I’m thinking about healthcare, in part because I’ve spent much of the last two weeks tending to my husband after major surgery on his spine. We were lucky – he had a great doctor and we have good health insurance.
But whenever I spend time in the US healthcare system, I think what a quagmire of waste and misaligned incentives it is. I believe that’s because the industry’s financialization over the past half-century has transformed it from a largely charitable service into a fat private market ripe for exploitation.
As with so many things, Americans receive both the best and the worst health care. We have access to the most modern treatments (for those who can afford it). We also have a system where two-thirds of people who file for bankruptcy do so partly because of medical costs, even after the passage of the Affordable Healthcare Act (aka Obamacare). And as everyone knows, the US spends far more than the rest of the world on healthcare, but only receives mediocre results according to OECD standards.
I fear the split in our system will only get worse. Covid and the promise of higher public health spending are drawing the most astute investors into an industry that does not allocate resources as perfectly as efficiency’s ‘invisible hand’ would suggest. (Though, to be honest, after 30 years of reporting on the business, I have a hard time imagining an industry that does.)Complicated and opaque system will undoubtedly make the rich richer and the sick sicker.
Private equity, in particular, is pumping money into the healthcare sector, investing $26 billion in life sciences and $44 billion in medical devices in 2021, the highest rate in a decade. This follows a 20-fold increase in private equity spending on healthcare transactions — including leveraged buyouts, growth investments, secondary investments, etc. — between 2000 and 2018, according to an INET working paper published in 2020.
It’s easy to see why private equity would see an opportunity in healthcare, where there is an urgent need to reduce costs and create efficiencies. For years, private equity firms have bought into hospitals, home care facilities such as emergency centers and emergency rooms, and medical billing and collections. They’ve also acquired high-margin specialty practices like radiology, anesthesiology, and dermatology.
Nevertheless, prices have not fallen – quite the opposite. Meanwhile, many medical professionals, consumer advocates and academics say the quality and access of care is declining as the industry consolidates and closes smaller practices in poor or rural areas, urges doctors to increase the number of patients treated, and encourages more expensive diagnostic tests and the use of less expensive (but often inferior) equipment.
I know some doctors who are relieved to hand off their reams of paperwork to someone else so they can focus solely on their patients. I also know of a number of healthcare professionals who have left their practices after private equity acquisitions because they felt they were under too much time pressure to provide quality care. Surely many doctors and patients are tired of fighting insurance companies for necessary, albeit expensive, procedures.
To be fair, the problems in America’s healthcare system cannot be blamed entirely, or even primarily, on the private equity industry. But the fact that a public good like healthcare (or others like education or housing) has been transformed into something that can be put together, diced, and sold like a retail store or factory doesn’t help us create cost-cutting competition. In fact, it only creates a new and more dangerous area for annuity searches.
As academics Eileen Appelbaum and Rosemary Batt point out in a Center for Economic and Policy research paper on the financialization of the health care system, these problems have been brewing for decades.
They began in the 1960s when for-profit care was first funded by the government and other third-party payers. As public funds ebbed and flowed, investors jumped into hospitals and nursing homes, then swapped them out for profit when it suited them. In some cases, this has involved using a real estate leverage model employed in retail: capitalizing on a company’s stationary assets rather than attempting to grow them.
Alternatively, private equity firms would divest and consolidate the high-margin stuff and cut basic supplies. Perhaps that’s why in some areas it’s easier to find someone who offers Botox than a family doctor who takes on new patients. Cash-only “concierge” practices that bypass the insurance system are also increasingly the norm.
Now, the impact of Covid and the promise of increased federal healthcare spending are fueling investor interest in areas such as psychiatric practices, home health care and even hospice care. Dangers lie ahead. “Think about how private equity can make money in something like a hospice,” says Appelbaum. “They will cut back the experienced staff trained to help families understand and deal with the process of dying and hire people who may be able to help clean the house.” Welcome to American-style healthcare.
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https://www.ft.com/content/4aed2bc5-6bcb-4938-b565-d69031311f8a The pursuit of profit does not bode well for the US healthcare system