Health care is on my mind, in part because I’ve spent the past two weeks caring for my husband after he had serious spine surgery. We were lucky – they had a good doctor, and we have good health insurance.
But whenever I spend time in the American healthcare system, I walk away thinking about how useless and misplaced incentives are. I believe this is because the past half century of financialization within the industry has taken it from a largely charitable service to a rough private market, ripe for exploitation.
As with many things, Americans get both the best and the worst of healthcare. We have access to the most cutting edge treatments (for those who can afford it). We also have a system in which two-thirds of people who declare bankruptcy do so partly because of medical costs, even with the passage of the Affordable Healthcare Act (aka Obamacare). And, as everyone knows, the US spends far more on healthcare than most of the world, but achieves only moderate results by OECD standards.
I fear that the partition within our system is headed for worse. Covid and the promise of greater public spending on healthcare are attracting even the most fast-paced investors to an industry that doesn’t allocate resources as fully as the “invisible hand” of efficiency would suggest it should. (Though frankly, after 30 years of covering business, I’m hard-pressed to think of an industry that does.) The unprecedented amount of money being built around a complex and opaque system will undoubtedly help the wealthy. Will make the rich and the sick sick.
Private equity is pouring money specifically into the healthcare sector, investing $26bn in life sciences and $44bn in medical devices in 2021, the highest rate in a decade. According to the INET working paper released in 2020, private equity spending on healthcare deals – including leveraged buyouts, growth investments, secondary investments, etc – increased 20-fold between 2000 and 2018.
It is clear why private equity would see an opportunity in healthcare, where there is a dire need to cut costs and create efficiencies. For years, private equity companies have been buying into hospitals, outpatient care facilities such as urgent care centers and emergency rooms, as well as medical billing and debt collection. He has also broken down high-margin specialty practices such as Radiology, Anesthesiology and Dermatology.
Still, prices haven’t come down – quite the opposite. Meanwhile, many medical professionals, consumer advocates and academics say the quality and access to care is declining, as the industry consolidates and closes smaller practices in poor or rural areas, reducing the number of patients seeing doctors. Incentives to increase the volume, encourage more expensive clinical trials and the use of less expensive (but often substandard) equipment.
I know some physicians who are relieved to have to hand over their paperwork to someone else so that they can focus solely on the patients. I also know many healthcare professionals who have left the practice following a private equity takeover because they felt they were under too much time pressure to offer high quality care. Sure, many doctors and patients alike are tired of battling with insurance companies for expensive, necessary procedures.
To be fair, the ills of the American medical system cannot be blamed solely, or primarily, on the private equity industry. But the fact that a public good like healthcare (or another like education or housing) has been turned into something that can be divided up and sold just like a retail store or factory has cost us Creating a savvy contest isn’t helping. , Indeed, it is just creating a new and more dangerous area for rent demand.
The economic and policy research paper centered on the financialization of the healthcare system, by academics Eileen Appelbaum and Rosemary Batt, has been a problem for decades.
They began in the 1960s, when for-profit care was first funded by the government and other third-party payers. As public money grew and dwindled, investors would move to hospitals and nursing homes, and then flip them for a profit when they were favourable. In some cases, this involved using the type of real estate leverage model deployed in retail: capitalizing on a business’s bricks-and-mortar assets rather than trying to grow it.
Alternatively, private equity companies would peel and consolidate the high-margin stuff and cut basic care. That’s probably why it’s easier to take on new patients to someone offering Botox than to a GP in some neighborhoods. Cash-only “concierge” practices that bypass the insurance system are also increasingly the norm.
Now, the impact of COVID and the promise of more federal spending on health is driving investor interest in areas such as psychiatric practices, home health care and even hospice care. There are dangers ahead. “Think about how private equity would make money in something like a hospice,” Appelbaum says. “They will hire experienced staff trained to help families understand and cope with the process of dying, and will hire people who can help clean the house.” Welcome to healthcare, American style.
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