How Private-Equity Firms Squeeze Hospital Patients for Profits
Interesting article giving background on the perverse effect of Private Equity on health care and how it effects hospitals and doctors. One caveat that I see is that the author refers to the driving force as the "patchwork structure of the health-care industry" - a buzz-phrase generally generally used by those who propose that the only solution is universal health care/ socialized medicine/ government-run system ( choose your favorite euphemism)- instead of health insurance reform and free market health care reforms.
While a discussion of "fair market pricing" is not the focus of the article, the author properly criticizes surprise exorbitant hospital charges (which really should be transparent). however, she doesn't point out that the issue of patients being charged at out-of-network costs for *emergency* care is indicative of an egregious, legalized abusive practice currently improperly codified by state regulators into the health insurance regulations-and which should be changed- since financing for emergencies is the central purpose of insurance overall- in any form.
Rather she lumps it together with higher out of network costs for patients who voluntarily accepted a narrow networks for elective outpatient care and procedures based on the doctors' contractual agreement with the payer. While this too can be debated, it is not the same issue as emergency care. In any event , the description of the perverse incentives and behaviors of PE companies in medicine overall ( though not specifically in radiology) are valuable.
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Excerpt:
" Much of her research has focused on the ways that private-equity firms—investment funds that purchase companies and try to increase their profitability—reshape the businesses that they buy. Appelbaum and her frequent collaborator, Rosemary Batt, a management and labor-relations expert at Cornell University, were in the midst of a research project looking at the role of private equity in health care.
They knew that two of the largest private-equity firms, Blackstone and K.K.R., owned Envision Healthcare and TeamHealth, large physician groups that staff hospitals around the country with doctors; they found that bills from doctors within those groups were responsible for much of the sudden increase in surprise medical bills. (A spokesperson from TeamHealth said that the company does not send out-of-network charges directly to patients, but litigates them with insurance companies. A spokesperson from Envision Healthcare declined to comment.)
“We already knew a lot about P.E. buying up doctors’ practices,” Appelbaum told me recently. “Now surprise medical bills were out of sight. That’s their business model.” Appelbaum suspected that the P.E. companies were behind the practice, as well as behind the ad campaign to stop the legislation.
Appelbaum grew up in Philadelphia, where her father ran an appliance store. Neither of her parents had gone to college; Appelbaum earned a master’s in mathematics and a Ph.D. in economics from the University of Pennsylvania. Her research centered on the relationship between workers and a company’s management. When Appelbaum started out, the prevailing view was that companies could make themselves more productive by investing in their workers. In the nineteen-nineties, she and Batt undertook a study and found that, for example, giving workers more decision-making authority over how work got done led to increased company profits.
The book that they produced from this research, “The New American Workplace,” was published in 1993. But in the years after, the thinking in the business world shifted. A newly dominant business philosophy, called “shareholder value theory,” held that companies exist primarily to deliver profits to their shareholders, and that managers should increase revenue and cut costs, with little regard for the long-term effects......
In 2018, Appelbaum and Batt started working on a report for the Institute for New Economic Thinking, a think tank, about private-equity firms buying companies in the health-care industry. “It’s been an ongoing interest of ours because we felt that it was the worst sector private equity could be involved in,” Batt said. The stakes were higher than in toy retailing: health care was a complex and heavily regulated industry, and drastic cost reductions had the potential to affect people’s safety.
When they looked into it, they found that the patchwork structure of the health-care industry had created an opportunity for P.E. firms. Physician-staffing companies could choose to opt out of contracts with insurance companies, even if the hospitals where their doctors worked did have contracts with those companies.
This left the staffing companies free to send much higher bills to patients treated there; the patients were captive customers, with no opportunity to shop around for doctors with more reasonable fees. (The same thing was happening with air-ambulance transportation companies, which had been bought up by P.E. firms.) “We think of it as a market failure,” a spokesperson for Senator Alexander told me. “This is something that happens when patients don’t have much choice between providers, whether in an emergency procedure or an elective procedure.”
In 2019, as debate about surprise billing started to filter into the news, and the bills were being formulated in Congress, Appelbaum wrote a short piece, for The Hill, called “Private Equity Is a Driving Force Behind Devious Surprise Billing.” In it, she was one of a handful of people to publicly make the connection between EmCare (a division of Envision Healthcare) and TeamHealth and their Wall Street owners..."
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