Pluralistic: 17 Nov 2022 Private equity health-care monopolies are on a profitable killing spree

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A hospital Emergency Room parking lot. In the center of the image stands an ogrish, top-hatted, cigar-chomping capitalist caricature. He is standing at a podium, yanking a lever made from a golden dollar-sign. The front of the podium bears a red cross. He holds aloft an elderly man in a hospital bed.

Private equity health-care monopolies are on a profitable killing spree (permalink)

It's not just you. US healthcare, already a bureaucratic nightmare of buck-passing and price-gouging, has gotten far worse. Private equity firms have created regional health-care monopolies that don't just rip patients off – they're killing us.

Private equity is a scam. Fund managers raise gigantic sums by claiming to be able to "beat the market." In reality, they do worse for their investors than a boring old index fund:

The fund managers don't have to beat the market in order to make bank. They can take advantage of the "carried interest" loophole, which has nothing to do with interest rates – it's a tax system that was invented for 16th century sea-captains (no, really):

PE dresses up its playbook in all kinds of bullshit, but it's a smokescreen. At core, PE funds buy companies, merge them to monopoly, slash wages, fire staff, load up their businesses with debt, and then skedaddle before the businesses collapse. They call this "creating value":

This playbook guarantees that everything PE touches will turn to shit. PE is a parasite that preys on weak industries and makes them even more dysfunctional. Think of how PE has cornered regional rental housing markets and then turned every rental in town into a slum:

Most of us didn't really think about rail-freight until last winter, when the whole system nearly collapsed. Again, the bloody handprints of PE are all over that crisis:

The pandemic put a lot of businesses into a precarious state, and PE swooped in, buying up distressed businesses at scale and putting them into a death-spiral:

This acquisition was fueled by Trump's corporate covid bailout and the trillions in public money that the GOP made available to corporate borrowers (remember, PE thrives on debt):

Of all the sick industries in America, healthcare is the sickest, and it's the domain where PE has done the most damage. PE stripped healthcare systems to the bone, removing all excess capacity and exhausting and demoralizing healthcare workers:

They bought up emergency rooms, turned them into scam factories that hit every unfortunate person who stepped foot in them with thousands in "surprise billing" fees. Then they cut doctors' pay and spent millions on ads to block anti-surprise billing legislation:

The ER scam was and is wild. Some hospitals lock all their doors except for the ER doors, and then they'd hit you for "emergency care" when you went through the ER on your way to receiving normal, non-emergency procedures:

The damage wasn't limited to emergency rooms. Whole hospitals – whole hospital systems – were crashed by PE looters, and many of these got emergency government bailouts, because…free market?

PE has bought its way into every corner of the health-care system, and made every bad thing, much, much worse. You know how "bad nursing home" are three of the scariest words in the English language? Try on "bad private equity owned nursing home" for size. The death toll is massive:

Biden's SEC chair Gary Gensler has made the most decisive anti-PE moves in decades, requiring disclosures that will help investors (especially union pension funds) pierce the veil of bullshit that brings in the billions that PE fashions into weapons of financial mass destruction:

But the wheels of justice grind slowly, and PE has trillions to fuel its race to suck every bit of value out of the health-care system before the party comes to an end.

In "Sick Profit: Investigating Private Equity’s Stealthy Takeover of Health Care Across Cities and Specialties," Kaiser Health News's Fred Schulte reveals the plan of attack:

In 2021, PE firms bought 1,400 health care companies, spending $206b (the total since 2012 is more than $1t). They've cornered regional markets for eye care, dental care, family practices, hospices, and pet care. We've had a year to see how that played out, and it's not pretty.

Since 2014, PE companies have paid out $500m in fines for falsifying health care billings to the US government, but a fine is a price, and the fines have been absorbed into PE's business plans as part of the cost of operations.

Once a PE firm buys up all the specialists in a region, things get very bad. Take San Antonio, where nearly all the gastroenterology clinics have been bought up by PE firms, and where routine colonoscopies now cost patients thousands more than they paid before:

While there are plenty of illegal ways that PE companies extract value from their acquisitions, the legal tactics are pretty ugly all on their own, like cutting staff and replacing them with less skilled, less trained, cheaper workers, putting patients at risk.

This is particularly worrying when you consider how heavily PE companies invest in practices that treat people who are vulnerable and struggle to advocate for themselves, such as behavioral health specialists who treat autism, addiction and mental illness.

Whether or not you can escape PE depends a lot on where you live. PE only owns 12% of the nation's anesthesiology practices, but those practices are concentrated in five states, where more than two thirds of anesthesiologists are PE owned.

When PE takes over your health care, billings go way up. The average PE-treated patient generates $71 more per claim, and is 9% more likely to experience "lengthy, more costly" care:

Doctors who sell their practices to PE companies are lured in with promises of administrative relief from experts who'll handle billing, scheduling and compliance. But PE firms exercise fine-grained control over these doctors, violating rules that say medical practices must be run by MDs.

Take National Spine, a PE-backed chain owned by Sentinel Capital Partners that bought up 40+ pain-management clinics across the country. Doctors saw their caseload explode from 16 patients/day to 25. Medicare billings also exploded, with "unnecessary and often worthless" back braces being charged at up to $1,100 each. Patients were given $1,800 "medically unnecessary and often worthless" urine tests. National settled these claims for $3.3m in April 2019, without admitting guilt.

RLH Equity Partners's pharmacies bilked the military health insurer Tricare out of $68m through a system of kickbacks and telemarketer sales. RLH settled the case for $21m and blamed it on a few corrupt "individuals."

Most of the time, fraud claims are settled by the companies that the PE funds own, while the PE funds themselves get off scot-free. That leaves the funds free to re-offend, and to further push the limits on patient endangerment.

One of the grisliest parts of this tale is in the realm of children's dentistry. PE firms have bought up these practices and turned them into high-volume Medicare-fraud assembly lines that perform rushed, unnecessary major procedures on poor kids and bill the government a fortune for them.

These include baby root canals and crowns, and the PE-backed dental chains set quotas for their staff, requiring them to perform a certain number of major procedures on each patient. One particularly horrifying case recounted by the KHN article is that of two-year old Zion Gastelum, who died following major dental surgery.

Gastelum received six root canals and crowns on his baby teeth at a PE-owned Kool Smiles clinic in Yuma, AZ. The oxygen bottle used during his surgery "was empty or not operating properly" and the staff who oversaw the procedure were undertrained and didn't notice. He never regained consciousness, and died of brain injuries days later.

Kool Smiles's owners paid $24m to settle a DoJ overbilling claim less than a month later. The settlement alleged that Kool Smiles performed unnecessary procedures, including baby root canals. Kool Smiles denied that they were responsible for Gastelum's death.

More than 90% of PE acquisitions fall below the $101m threshold for antitrust review, so they fly under the radar. Once the mergers are complete, they are very hard to unwind. The FTC is working its way through hundreds of comments from doctors or other health care workers asking for tighter scrutiny of health-care mergers.

The Healthcare Private Equity Association boasts that its members are poised to spend more than $3t to create "the future of healthcare."!event-list

(Image: Rae Allen, CC BY 2.0; Videoplasty, CC BY-SA 4.0; modified)

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Colophon (permalink)

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