For-profit healthcare is killing us
Until 1973, federal law did not encourage health insurance providers from functioning under a profit motive. By the late 1990s, 80 percent of MCOs were for-profit organizations, and only 68 percent or less of insurance premiums went toward medical care. The remainder was paid for MCO executives’ and salespersons’ salaries. In retrospect, it was a huge mistake.
When Richard Nixon signed the Health Maintenance Organization Act of 1973, much of it was well-intentioned. Provisions of the law allowed healthcare entities to stop functioning like services and more like “commodities.” While the law did not directly affect all legal entities in the healthcare market, it contributed to a cascade of competitors switching to for-profit models (on that in a moment).
According to estimates, in 1981, 12% of healthcare entities were for-profit. By 1997, that number had ballooned to 65%. The problem with healthcare seems to be profit and greed, and it’s getting worse.
The United States spends almost 20 percent of its gross domestic product on health care. The people who founded the Blue Cross Association in Texas nearly a century ago had no idea how their innovation would spin out of control. They intended it to help the sick.
The new demand for health insurance presented a business opportunity and spawned an emerging market with other motivations. Suddenly, when medicine had more value to offer, tens of millions of people were interested in gaining access and expected their employers to provide insurance so they could do so. For-profit insurance companies moved in, unencumbered by the Blues’ charitable mission. They accepted only younger, healthier patients on whom they could make a profit. They charged different rates, depending on factors like age, as they had long done with life insurance. And they produced various types of policies for different amounts of money, which provided different levels of protection.
If that wasn’t bad enough, private equity firms are getting involved.
Private-equity funds typically try to sell the companies they take over in three to five years, either to the public through an initial public offering or another company. Their task, then, is to make their portfolio companies more attractive to other buyers in a relatively short time; ideally, this is accomplished by making improvements to the business, such as by bringing in talented managers and making the company more innovative and efficient. But, in 2009, relatively little was known about how the process worked. “It was tough for us to access private-equity firms,” Batt told me. “We didn’t have too many interviews. We did a lot of reading.” They interviewed who they could and studied documents and legal filings. The more they dug in, the less straightforward the industry appeared; sometimes, private-equity funds seemed to make money even when a company they had taken over struggled or went bankrupt.
The healthcare industry has created an opportunity for P.E. firms. Physician-staffing companies could opt out of contracts with insurance companies, even if the hospitals where their doctors worked did have agreements with those companies. This left the staffing companies free to send much higher bills to patients treated there; the patients were captive customers, with no opportunity to shop around for doctors with more reasonable fees.
When P.E firms take over nursing homes, the staff is cut, and patients suffer. They increase Medicaid and Medicare patients to increase profitability. Data also shows that when P. E. firms took over nursing homes, deaths increased and patient to nurse ratio decreased.
It’s also happening in eye care. Ophthalmology Consultants is part of EyeCare Partners, one of the largest private equity-backed U.S. eye care groups. It is headquartered in St. Louis and counts some 300 ophthalmologists and 700 optometrists in its networks across 19 states.
Switzerland-based Partners Group bought EyeCare Partners in 2019 for $2.2 billion. Another eye care giant, Texas-based Retina Consultants of America, was formed in 2020 with a $350 million investment from Massachusetts-based Webster Equity Partners, a private equity firm. Now it says on its website it has 190 physicians across 18 states. Other private equity groups are building regional footprints with practices such as Midwest Vision Partners and EyeSouth Partners. Acquisitions have escalated so much that private equity firms are now routinely selling courses to one another.
In the past decade, private equity groups have gone from taking over a handful of practices to working with as many as 8% of the nation’s ophthalmologists, said Dr. Robert E. Wiggins Jr., president of the American Academy of Ophthalmology.
They are scooping up eye care physician practices nationwide as money-making opportunities grow in medical eye care with the aging of the U.S. population. Private equity groups, backed by wealthy investors, buy up these practices-or unify them under franchise-like agreements-hoping to raise profit margins by cutting administrative costs or changing business strategies. They often resell the rules at a higher price to the next bidder.
The profit potential for private equity investors is clear: Much like paying to upgrade plane seats to first class, patients can choose expensive add-ons for many eye procedures, such as cataract surgery.
Yashaswini Singh, a health economist at Johns Hopkins University, and her colleagues analyzed private equity acquisitions in ophthalmology, gastroenterology, and dermatology. They found that practices charged insurance an extra 20% more, or an average of $71, after the acquisition. Private equity-owned practices also saw a substantial rise in new patients and more frequent returns by old patients, according to their research, published Sept. 2 in the JAMA medical journal.
A KHN analysis also found that private equity firms are investing in the offices of doctors who prescribe at high rates two of the most common macular degeneration eye drugs, meaning the doctors are likely seeing high volumes of patients and thus are more profitable.
KHN analyzed the top 30 prescribers of the macular degeneration eye drugs Avastin and Lucentis in 2019 through a Centers for Medicare & Medicaid Services database. Private equity companies invested 23% of the top Avastin prescribers and 43% of the top Lucentis prescribers-far higher than the 8% of ophthalmologists in which private equity currently holds a stake. Retina Consultants of America, for example, has invested in the practices of four top Avastin prescribers and nine of the top Lucentis prescribers.
Some health care experts worry that private equity companies could eventually be left holding an overly leveraged bag if other firms don’t want to buy the practices they’ve invested in, which could lead to the closures of those practices and ultimately even more consolidation.
Why is all this happening? Because there’s a lot of money in healthcare, they all want a piece.
Originally published at https://worldofdtcmarketing.com on September 20, 2022.