Private equity and health care
Private equity and health care
In recent years, private equity has bought up hospitals, medical practices, and other aspects of the health care sector. Multiple studies have shown that causes far more harm than good.
What is private equity?
Private equity is a form of investment whereby wealthy individuals pool their assets and deduct losses in one business venture against unrelated profits in another, such that it is common for private equity managers to walk entirely away from a losing investment such as large hotels in San Francisco to take a massive deduction against profits elsewhere. Also, private equity managers typically have no personal connection with the community where each investment is located, and thus have no qualms about converting a children's hospital into more profitable luxury apartments. Finally, private equity managers typically have no experience in the fields in which they invest, such that only the bottom line financially matters to them at the expense of, for example, the complication rates in a hospital they acquired.
An additional tax loophole favors private equity: its managers are allowed to receive their fees under the lower capital gains tax rate, rather than the higher income tax rate that most people have to pay. This is known as the notorious "carried interest loophole," and U.S. Senators having backgrounds or expectations to work post-retirement with private equity have blocked multiple attempts to repeal this loophole. The mindset of private equity managers is to engage in "sharp" business practices that ethical businessmen would not ordinarily do.
Finally, it is common for private equity managers to borrow money for each investment, and then deplete assets from the company to finance the loans. This is known as "value extraction" and can result in laying off experienced employees or cutting corners on capital equipment.
Some sectors of the economy, such as law firms and even the NFL, currently prohibit ownership by private equity firms. Bans on the corporate practice of medicine are on the books in many states, but are typically ineffective and unenforced.
Private Equity Invasion
In the last decade, and particularly in the last few years, private equity has been acquiring hospitals and medical groups. Targeted specialties include anesthesiology, dermatology, ophthalmology, orthopedics, and plastic surgery.
The numbers are staggering as private equity has monopolized regions and even attracted the attention of antitrust regulators.
Hospitals
An estimated 460 hospitals in the United States are now owned by private equity firms, including a third of the for-profit hospitals and nearly a tenth of all private hospitals including non-profit ones.[1]
These numbers are growing, and in some states the percentages are higher. In Texas alone, 97 hospitals have been acquired by private equity. In New Mexico, 38% of the hospitals are owned by private equity.
Here is a list of the states having the most private-equity owned hospitals:
- Texas
- Louisiana
- California
- Oklahoma
- Tennessee
- Ohio
- North Carolina
- Arizona
- Indiana
- New Mexico
In Missouri private equity has acquired and then closed some rural hospitals.
Medical practices
It is estimated that the number of acquisitions of physician practices by private equity skyrocketed by six times from 2012 to 2021.[1]
As of January 2024, physician practice ownership by corporations — including health insurers, pharmacy chains and PE firms — exceeded ownership by hospitals and health systems for the first time, 30.1% to 28.4%.
Ophthalmology Consultants is part of EyeCare Partners, one of the largest private equity-backed U.S. eye care groups. It is headquartered in St. Louis and counts some 300 ophthalmologists and 700 optometrists in its networks across 19 states.
https://kffhealthnews.org/news/article/private-equity-ophthalmology-eye-care-high-profit-procedures/
"Two of the major private equity firms flipping health care companies have bought and resold businesses in Johnson County (Missouri) that handle home health, surgical products and regulatory compliance. Health care in rural Missouri has also taken a hit as private equity snapped up and, in some cases, closed hospitals — leaving residents with staggering bills and a longer journey to necessary care.
"Collapse of private equity-backed Missouri hospitals mired employees in medical bills" https://missouriindependent.com/2022/08/16/collapse-of-private-equity-backed-missouri-hospitals-mired-employees-in-medical-bills/
Schweiger Dermatology Group (“SDG”), one of the largest and fastest growing dermatology practices in the country, has announced it has acquired United Skin Specialists (“USS”). USS is a dermatology-directed practice management group with 10 office locations in the Midwest. This marks SDG’s entrance into this region of the United States. USS has built a strong reputation of providing patient-centric medical and cosmetic dermatology care in Illinois, Minnesota, and Missouri. Originally founded by Drs. Brian Zelickson and Alvin Zelickson, USS received private equity investment in 2015 from Tonka Bay Equity Partners.
The number of PE acquisitions of physician practices increased from 2012 to 2018, reaching 175 acquisitions in 2018 across the ten selected specialties, before plateauing in 2019 because of a decline in dermatology acquisitions. In 2020, there was a decrease in most acquisitions resulting from the onset of COVID-19. However, there was a significant increase in acquisitions in 2021, which saw 317 acquisitions across the ten specialties—84.3 percent higher than the number of acquisitions (172) in those specialties in 2020 (online appendix exhibit A1).29 https://www.healthaffairs.org/doi/10.1377/hlthaff.2023.00152 (Full article in attached Word file that I think demonstrates that PE market penetration in KC and STL is between 10 to 30%
Harvard Medical School Analysis
At the end of 2023, the Harvard Medical School published an extensive, incriminating analysis of the impact of private equity on health care.[2]
References
- ↑ 1.0 1.1 https://www.healthcare-brew.com/stories/2024/02/12/private-equity-firms-are-increasingly-buying-up-hospitals-report-finds
- ↑ Jake Miller, "What Happens When Private Equity Takes Over a Hospital - New analysis shows alarming increase in patient complications (December 26, 2023).