The Rising Tide Of Private Equity in Healthcare

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Feb 29, 2024

A Good Day To Advocate for Better Healthcare

If there are subjects you’d like to see or improvements made, please let me know using the comment button below. Private equity’s impact in healthcare is on the docket.

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NEW ALERT Adults ages 65 and older should receive an additional dose of the 2023-2024 COVID-19 vaccine this spring 4 months after their last vaccine according to CDC's Advisory Committee on Immunization Practices (ACIP).

There are still roughly 20,000 people a week hospitalized for COVID and about 2,000 deaths a week caused by the disease, according to the CDC's National Center for Immunization and Respiratory Diseases (NCIRD).

GET THE SHOT

Outrageous Bills?

The Kaiser Family Foundation and NPR host a series called Bill of the Month.

If you’d like to submit yous you can do it here. Sometimes they are able to intervene and help get bills reduced.

Debra Pritchard was a retired factory worker in rural Tennessee. She didn’t have a lot of money and so opted not to have Medicare part B to save the $175 per month cost. (NPR story)

When she had a stroke and an aneurysm, her local hospital flew her to Vanderbilt hospital 79 miles away. She died and her estate received a bill for $81,739.40 for the helicopter transport.

Med-Trans Corp., who flew her there, is a medical transportation service that is part of Global Medical Response, an industry giant backed by private equity investors. The larger company operates in all 50 states and says it has a total of 498 helicopters and airplanes.

For patients with private insurance coverage, the No Surprises Act, which went into effect in 2022, bars air-ambulance companies from billing people more than they would pay if the service were considered “in-network” with their health insurers. For patients with public coverage, such as Medicare or Medicaid, the government sets payment rates at much lower levels than the companies charge.

Lessons

Should she have had Medicare Part B? Yes.

Should Medicare be separated into separate programs A for hospital services, Part B for medical services, optional part D for prescriptions. Probably not because it creates huge gaps.

Moreover, Part B was designed with a 20% copay. That means if you have a $1,000,000 bill you owe $200,000 unless you also bought a Medigap plan.

P.S. that copay was put in place by a racist Senator who thought that poor Blacks would not be able to afford it and early deaths would help with Black problem.

Did you catch the part about private equity ownership of the medical transport company? When they are involved, they jack up prices and squeeze money out of the system as fast as possible to pay above market dividends to investors.

Universal healthcare really is the answer.

Hospital Private Equity - How Big is It?

Private equity (PE) acquisitions in healthcare have exploded in the past decade. The number of private equity buyouts of physician practices increased six-fold from 2012-2021. At least 460 hospitals are now owned by private equity firms, comprising 37% of 1,234 for-profit hospitals in the U.S. At least 26% of private equity-owned hospitals serve rural populations.

Private equity investment in healthcare has grown dramatically in recent years, reaching an all-time high in 2021 of 515 deals valuing $151 billion.[1] Healthcare is second only to IT as the most popular target for private equity investment.[2]

Texas has the most private equity-owned hospitals (97).
New Mexico has the highest proportion of private equity-owned hospitals (38%).
Nearly a quarter (22.5%) of private equity-owned facilities are psychiatric hospitals.

What is the Business Model?

The private equity business model, which is characterized by the pursuit of outsized profits over short periods of time and a reliance on high levels of debt, is in many ways incompatible with providing quality affordable healthcare.

The techniques used are fairly standard
- Load up the facility with debt
- Reduce the services offered to those that are profitable
- Monopolize a market when you can (we saw this with the FTC and USAP anesthesia a couple of days ago)
- Sell/leaseback properties at high rates - here this is a vertical integration technique whereby they sell the property to a company they own then lease it back from their own company at high rates
- Force cost cutting to service the debt by short staffing & reduced supplies
- Pay extra high dividends to investors
- Keep the facility providing as much as possible to investors as quickly as possible
- The goal is to exit the market in three to five years, selling the medical group to an even larger private equity firm at a huge profit.

Who is involved?

A handful of private equity firms dominate the list of private equity-owned hospitals:

Apollo Global Management (Lifepoint Health, ScionHealth) 224 hospitals
Equity Group Investments (Ardent Health Services) 32 hospitals
One Equity Partners (Ernest Health) 31 hospitals
Webster Equity Partners (Oceans Healthcare). 20 hospitals
Bain Capital (Surgery Partners) 19 hospitals

These 5 firms own 316 hospitals, that’s 68.6% of all the private equity owned hospitals in the US. See PEStakeholder.com.

Here is a link to a story I wrote about a year ago about how Apollo and Lifepoint Health squeezed the life out of a hospital in Wilson, North Carolina. Business model followed. The city’s healthcare left in a shambles and investors became richer.

Patient Outcomes Worse in PE hospitals

A recent study in JAMA from researchers at Harvard Medical School and the University of Chicago analyzed patient mortality and the prevalence of adverse events at hospitals acquired by private equity compared to non-acquired hospitals. The study used Medicare claims from more than 4 million hospitalizations from 2009-2019, comparing claims at 51 PE-acquired hospitals and 249 non-acquired hospitals to serve as controls.

There were concerning results for patient safety. The rate of adverse events at PE-acquired hospitals compared to control hospitals increased by 25%, including a 27% increase in falls, 38% increase in central line-associated bloodstream infections (CLABSI), and double the rate of surgical site infections. The authors found the rates of CLABSI and surgical site infections at PE-acquired hospitals alarming because overall surgical volume and central line placements actually decreased. These are particularly troublesome as this kind of error should never be an issue.

The Center for Medicare and Medicaid Services (CMS) issues quality ratings for hospitals - 1 to 5 stars. The more stars the better. It is a summary of information collected by CMS, including mortality, safety, readmission, patient experience, and timely and effective care.

PEStakeholder.com tracks the star ratings for PE owned hospitals. They found just 111 (24%) of the 457 hospitals they tracked had CMS star ratings available. The distribution of ratings is shown below for reference alongside the national average.

Note that a higher percentage of PE hospitals have low star ratings than their peers. Also, for the high star ratings the percentage of PE hospitals is lower than their peers.

What To Do

If we had universal healthcare with global budgets covering hospital infrastructure and salaries, as in HR 3421, the greatly improved Medicare for All Act, that would be a start.

But part of the issue is that financial laws enable this kind of behavior. The Lown Institute recommends

Joint Liability. Currently PE firms can put all of their debt on the balance sheet of the firm they acquire, letting them off the hook for this debt and making it harder for the acquired company to succeed. Requiring private equity firms to share in the responsibility of the debt would prevent them from making huge profits while they are saddling hospitals and nursing homes with debts that ultimately impact worker pay and cut off care to patients.
Regulate mergers. Private equity acquisitions often go under the radar because the acquisitions are small enough to not be reported to authorities. But the U.S. Federal Trade Commission could be more aggressive in evaluating mergers and buyouts by PE.
Transparency of PE ownership. It can be hard to know when hospitals are bought by a PE firm. The Department of Health and Human Services could require disclosure of PE ownership for hospitals as they have done for nursing homes.
Remove tax loopholes. The carried interest loophole allows PE management fees to be taxed at as capital gains, which is a lower rate than corporate income. Closing this loophole would remove a big incentive that makes PE buyouts so attractive for firms.

There needs to be political will to change the system so that patients are not the vehicle to profits but are the consumer to be served and healed. Part of it is the will to change the law to serve patients and part will require sufficient funding to ensure accurate enforcement of those laws.

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NARAL - Pro Choice America

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United State of Women Reproductive health page (bottom of the page) has important resources such as medical support, access to Telehealth, prescriptions by mail, and legal support references.

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