There is a disturbing trend going on in health care – and it’s one that few consumers are aware of.
Billion-dollar financial giants, or “private equity” investment firms, are buying up hospitals, emergency rooms and health care practices at alarming rates. Their aim is to maximize profits then self-off the practices – at many, many times the purchase price – and deliver major returns to shareholders.
In order to do this, they employee the doctors and staff, gut services, raise prices and cut back on equipment.
Often these firms operate in the shadows. In fact, your doctor’s office might have been taken over by one of these firms and you don’t even know it. You just feel the impacts: a steady deterioration of services, worsening quality, higher costs and copays.
But even in the shadows, private equity’s influence over health care is far-reaching and rapidly growing. In 2019, private equity's health care acquisitions reached $79 billion. 2018 was the first time ever in the US that more doctors were employees than owners of their practice. And since 2010, private equity investment firms have spent more than $580 billion to acquire health care practices.
The problem with private equity’s profit-first goal is that the best health care and the biggest returns are often at odds with each other.
"Private equity firms expect greater than 20 percent annual returns, and these financial incentives may conflict with the need for longer-term investments in practice stability, physician recruitment, quality, and safety," JAMA’s study of private equity in health care found.
How do you secure 20 percent yearly return on your investment? You cut costs and raise prices.
For example, treatment from a private-equity-owned freestanding emerging rooms (ERs), the majority of which are for non-emergency care, can be 22 times more expensive than at a physician’s office, according to the Harvard Business Review (HBR).
“The investors’ strategy appears to be to increase revenues by price-gouging patients when they are most vulnerable,” writes HBR.
It’s not just price-gouging. There’s also major cost-cutting. According to an NBC report, “private equity's growing involvement in health has contributed to shortages of ventilators, masks and other equipment needed to combat COVID-19, because keeping such goods on hand costs money.”
The profit-driven focus of private equity firms can also impact quality and safety.
Zirui Song, MD, Ph.D., assistant professor of healthcare policy at Harvard Medical School told Medical Economics that private equity’s “need to derive a large financial return… could change the way patients are diagnosed or treated if those decisions are influenced by the need to generate a financial return.”
Dr. Song also worries that there may be incentives for doctors to use certain services that are costlier or to refer to providers or labs that are also owned by the private equity firm.
Another place where you feel the pain of private equity in health care? Your insurance premiums.
Private equity groups can buy up multiple practices in a region, merge them into a large conglomerate, and then use their market power to extract bigger payments from insurers. Those bigger payments are passed onto policy holders in the form of higher premiums.
Wall Street has a business model, and it’s not necessarily a bad one: buy low, maximize value, sell high. The ultimate goal is profit.
But medicine is different. The ultimate goal in medicine is a person’s health. When the goal of medicine becomes profit, prices go up and quality and safety is sacrificed.
And that’s not just costly, it’s dangerous.
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