Posted by Bill Sandweg on 04 November 2019.
If you are not concerned about consolidation in the delivery of medical services, you should be. We like to think of the medical profession as individual providers who care about us and also care for us. We like to think that they have our best interests at heart and give us unbiased recommendations. Increasingly, there is a yawning gap between what we would like to think and the reality of the medical profession.
As in so many areas of our economy, consolidation is occurring. There are almost no independent hospitals in metropolitan areas now. They are almost all part of a chain which may have many, many hospitals in numerous states. Banner Health, which is based here in Phoenix, has 28 acute care hospitals in multiple states. It owns and operates many other facilities. It employs over 50,000 people and is the largest private employer in Arizona. All of the major hospitals in the Phoenix area are owned by hospital chains.
The presence of hospital chains in your area is important because studies have shown that consolidation drives up the cost of health care in a market. While consolidation allows hospital chains to reduce duplication and therefore reduce costs, those reductions do not translate into reductions in price. To the contrary, prices go up when there is consolidation. Often patients are given more treatment when there is consolidation. More treatment means more health care to be paid for by patients and their insurers.
Many of the same chains that are buying up hospitals are also buying up medical practices. They become the owner of the medical practice and the employer of the physicians and nurses who work there. The arrangement is attractive to the doctors because they no longer have to worry about billings and collections; the hospital chain handles all that.
Now there is a new player in the race to purchase physician practices: private equity. Here is a story about private equity buying an orthopedic practice in Michigan. The potential for large returns on investment is said to be attracting the interest of investors.
Hospital chains are also looking for a return on their investment when they buy a physician practice. They usually expect the newly employed physicians to send their patients to the hospital chain’s local hospital or to use the chain’s laboratories for tests. But what if the chain’s local hospital is not the best one for a patient? What if the doctor does not send enough patients to the chain’s local hospital for it to make the profit it expected when it bought the practice and hired the doctor? No matter what the doctor or hospital chain say, the purchase of the practice puts pressure on the doctor employees to generate business for the chain. The decisions which are made while under that pressure may not be in the best interest of the doctor’s patients.
The pressure from venture capital to return large profits may be even more intense than any pressure a hospital chain may apply. At least a hospital chain is bound by certain medical ethics and by licensing requirements. Chains cannot be too heavy handed. They need the public to consider them “good guys.” No such constraints apply to private equity. These are the same people who buy companies, fire employees, and then sell off the pieces, often leaving nothing but a bankrupt shell behind.
I for one don’t want my doctor to feel that he or she must produce a certain level of profit for their venture capital partners or their hospital chain employers when they are deciding whether I need an operation or not. Neither should you. Make sure you know for whom your doctor is working. Seek second opinions from other doctors who don’t have a profit motive to recommend a procedure for you. Be an informed consumer.