Private Equity Is Destroying American Medicine...And Things Are about to Get Much Worse
You Have the Wrong Leg Amputated and the Seed Corn is Eaten
Much of the blame and anger directed at the American medical system has come because of the American Care Act, or Obamacare. But while Obamacare is awful, and much to blame for steadily climbing insurance prices,1 it’s not the sole issue. In fact, when it comes to abysmal patient outcomes and terrible hospital practices, there’s another bad actor to blame.
That bad actor, the one which is to blame for worse patient outcomes and much higher medical practice, is private equity. In fact, the private equity vultures have been buying up medical practices and hospitals under the guise of “efficiency,” and then using the usual sort of jackal-like strategies to cut costs and raise prices dramatically. Whatever the cost might be to the patients in terms of unnecessary suffering, financial catastrophe, and trust in the medical system, they do it. To them, all that matters is making a quick buck, and those fast dollars are coming at the cost of the health of Americans. In fact, the vulturous actions of private equity jackals are killing tens of thousands of Americans.
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Why You Paid An Arm and a Leg to Have the Wrong Kidney Removed
The Base Case Is a Bad Case
It must be admitted that American medicine has little going for it. While America remains the land of biotech innovation, much of that is a scam.2 The remainder is overly expensive, with our drug prices obscenely high compared to Europe3. While our medical schools were once top-notch, they now are as decayed as our woke companies.4 Now, they mainly focus on DEI and reducing student stress rather than creating excellent physicians and peerless innovators.5
In short, even leaving aside the private equity issue, we produce too few doctors6 of too low quality who are bound to have unavoidably poor relationships with patients. There are always exceptions to the rule, but those in the field have told me that is the base situation, and their opinions are borne out by research into the state of the field.
But while things are bad enough as is, the situation becomes much worse once the vultures of the private equity world are added to the mix.
An Eagle Ate Prometheus’ Liver; A Vulture is Eating Yours
Private equity has its place in the modern economy. Some businesses prefer selling equity to raising debt, and public markets have become an inefficient place for a small firm to sell that equity given regulatory costs.7 So, where a startup requires equity capital to get going, expand, or compete, private equity can make sense and be something other than vulture-like. Even when some businesses are taken over completely, it can be a positive, as the former owners can get access to the liquidity they might need.
But that’s not what has happened in medicine. Rather, much like the other sectors of the American economy that it has looted,8 medicine has been turned into an awful and hollow shell of its former self by the jackals. In fact, much like the Toys-R-Us style of companies strip-mined by private equity, the costs of medicine have risen as its quality has declined and its internal functioning has been decimated.9
The results are all the worse because medicine is a sector of the economy that should be near-exclusively focused on patient outcomes. While that was long the case, it no longer is. Rather, thanks to the private equity jackals, medicine has become another way for the worst sorts to milk the vulnerable to barrenness. And it’s not only the case that the jackals are harming patients. Rather, the hollowing out of the field with short-term thinking has led to the private equity “investors” effectively eating the seed corn of the healthcare sector and destroying its future.
This is nothing new. It is occurring in much the same manner as it eviscerated American industry with offshoring and “buy, strip and flip” maneuvers that bankrupted companies and cost Americans jobs.10 It is and will be similarly disastrous.
How a Private Equity Takeover Happens
Typically, what happens is that a private equity firm will have a great deal of cash on hand or access to debt, but have few options for a quick return. American industry has already been hollowed out. Resource extraction is too regulated, and most of the surviving companies are too large for the jackals to feast on. But medicine is composed of many small practices and hospitals that generate a great deal of profit and cash.
So, the firm that needs targets to strip and flip will search out the best medical practices in a cash-generating specialty, such as gastroenterology, and offer to buy them for a song.11 Most of the cash it uses to buy the practice is debt, adding to the future urgency of increasing revenue.12 Assuming the partners of the practice or owners of the hospital take the deal, it pays them their lump sum and proceeds to cut the pay of the doctors significantly.13 From there, it slashes costs by hiring less qualified and less trained personnel, then raises prices significantly. It acts in that manner because it needs to resell the business in less than a decade (typically three to five years in the case of medical practices) to pay off the debt and make a profit on the transaction, typically an annualized return of 20%, to keep investors interested. The practice will then be sold to another PE firm that acts in the same way, and so on, until something eventually goes wrong.
All’s well that ends well? Not so much.
Eating the Medical Seed Corn
For one, the situation is good enough for the existing partners, as they got a large payout from the private equity (“PE”) firm when they sold the practice. But they’re only locked up working at now PE-owned practice for five or ten years. After that, the now PE-controlled practice will have to find new doctors. But those hires won’t be the same sort of highly motivated, highly remunerated, and independent businessmen who sold the practice.
Rather, they’re employees on a fixed salary with no hope of earning large profits from working harder. $200,000 might sound like a lot, but it is significantly less after a decade in school and half a million dollars or more in student debt, so it is not particularly enticing. That is particularly true when the newly minted doctors have no hope of becoming a practice partner and earning a great deal more.
Most doctors are now employees rather than self-employed,14 so this problem of employeeism is a major one for the field generally. But it is worse at PE-owned practices, as not only are all doctors employees, but also there is more turnover at PE-owned medical practices.15 That means there are fewer long-lasting doctor-patient relationships for the practice, and thus fewer recurrent patients and profits. Exacerbating the problem of provider quality and motivation is that PE firms prefer to rely on Physician Assistants (PAs) rather than doctors because PAs are cheaper to hire, as they have much less training.16
Those practices create a major problem for medicine, particularly for practices like dermatology and gastroenterology, which are now largely controlled by PE. Doctors in such specialties no longer earn a return on their decade in school and half-million dollars in debt at the salaries the PE-controlled practices pay.
Such a decision is not only a reasonable one for the would-be doctors, but means that the PE firms are eating the proverbial seed corn. In the hope of earning a profit now, they’re discouraging intelligent people from entering medicine. That harms America generally, as there will be fewer smart doctors. However, it is also foolish because it will hurt their own investments; they’ll run out of good doctors to hire.
Indicative of the parasitic nature of the PE firms involved is that they largely see those issues as someone else’s problem because they will exit the investment in well under a decade. Instead of living with the consequences of their jackal-like actions, they see whatever issues might crop up from eating the seed corn as the next sucker’s problem.
Higher Costs and Worse Outcomes
It gets worse. As stated above, private equity firms aim to exit investments in well under a decade. Further, they aim to earn a major return on the equity value of that investment over time, even leaving aside the often considerable cash flows of the business. The less parasitic PE firms, such as the Carlyle Group, aim to hold companies they buy for decades and build them into something excellent.
Sadly, however, that attitude is a rarity, particularly amongst the types who buy up practices and hospitals. Such is what the American Journal of Medicine noted in a report titled “Private Equity and Medicine: A Marriage Made in Hell.” It provided:17
Why would PE firms invest in medical and dental practices, hospitals, nursing homes, hospices, and other health care entities? These firms typically seek to sell their acquired businesses in 3-5 years, aiming for at least a 50% profit. To do this, they must show sufficient revenue and profit growth to justify a higher sales price or increase the profitability of an entity they own to justify maintaining ownership. To do this, they must increase revenues and decrease operating costs. To achieve higher revenues, they will raise prices, increase the “productivity” of practitioners (ie, ask the physicians and others to see more patients), or seek a more lucrative mix of procedures. To lower costs they will seek lower-cost supplies; in a best case through forcing lower prices on currently used products, in a worst case by substituting inferior products. More often, because the major “cost” in a medical setting is the salaries of personnel, they will seek to substitute lower-paid staff: LPNs for RNs, minimally trained “medical assistants” for nurses.
So, how do the firms earn such a profit after shelling out pallets of cash for the practice? By doing what their predecessors did to American industry. They slash costs and thus quality while raising prices. Meanwhile, they maintain the hope that the consumer (in this case a patient) will stick around for lack of alternatives or at least pay some extra cash before getting disgusted and leaving.
In the case of medicine, the reasons for patient disgust are as clear as they are well-founded. PE-controlled practices not only engage in seemingly fraudulent behavior to squeeze more revenue out of patient visits but do so while doing a bad job and creating local monopolies that make it impossible for patients to escape their jackal-like behavior. Here’s how the same American Journal of Medicine article described that aspect of the PE takeovers:
Nearly every study reported in a recent meta-analysis found that PE acquisition led to higher prices. This has been documented in detail in anesthesia practices and in a combination of dermatology, gastroenterology, and ophthalmology practices. These latter studies documented “upcoding” such as seeing a higher percentage of visits claiming more than 30 minutes spent with the patient after PE takeovers. In addition, more new patients are seen and more fee-generating procedures are performed immediately after such takeovers. PE-backed management companies generated a major share of the out-of-network “surprise bills” that received considerable notoriety, as they have acquired major shares in such fields as emergency medicine, pathology, and anesthesiology, where patients do not have the ability to choose “in-network” physicians. Another way PE firms increase their ability to raise fees is by acquiring a dominant share of select specialties in a geographic area. PE firms are particularly attracted to procedure-oriented specialties such as dermatology, gastroenterology, and cardiology, where a few more procedures a week can make a big difference to “the bottom line.”
What about quality? Here the evidence is a bit more mixed, but the majority of studies looking at this have shown poorer quality. In nursing homes bought by PE firms, Gupta et al found that mortality of Medicare patients within 90 days of discharge from the nursing home goes up by about 10% when a nursing home is PE acquired. In addition, the same researchers found adverse effects on other measures of patient well-being such as scores on mobility, ulcers, and pain. They found a consistent picture of patients doing worse after a nursing home is bought by PE and also saw evidence that the nursing home spending goes up for Medicare by about 6%-8%.
…
As detailed, PE investment in health care unquestionably increases costs while probably decreasing quality.
Adding more color to the situation is the Lown Institute, a think tank that focuses on the responsible provision of medicine. It noted that millions of medical encounters in PE-owned and non-PE-owned hospitals show that adverse events skyrocket when a PE firm takes over, with some issues rocketing upward by nearly 50%. It noted, after examining millions of patient encounters:18
The rate of adverse events at PE-acquired hospitals compared to control hospitals increased by 25%, including a 27% increase in falls, 38% increase in central line-associated bloodstream infections (CLABSI), and double the rate of surgical site infections. The authors found the rates of CLABSI and surgical site infections at PE-acquired hospitals alarming because overall surgical volume and central line placements actually decreased.
On much the same note, the Common Wealth Fund noted that mortality amongst Medicare patients rises substantially when PE takes over a nursing home. It provides:19
Regarding quality, there is no evidence that private equity ownership leads to systematic improvements in care. In fact, a widely cited study of nursing homes acquired by private equity owners showed a 10 percent increase in mortality among Medicare patients.
What’s more, PE hospitals and practices tend to put patients in more medical debt than non-PE-owned entities so that they have an opportunity to, like the usurers of past eras, squeeze those in their debt for all they are worth. In fact, such firms often buy up debt collectors and related debt-tracking and collection entities in the same area in which they buy up practices and hospitals so that they are able to squeeze the patient lemon with even more vigor.20
Thus, the cost to patients from PE takeovers is substantial. Mortality goes up in nursing homes. Higher costs and obvious “upcoding” squeeze more revenue out of each visit and pump more procedures out of each patient to add that extra bit of revenue to the bottom line. Such predatory practices are effectively mandated by the way the PE firms buy practices and hospitals, as their own debt burden means that to stay solvent, they must repackage and sell the entity for a profit in just a few years.
Were it just a few practices and hospitals being bought up, this would be something like the opioid crisis: a sickening shame that demands retribution but which can be avoided in the future. In the case of opioids, it is obvious that you shouldn’t take the pills the Indian doctor21 and grey-suited consultant behind him22 are pushing on you. In the case of PE control of medicine, it is clear that you should not go to the PE-owned hospital or practice because it is clear that it will charge you far more while doing a far worse job.
However, avoiding PE-controlled medicine is not that simple. Rather, it is near impossible in many localities because the jackals created local monopolies by buying up most, if not all, of the hospitals and cash-generating specialties in the area. Thus, patients who can’t afford the luxury of traveling to an honest doctor are forced to put their lives in the jackal’s maw. Describing the problem of local monopolies, the Common Wealth Fund noted that over a trillion dollars had been spent by PE on acquiring hospitals and private practices over 2011-2021, and now a significant number of metro areas are medically controlled by PE:23
Private equity investors spent more than $200 billion on health care acquisitions in 2021 alone, and $1 trillion in the past decade. Private equity firms have long been active in hospital, nursing home, and home care settings. But recently, acquisitions of physician practices have skyrocketed, especially in high-margin specialties like dermatology, urology, gastroenterology, and cardiology. A recent study showed that in 13 percent of metropolitan areas, a single private equity firm owns more than half of the physician market for certain specialties.
Why Is PE Uniquely Bad for Hospitals?
Private equity ownership appears to be uniquely caustic because of how the generally debt-based nature of its takeovers means time is at a premium, and growth, generally in the form of higher costs, is a requirement, whatever it means to patients. For one, that means that medicine is financialized, which is generally a bad thing because of the perverse incentives financialization creates.24 Additionally, the debt issue is a problem because it places the focus of doctors on profits and revenue growth rather than patient outcomes, which is against the ethos of honorable doctors.25
The problem is so severe that many doctors grow disgusted with the demands of PE-owned practices and hospitals and quit rather than work for the jackals. Further, a supermajority of doctors view PE involvement in medicine negatively.26
Describing the perverse incentives that PE creates for hospitals, Harvard Medical School noted:27
“When health systems buy hospitals, they generally do not use borrowed money,” said Song, who is also an internal medicine physician at Mass General. “In contrast, the classic private equity buyout uses a small amount of cash, but a large amount of debt.”
…
Private equity generates revenue by . . . focusing on high-revenue procedures, cost-cutting, reorganization, and financial engineering . . . Private equity firms want to buy going concerns that are able to take on debt and generate revenue in the short run. These financial pressures can create perverse incentives favoring profit over patients, the researchers say.
A site affiliated with Harvard Law School called Systemic Justice notes much the same problem. It describes how PE’s focus on returns leads to poor medical practices, such as pressuring doctors to spend less time with patients and to push more expensive, non-essential procedures on them for the purpose of growing revenue rather than helping sick patients. It noted:28
Private equity firms “capture value” by rapidly improving a business’s profit-making performance and savagely cutting costs. Senator Elizabeth Warren, who has proposed federal legislation to rein in private equity’s excesses, aptly described the phenomenon: private equity firms “slash costs, fire workers, and gut long-term investments to free up more money to pay themselves.” In the context of health care, private equity firms achieve target returns (usually 20% per year) by increasing provision of both non-essential healthcare services and services that are most highly reimbursed. They put pressure on doctors to see more patients and thus to decrease the amount of time spent per visit.
The problem gets much worse. PE firms have been caught not just pushing non-essential procedures and tests on patients, but also pushing entirely unnecessary testing on patients to ratchet up the bill. Then, after doing so, they send the debt collectors they often control after those unable to foot the absurd bills from unnecessary tests. Systemic Justice, describing that predatory behavior, provides:29
Due to cost pressures imposed by management, practices may switch over to cheaper equipment, hire lower cost providers such as nurse practitioners and physician assistants rather than more expensive MDs and DOs, foist surprise medical bills on unsuspecting patients, and then use vulture-like tactics such as “aggressively suing poor patients” unable to pay astronomical bills. Other common mechanisms to boost profitability include performing more out-of-pocket procedures, increasing surgical volumes, and conducting unnecessary testing. That’s right, you read correctly: unnecessary testing.
Adding to the problem is that PE’s involvement in the medical field occurs under a false flag. Much like it promised corporate America “synergy” before buying up factories and shipping them to China, it promises hospitals “efficiency” and patients “decreased costs” because of those supposed efficiencies.
As might be expected, that is as untrue in this case as it was in the looting of America’s industrial base. In fact, far from helping improve patient outcomes while decreasing costs, outcomes go down as costs go up. Explaining as much, Systemic Justice contrasts the bill of goods on which PE sells itself to doctors and hospitals with the reality of the situation, providing:30
The infusion of capital from private equity may seem beneficial for a practice struggling to stay afloat financially. But the allure is a false one. Private equity undermines the quality of health care, and it epitomizes the worst of corporate influence on the medical profession. Doctors and investors alike buy into the legitimating narrative that private equity will enable practices to achieve an otherwise unattainable degree of efficiency. It will help standardize medical practice, eliminate waste, and reduce variability, they claim. It will enable medical practices, clinics, and hospitals to expand, innovate, integrate, and implement new models of health care delivery, they argue. Private equity’s promise of cost-cutting and efficiency is portrayed as a panacea to the problem of excessive health care spending. The ruthless pursuit of efficiency may finally help the United States deliver cost-effective care, precisely what is needed when we spend twice as much per capita on health care as do other, comparably wealthy nations.
But the efficiency-based narrative just articulated, which I will refer to as the efficiency micro script, is a convenient smokescreen. Private equity investment does not make health care provision more efficient. Instead, it erodes quality, ignores critical countervailing interests such as patient safety, and undermines the patient-physician relationship. A growing body of research provides support for the harmful effects of private equity on health care outcomes. For example, private equity-backed hospitals, when compared with matched counterparts, had lower measures of patient experience and fewer full-time employees per occupied bed. Private equity ownership of nursing homes has been associated with higher mortality for nursing home residents, and according to recent research, an estimated 20,150 lives were lost due to private equity ownership of nursing homes over a twelve-year period studied. In addition to taking a human toll, private equity roll-ups reduce competition and drive up prices because acquired entities use their size and scale to exact higher rates from insurers.
Private equity effectively drives a wedge between the interests of patients and the incentives of the providers and the healthcare systems that care for them. In so doing, private equity hides behind a veneer of efficiency while contributing to the very problems it claims to solve.
In short, PE brings a degree of managerialism and profit mindedness to the medical field that is uniquely awful and caustic to medicine. Though medicine has long been remunerative for doctors, that is because of the care provided rather than the sharp knives of managers and consultants and applying predatory practices to patients.
So, far from being healers acting in the interest and for the benefit of their patients, doctors in a PE-owned practice or hospital become agents of revenue generation. They, like the tax collectors of Roman days,31 nickel and dime those who are helpless before them for the benefit of distant and impersonal powers.
An Economy of Rot and Jackals
Medicine is one of those areas where an ethical code of conduct truly matters. It’s not meant to be a revenue-maximizing profession, one where making an extra buck is more important than the outcome for the other side of the transaction. Rather, given the power dynamic, its importance to lives, and longstanding norms regarding the ethics of the provision of medicine, care should be preeminent.
“First, do no harm,” is not just a tired slogan. It’s a critical ingredient of the trust placed in medical providers by patients and the reason why high costs used to be accepted as fair and paid. It was understood by patients that high costs were the cost of providing healthcare well, and doctors were trusted to be honorable in their provision of that care.
The American Medical Association, describing that code of ethics, noted, “The practice of medicine . . . is fundamentally a moral activity that arises from the imperative to care for patients and to alleviate suffering. The relationship between a patient and a physician is based on trust, which gives rise to physicians’ ethical responsibility to place patients’ welfare above the physician’s own self-interest or obligations to others, to use sound medical judgment on patients’ behalf, and to advocate for . . . patients’ welfare.”
Doctors, in other words, were trusted professionals seen by the public as honorable men rather than snake oil salesmen with a scalpel.
That perception doesn’t long survive when it is obviously untrue. Now, patients and their families are unhappy for obvious reasons. PE-controlled doctors are acting in a predatory fashion and ordering unnecessary tests before sending debt collectors to chase down the patients who received them or the family members of a patient who unnecessarily died in a PE-owned hospital with an obscenely high death rate. But more than just being unhappy, they have lost faith in medicine as a profession. Indeed, they see it as something like insurance or taxes - exploitative, infuriatingly difficult to deal with, reliant on systems it is impossible to navigate honestly, and the purpose of which is evidently predation.
And all that is without noting that the outcomes are obviously much worse for patients when private equity is involved. Deaths are higher. Non-deadly poor patient outcomes are much more prevalent. Costs are higher, and boosted further by revenue-minded doctors pushing unnecessary procedures, tests, and pills on patients. Doctors are less attentive to those in their care and lose the pride that comes with being self-employed and doing a good job. Everything, in short, is far worse for everyone involved…except the PE funds who are already packaging up the hospitals and practices they destroyed for resale.
Through those changes, medicine has devolved. It is no longer a semi-sacrosanct profession seen as desirous and honorable. Rather, it’s part of the rot economy. It’s another part of a world built around scams, making a quick buck, and ruining lives if it means a percentage point increase in “key metrics.” It’s offshoring and consultant brains as applied to medicine, with all the evils that brings.
DEI’s Achilles’ Heel: How You Can Weaponize Your Employer's DEI Department Against Itself
The following article lays out how one can fight against corporate DEI and ESG policies by weaponizing the DEI system against itself. The article first discusses the current state of corporate Americ…
This paper explores some of the regulatory issues: https://www.sciencedirect.com/science/article/abs/pii/S0304405X23002155
https://x.com/Klaus_Arminius/status/1832886520337895612
Honestly, jackals are far nobler and serve a more useful function than these PE vermin. I am at a loss to find an appropriate metaphor; any animal I select doesn't deserve being besmirched by comparison with these money-grubbers.
Predatory fails to accurately describe it; predators serve a useful function too.
Their practices are inhumanly sadistic, short-sighted, usurious and avaricious in the extreme. My wife and I can no longer afford medical care. It costs too much, the doctors are incompetent to some degree and very arrogant, and they employ any an ever excuse to deprive us of money.
Anecdote: I had a TIA; went to ER. It was rather alarming; I feared a tumor. Into the MRI. Total cost about 6000 dollars. Result: we can't find anything, we don't know why. Around the same time, the wife gets an aching belly with a strange red ring around her belly button. Into the ER. Result: 5000 dollars and we don't know why.
I can't afford that.
I shouldn't have to pay to be told 'dunno.' If an auto mechanic fails to fix my car, I ain't paying him. Why should I? He did nothing. Why should I have to pay a doc who does the same?
Veterinarian practices are also getting bought up by PE.