Summary: Private equity inroads to clinical practices are both targeted (to especially lucrative activities) and far-reaching (with so many profitable deals to make). However, ethical standards for clinical care and private equity sharply diverge, and this poses serious moral dilemmas for American medicine. We need health care reform in two realms: financing and ownership.
Betting on ‘golden age’ of colonoscopies, investors buy up gastroenterology practices, Fortune, May 27, 2022, by Emily Pisacreta, Emmarie Huetteman, and Kaiser Health News
Private equity, known for making a profit on quick-turnaround investments in struggling businesses across many industries, has taken an increasingly active interest in health care in the past decade. It has invested in gastroenterology practices in recent years to tap into the revenue potential in meeting growing demand.
Tired of having to manage the increasingly complicated business of running a practice and, often, lured by the sweet deals investors offer, more and more doctors have partnered with or even sold their practices to private equity funds. So investment managers now control the financial decisions for many medical offices caring for patients with digestive ailments. With profit the primary driver, patients may find they pay much more for the same—or less—care.
Doctors think, “If I’m going to survive, then I will either have to sell myself to the hospital or, what is the alternative? The alternative is private equity.”
Your Money and Your Life: Private Equity Blasts Ethical Boundaries of American Medicine, Interview of Laura Katz Olson, author of “Ethically Challenged,” Institute for New Economic Thinking, May 18, 2022, by Lynn Parramore
Lynn Parramore: Does private equity belong in medicine at all? Should it be banned?
Laura Katz Olson: This is something I didn’t put in my book, but the conclusion I have come to is yes, we have to ban it. We really need to prohibit, I think, the corporate practice of medicine, period. If you look at the private equity playbook, its only goal is to make outsized profits – they can’t make ordinary profits. If they make ordinary, respectable profits, their investors will go somewhere else because of the risk.
Private equity doesn’t care whether the product is Roto-Rooter or hospice. That’s one of the major differences between PE and a regular company, which may care about the community, the reputation of the company, and the quality of the product. They want to keep their customers. They care about the future. But private equity doesn’t work like that. Because private equity often aims to sell a company after four or five months, they don’t care about the future. They don’t care about the product at all. Private equity is antithetical to our health care system.
So yes, we need to ban private equity from health care. But given that it’s not going to happen, I would say that we need to prohibit the corporate practice of medicine – anybody can make a case for that. You can eliminate their tax advantages. You can limit the debt imposed on companies, especially in the health sector. You could easily control consolidation and monopolies in the health sector. You could use specific anti-trust laws. I would definitely forbid investment by retail customers such as their 401(k)s.
By Don McCanne, M.D.
Our very expensive health care system, which should be serving everyone well, is not. There are two particularly important reasons why not. One is our dysfunctional, fragmented health insurance system that leaves so many under-insured or completely uninsured. The other is the increasing shift of wealth to the top, especially enabled by private equity which increasingly is moving health care dollars away from health care and into the creation of personal wealth.
The financing of health care would easily be remedied by the establishment of a bona fide single payer system as described recently in HJM, if we could only negotiate the political barriers.
In an age when “billionaire” has become a commonplace term as deficient wages, homelessness, food insecurity, and other forms of poverty surround us, it is clear that we need to adopt new economic tools to make socioeconomic adjustments that are more equitable. In health care that means doing something about private equity that is moving funds away from health care for the masses and into the coffers of the wealthy.
What about the physician, say a gastroenterologist? When he has built a practice and is ready to retire, should he be able to accept a generous offer from private equity that essentially removes these funds from the health system and the benefit of patients? Or should he be limited to selling his practice to another physician or physician group? For that matter, should he be allowed to sell to a private equity firm and accept a limited partnership thereby drawing off profits that would otherwise go to patient care (if the general partner doesn’t skim off the funds first)? Or should he be able to choose the option of having the private equity firm take over the business management while enjoying the pleasure of practicing pure medicine as he was trained to do (an option that likely would be regretted since private equity managers have mastered how to convert such opportunities into much greater profits for themselves). (Public ownership is another option, but that is a discussion reserved for another day.)
You can see that a significant potential problem is that physicians might be opposed to government control or elimination of private equity if that would remove business options for them while not being convinced, in spite of the overwhelming evidence, of the detrimental effect on their patients.
The HJM on private equity posted last week, based on Laura Katz Olson’s book, “Ethically Challenged,” really made it clear that private equity should have no place in medicine, as she clarifies in the Q & A above. If the private option is eliminated, and the physician is faced with only morally justified choices, what option does he have then?
So the solution to the two problems mentioned is clear: eliminate private equity and establish a bona fide single payer financing system. Though the solution is clear, politics are a challenge. Let’s work hard on meeting that challenge now, immediately, before any more damage is done.