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July 17, 2024
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Private Equity

Opinion | Private equity firms are gnawing away at U.S. health care


Ashish Jha is dean of the School of Public Health at Brown University and served as covid-19 response coordinator in the Biden White House.

Not long ago, a colleague of mine sold his small cardiology practice to a private equity firm. He had started his practice in Florida nearly two decades ago, and when a purchaser first came knocking, he turned them away. He loved his independence.

But soon, he was persuaded to hand over the keys for two reasons: The price he was getting was very good, and he was happy to outsource the headache of running the business (managing billing, making sure there was adequate coverage for nights and weekends, etc.).

My colleague is not alone. The number of private equity firms has exploded in health care in recent years, spending hundreds of billions of dollars to buy physician practices, hospitals, laboratories and nursing homes. It’s a trend that should have everyone’s attention, from politicians to patients, because it can significantly increase costs, reduce access and even threaten patient safety.

At first, little changed after my colleague sold his practice. He drove to the same office and cared for the same patients. He went home unworried about who was on call or whether they were getting the billing right.

But over time, he started noticing small changes — the gentle nudge to bill more intensively for visits, to send more patients to the hospital for additional tests. Then, he noticed more profound changes: His practice stopped accepting a major insurer in the area (the private equity firm negotiating the contract couldn’t come to terms with the insurer), shutting out some of his long-standing patients.

This is happening across the country. First, private-equity-managed providers become more “efficient,” with fewer employees and more streamlined processes. Efficiency is not necessarily a bad thing; a lot of health-care organizations are run poorly. But what often follows is more aggressive billing and more requirements for patients to get tests done and the like, driving up health-care costs.

These firms often thumb their noses at consumer-protection regulations. Recently, the Federal Trade Commission accused the firm Welsh Carson of buying up small- and medium-sized anesthesia practices in Texas to gain so much market power it could charge insurers monopolistic prices, which are, in the end, paid by the employers and employees, not insurance companies.

There is also evidence that private equity acquisitions are affecting patient care. A study published in JAMA examined more than 50 hospitals that had been bought out and found that they saw a 25 percent increase in adverse events, such as hospital-acquired infections or falls, than non-private equity-owned hospitals.

Why would an acquisition from a private equity firm lead to more adverse health outcomes? After all, the doctors and nurses likely haven’t changed. Well, two key things drive safety in hospitals: The first is staffing levels (particularly nursing), and the second is detailed patient safety protocols and processes to prevent errors. Both cost money, and it is not a stretch to connect cuts in staffing and a reduced focus on patient safety with an increased risk of harm for patients.

Is it time to ban private equity in health care? No. Private equity is as much of a symptom of the health-care industry’s woes as it is a cause. There are other bad actors as well, including large health systems and others who are buying up physician practices and driving up prices. Lots of hospitals are failing to attend to patient safety, even without the involvement of private equity. So a ban, while attractive, would likely not solve the problem.

Instead, we need a three-pronged approach: First, we need more robust enforcement of antitrust rules to make market consolidation and monopoly pricing less attractive. This would reduce the incentive of private equity firms to buy up these practices and save consumers money.

Second, regulators — particularly Medicare — need to provide a lot more oversight over private equity acquisitions and similar purchases of health-care practices. This should include making sure these transactions don’t raise prices or affect quality of care.

Finally, we need real action on patient safety. Tens of thousands of Americans are dying needlessly in hospitals from preventable infections, medication errors and other causes. While health care has made strides in reducing errors, that progress is uneven. Medicare and other payers — as well as regulators — need to be far more forceful in ensuring that providers don’t shirk their duty to keep patients safe. This is especially true of private-equity-owned practices, but it extends beyond them as well.

My colleague who sold his practice to private equity has mixed feelings about what happened. While his life got simpler, he worries he can’t deliver the same quality care he did before. Policymakers should be worried, too. Without greater enforcement of antitrust rules and oversight of providers, our health-care system will become even more expensive and quality of care will deteriorate. Our country can’t afford that.



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