Difference between revisions of "Private equity and health care"

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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:

1. Texas
2. Louisiana
3. California
4. Oklahoma
5. Tennessee
6. Ohio
7. North Carolina
8. Arizona
9. Indiana
10. New Mexico

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]

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