Exposing the Private Equity Threat

October 26, 2022

Summary: Massive private equity investment has substantially transformed US health care. A highly respected health news service, KHN, highlights the trend and its downsides. The Private Equity Stakeholder Project documents these investments and resulting patient care problems. Single payer would correct the skewed health system dynamics that favor private equity.

Patients For Profit: How Private Equity Hijacked Health Care
How Private Equity Is Investing in Health Care: A Video Primer
KHN (Kaiser Health News)
Oct 26, 2022
By Hannah Norman

See video (3 minutes).

“A common move is to ‘roll up’ a string of businesses under one more established ‘platform’ and find new ways to make money. But as a result, patient care can suffer.” 2:25

Private Equity Stakeholder Project: Healthcare

Private equity increasingly makes up a substantial portion of investment in U.S. healthcare companies, touching virtually every sector of the industry, and is expected to continue to grow. Asset managers have record levels of available capital earmarked for healthcare investment; as of 2019, private equity firms had $29.2 billion in capital waiting to be invested in healthcare.

This is despite the fact that private equity investment in healthcare companies carries substantial risk to patients, workers, and investors. The typical private equity investment playbook—pursuing outsized returns over short time horizons while using high levels of debt—may lead to behavior that jeopardizes patient care.

For example, private equity-owned healthcare companies have seen the following issues:

> Reduced staffing, or filling beds without adequate staffing ratios
> Over-reliance on unlicensed staff to reduce labor costs
> Failure to provide adequate training
> Pressure on providers to provide unnecessary and potentially costly services
> Violation of regulations required for participants in Medicare and Medicaid such as anti-kickback provisions, creating litigation risk

PESP has studied the impacts of private equity investment in key healthcare sectors, including safety net hospitals, behavioral health, nursing homes, prisons and detention centers and dental care. We have also written about the practice of taking debt-funded dividends from healthcare companies; private equity’s role in medical debt collection; and the relationship of private equity ownership and Medicare fraud. PESP also tracks private equity healthcare acquisitions on a monthly basis, highlighting notable transactions in a variety of sectors.

Comment by: Jim Kahn

Private equity (PE) is a menace to US health care, extracting profits and leaving care underfunded and patients at risk. HJM has written frequently about specific PE issues among providers (eg, here), capitated “direct contracting” (including ACO REACH) by PE and other corporations in Medicare (eg, here), and the dangerous growing corporate ownership of providers. The broad PE critique offered by today’s sources is important.

The rising prices that plague US healthcare reflect growing provider power through corporate acquisitions and mergers – often driven by PE. Massive private health insurers are only too happy to pass along the high costs and associated high profits to payers (CMS and private employers, mainly) and patients (in the form of punishing cost-sharing and financial barriers to care). Private equity is turbo-charged exploitation enabled by our complex, fragmented, and chaotic insurance landscape.

How will single payer help? It will correct the distorted power imbalance, with a global payer that can effectively negotiate prices with large provider groups, reducing costs. It will simultaneously empower small providers (remember solo practice?) by treating them the same as the largest providers. It will simplify billing administration for physicians, removing the incentive to sell to corporations to shed the annoyingly complex paperwork. Many providers and patients prefer a non-corporate setting with greater autonomy and personalization, and will have that choice.

In short, single payer will unravel and replace the play space for aggressive corporate profit-taking. In so doing, it will support smaller providers and, of course, patients. Investor gains will yield to equitable, accessible, and affordable health care.

(p.s., see the first comment — additional resources from NY PNHP)