinician who was caught abusing drugs, according to the lawsuit.

“Dr. Abelowitz was terminated for a pattern of conduct toward employees that is inconsistent with our values and policies as an organization,” a Pediatric Associates said in its statement.

The Newport Beach pediatrician is suing for ownership of the company he founded and spent the past two decades building up, as well as damages associated with lost wages, legal fees and emotional distress. He and his attorneys also hope a judge will prohibit Pediatric Associates from “engaging in the corporate practice of medicine.”

Meanwhile, Nguyen said she and other Coastal Kids families were looking for alternative care providers and waiting for Abelowitz to open a new practice.