Mid-Year Awards Edition: Much Ado About Not Much Award in Healthcare: The Overscrutiny of Private Equity

It’s that time of year — time for a mid-year award. I refer to this as the Much Ado About Not Much Award-which is the bias or tendency to disproportionately act on a non issue. This is often referred to making an issue out of a non issue and I collect them like trading cards and like to highlight especially those that are broad over reach. This one was just too easy. The mid year award goes to the generally wasted time, energy, and resources on the over-scrutiny of Private Equity (PE) in healthcare.

The politicizing of private equity in healthcare has continued to escalate in 2024 with a few major initiatives. Leading the charge, unsurprisingly, is California. With a $3.9 trillion economy, the 5th largest in the world, California continues to legislate its way to its own peril while ignoring its indigenous problems. Recently introduced legislation would give the attorney general authority to block private equity firms’ moves into the healthcare industry. This is seen as a potential model for other states looking to limit consolidation and protect patient care. The assumption here is that consolidation and patient peril are evil twins birthed by PE — but nothing could be further from the truth.

Not to be outdone, the Federal government is weighing in. On March 5, 2024, the Federal Trade Commission (FTC), the Department of Justice (DOJ) Antitrust Division, and the Department of Health and Human Services (HHS) announced a “cross-government public inquiry into private equity and other corporations’ increasing control over healthcare.” Again, the incendiary phrase “control over healthcare” is an assumption without substantial evidence.

Our healthcare system is certainly due for its fair share of criticism and scrutiny — it’s too expensive, lacks universal access, suffers from overregulation, and faces provider burnout, decreased payments to providers (especially in #physicaltherapy), Medicare Advantage carriers overbilling the US government while paying contracted providers 20–30% less than traditional Medicare, and significant provider shortages. Instead of addressing these real problems or collaborating on solutions, it’s easier to pull a red herring and introduce solutions in search of a problem. Such is the case with legislating PE in healthcare. Perhaps this classic misdirection has been planted by insurance companies acting in cahoots to shift scrutiny from them to anybody— it would explain a lot.

Steven Wright, one of my favorite comedians, once said that “99% of all lawyers give the rest a bad name.” If you were to believe the state of California and the DOJ, they’d say the same thing about PE in healthcare. The problem, of course, is that there is scant evidence of any problems with PE in healthcare — not even 1%. On the contrary, PE brings a lot of benefits, including necessary capital, innovation, expanded access, job creation, and improved operations and customer service, benefiting those who need it the most — patients.

Let’s look at some facts:

PE firms have invested more than $1 trillion in healthcare over the past decade, including in nursing homes, rehabilitation facilities, hospitals, and physicians’ practices. This influx of capital came at a time when healthcare needed expansion in facilities and services.

From a recent publication:

“How Much of US Healthcare Does PE Really Own?” Private equity looms large over public debates around the US healthcare system, but it represents a smaller slice of the market than many would assume. PE-backed providers represent an estimated 3.3% of the US healthcare provider ecosystem by revenue. The growth in the total number of PE-backed companies has slowed over the past six years. Deals for hospitals and skilled nursing facilities are currently rare, and there has not been a major PE investment in a US hospital or health system since 2018.

Yet, another source states:

“Private equity (PE) has played a growing role in financing healthcare in the United States in recent years.” As of May 2024, PE firms owned about 8% of all private hospitals in the US, and about 6% in California. PE firms also own 22% of all proprietary, for-profit hospitals in the US. In 2022, the GAO estimated that PE firms owned 5% of nursing homes, and acquisitions of physician practices have also increased.

So, as it turns out, PE isn’t even much of a big player in healthcare. And keep in mind that PE transactions are voluntary by all parties.

Here is the more fundamental issue. PE has very little odds of hurting patients compared to insurance companies’ denials, lack of patient access to affordable services in both facilities and caregivers, providers who have to take less than their cost to deliver services, regulations that make providers spend more time on EMR than with patients, or the vastness of provider burnout?

Researchers from Oregon, in a recent publication, were the most salient on this topic:

“While PE investment in health care may improve operational or technological efficiencies, there are concerns about the effects on cost, quality, and utilization of care.”

Unfortunately, in California and DOJ, “concerns” are code for “harm and guilt that must be reigned in through regulation”. By any standard, isn’t this a little premature?

Let’s be rational and realize we are talking a small part of healthcare with scant evidence somehow is a more important issue than healthcare at large as well as the majority of healthcare players — many who are non-profit in name only. Once we get compelling data, then we can have a debate and analyze and deal objectively. But until then, any effort to legislate should be moved down the priority list in favor of focusing on the real problems in healthcare.

I want to especially thank and acknowledge California and the DOJ for making this mid-year award so easy.

Any thoughts or comments are always appreciated.

@physicaltherapy