In this post I link to and excerpt from Private Equity Buyouts in Healthcare: Who Wins, Who Loses?
Eileen Appelbaum∗ and Rosemary Batt†
Working Paper No. 118
March 15, 2020
Here are excerpts:
Private equity firms have become major players in the healthcare industry. How has this happened and what are the results? What is private equity’s ‘value proposition’ to the industry and to the American people — at a time when healthcare is under constant pressure to cut costs and prices? How can PE firms use their classic leveraged buyout model to ‘save healthcare’ while delivering ‘outsized returns’ to investors? In this paper, we bring together a wide range of sources and empirical evidence to answer these questions. Given the complexity of the sector, we focus on four segments where private equity firms have been particularly active: hospitals,
outpatient care (urgent care and ambulatory surgery centers), physician staffing and emergency room services (surprise medical billing), and revenue cycle management (medical debt
collecting). In each of these segments, private equity has taken the lead in consolidating small providers, loading them with debt, and rolling them up into large powerhouses with substantial market power before exiting with handsome returns.
Body Of The Article
Private equity firms have become major players in the healthcare industry. In 2018 alone, PE investments in healthcare reached 855 deals and $100 billion in capital invested — an historic high. Why has private equity accelerated its investments in healthcare in recent years? How can private equity use its classic business model of a leveraged buyout in healthcare – in which it buys out a company using high levels of debt that are loaded on the company? How can PE firms deliver their promised ‘outsized returns’ to investors on the backs of sick patients? Interest in private equity’s role in healthcare exploded in the summer of 2019. Investigations
revealed that two large private equity firms, with a 30 percent share of the market for outsourced
emergency room doctors, were at the heart of the surprise medical billing crisis. Patients who thought their insurance would cover their ER visit found instead that, in outsourced ER rooms, doctors could charge out-of-network rates, leaving patients with huge medical bills. Congressional debate over legislation to curb these abuses was ongoing in 2020 even as private equity firms poured millions to lobby Congress to adopt watered-down legislation that would not substantially alter out-of-network rates.*
*See Top House Democrat kills effort to end “devastating” surprise medical bills: House Ways and Means chair Richard Neal’s loyalty to private-equity donors — “most disgusting story in D.C.”? From Salon
By JAKE JOHNSON
DECEMBER 18, 2019 10:00AM (UTC)
Private equity’s role in this sector is of particular concern at a time when healthcare prices have continued to rise. In 2018, Americans spent $3.65 trillion on healthcare – 4.6 percent more than in 2017 – and the growth was due to higher prices, not more visits to doctors or hospitals. A disproportionate share of rising prices was due to higher prices paid by private insurers – up from a 2 percent annual increase in 2012 to a 6.7 percent increase in 2018. By contrast, rates increased in 2018 by 3.7 percent for Medicare and just 2 percent for Medicaid.2
Why — at a time when the industry has experienced years of consolidation and outsourcing of services to improve
scale efficiencies and reduce costs – are healthcare prices still rising sharply? These questions make private equity’s role in healthcare a timely policy issue as the country hotly debates the future financial model of the industry. At 17.9 percent of the US Gross Domestic Product in 2019 – projected to be 19.4 percent of GDP by 20273 — the sector is central to the health of the US economy and the jobs of millions of Americans. In this context, what is private equity’s ‘value proposition’ to the industry and to the American people — at a time when healthcare is under constant pressure to cut costs and prices? What attention should be paid to regulating unregulated financial actors such as private equity firms as they penetrate healthcare markets for services that are so central to people’s ability to live healthy lives?
The rest of the article well details the harms that unregulated private equity firms do to patients economic and health interests.
One of the gravest dangers private equity control of physician practices is their ability to subtly pressure physicians to favor the private equity group’s interests over that of their patients.
The employer staffing services owned by private equity groups are able to influence physicians behavior by threatening the physician’s employment through “at-will” clauses that are in the physician employment contracts.
See the rest of the article for information on how healthcare and patient interests are being harmed by unregulated private equity firms.