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Private Equity Termites

Summary: Private equity is consuming US health care from the inside out, weakening its structure and strength, enriching investors at the expense of patient care and patients. Incremental health reforms have failed. It’s time to move past political barriers to achieve consensus on real reform.

Termites in the House of Health Care
Milbank Quarterly
November 14, 2022
By John E. McDonough

Private equity firms are financial termites devouring the woodwork and foundations of the US health care system. As Laura Katz Olson documents in her new book, Ethically Challenged: Private Equity Storms US Health Care, “PE firms are gobbling up physician and dental practices; homecare and hospital agencies; substance abuse, eating disorder, and autism services; urgent care facilities; and emergency medical transportation.”

Just as termites are characterized as “some of the most successful insects on earth,” private equity has become a growing and diversified part of the American health care economy. Demonstrated results of private equity ownership include higher patient mortality, higher patient costs, fewer jobs, poorer quality, and closed facilities.

Dr. Arnold Relman, late editor of the New England Journal of Medicine, presciently wrote in 1980 of an emerging “medical-industrial complex.” As “vast new funds were moving into medical care,” wrote Relman, “the health care system was rapidly changing from a professional service primarily devoted to the care of the sick into a lucrative and competitive marketplace for investors and investor-owned corporations.”

Private equity is not the only force in US health care needing reform. Health insurers, hospitals, drug makers, pharmacies, and others have placed financial interests ahead of patient needs.  No other part of the system, though, is designed so thoroughly to maximize short-term financial benefit to shareholders above all else. Action is overdue to stop the rot.

John E McDonough is a Professor of Practice at the Harvard T. H. Chan School of Public Health

Comment by: Don McCanne

John McDonough has always supported universal health care coverage, but has recognized the political barriers, and thus was an active supporter of first the Massachusetts health reform law and then the Affordable Care Act as incremental approaches to reform.

As recent as February 2020, he wrote an article in Health Affairs on why Medicare for All remains a virtual political impossibility. Health Affairs published my comment in response making the point that “when you have the right policy and the politics are wrong, you don’t change the policy to comply with the dysfunctional politics, you change the politics instead.”

In the meantime, our quest for health care justice through a universal, publicly funded, equitable single payer financing model labeled Medicare for All has evolved into an inadequate approach as we stated in The Nation, as private corporate control takes over much of health care. Laura Katz Olson in her book, “Ethically Challenged” explains how private equity is stripping the health care system of its assets – the “termites” that McDonough cites. Medicare is increasingly becoming privatized as Medicare Advantage plans divert health care dollars to their own investors and ACO REACH threatens a corporate exploitation of traditional Medicare.

Well, where does this lead us? The incremental approaches have been a disaster – perpetuating profound inequities in health care, with far too many uninsured and underinsured. The inattention to public financing has allowed health care dollars to be diverted to wealthy investors, leaving tens of millions without means of paying for the health care that they need.

We need to redesign the system so that it works on both fronts: an equitable financing system for all, and devoid of the “termites.” Then we need to intensively publicize our results such that essentially all rational citizens will recognize the clear superiority of the public financing solution to our health care quagmire. Even John McDonough should agree that it is time to overcome political hurdles, and adopt the best policy for all of America.

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