The Private Equity Investor Will See You Now, But Only For A Few Moments

On the whole, capitalism has been good for the United States.  Lately, however, the rise of private equity companies and their incessant search for centers of profitability has put the medical profession under great strain and our health at risk.

The Smash-and-Grab Economy – Mother Jones

Illustration:  The Smash And Grab Economy – Courtesy of Mother Jones

The basic rationale for private equity is that, through the choosing of wise investments, it can achieve returns substantially higher than those of the stock market.  Sometimes their tactics can be ruinous.  For example, a private equity company may buy a business with substantial assets, but which is not performing well.  The private equity company will usually use borrowed money to finance the purchase.  After gaining control of the company, it sells off the best assets, distributes the proceeds to itself as management fees, and leaves the company owing the money that was used to buy it in the first place.  The company, which was struggling even when it still owned it best assets, is now unable to continue to operate with the debt it is carrying and is forced to go bankrupt or to go out of business completely.  When organized crime strips assets from a company, it is against the law and its leaders go to prison.  There is no such law to prevent private equity from looting a business.  When it does it, its leaders get a fat bonus.

Another commonly used private equity tactic is to increase revenue by cutting costs and raising prices.  This is the tactic that has the greatest application to health care.  Cutting costs in this context almost always involves reducing staffing levels and asking the remaining employees to do more with less.  Doctors and nurses are “urged” to spend less time with patients.  In our fee for service world, every patient visit generates a fee.  The more patients a doctor or nurse sees, the greater the fees generated.  So, if at your next doctor visit, you feel a bit rushed, that may be the reason.

When private equity takes over a medical practice and has the opportunity to do so, it raises prices.  According to a study published in 2022 in the peer reviewed medical journal JAMA Internal Medicine and based on six years of data, when private equity took over anesthesia practices at a hospital or outpatient surgery center, they raised prices by an average of 26% over prices at facilities where independent practices provided anesthesia services.

Another tactic for generating more income involves a practice known as “upcoding.”  In order to standardize insurance and Medicare reimbursement, every medical service or procedure has been given a code number.  A simple office visit with a healthy, young patient has a different code number than a visit with an older patient with a number of chronic illnesses.  The visit with the older patient is more complex and its code number generates a higher reimbursement than the routine visit with the healthy, younger patient.  There have been repeated instances of private equity owners directing their doctor or nurse employees to use code numbers for more complex visits or procedures than would be appropriate under the circumstances.

All of this pressure by private equity ownership takes its toll on doctors and nurses.  Most of the people who entered the health care field did so to help others.  Being reduced to a cog in a giant machine is depressing and repugnant to them.  Many are choosing to leave the profession.  Some of them, however, are pushing back by using a traditional American tool.  They are organizing into unions to have negotiating power with their bosses.  The longest nursing strike in U.S. history took place in 2022 and involved 15,000 nurses in Minnesota who stayed off the job for three days.  There were 27 healthcare worker strikes in 2023, most of which involved nurses but some doctors as well.  Undoubtedly, there will be more labor unrest in this critical area.

Our health is too important to leave to market forces.  There has to be a better way and there is.

 

Posted in Doctors, Fee for Service, General Health, health, Health Care Costs, Hospitals, Medical Costs, medical ethics, Medicare, Nurses |