Is private equity helping or hurting healthcare?
By Harry Gamble
Modern Healthcare, July 10, 2018
Some view third-party investment in physician practices as a vital trend that offers economies of scale that make healthcare more efficient. Others believe it fosters monopoly control while driving up prices. But nearly everyone agrees that further consolidation within the U.S. healthcare market is coming.
“The days of Marcus Welby are behind us,” said Anthony LoSasso, professor of health policy and administration at the University of Illinois at Chicago’s School of Public Health. “The uncertainty over healthcare policy in Washington is probably driving the integrated healthcare delivery systems and large hospitals to bulk up almost as a counterweight to the uncertainty they face. They know that if you are bigger, you are in a better position to survive whatever may come your way.”
“I think the jury is still out on whether those larger systems can translate that scale into quality improvements,” he said. “What I do know is they can translate that scale into price increases. That means insurers are going to have to pay more, which translates on the consumer side into higher premiums.”
But the jury is in for Marni James-Carey, executive director of the Association of Independent Doctors.
“We know that when corporate medicine takes over the practice of independent medicine, costs go up, quality goes down, and patients and doctors lose,” she said. “We don’t need a study for any of this. We just need common sense to prevail.
“This is all about capturing market share so you can have more bargaining power with payers, and get more money in reimbursement for the same procedure. That’s what causes costs to go up,” she said.
Craig Garthwaite, director of the Health Enterprise Management Program at Northwestern’s Kellogg School of Management, said recent pricing controversies in the pharmaceutical industry (think Martin Shkreli) have left some consumers fearing a repeat performance by large-scale physician practices.
“Some see private equity firms as really for-profit for-profits, for lack of a better term,” Garthwaite said. “These are firms that are often not involved in the medical field, but move in because they see an attractive investment opportunity.”
“To date, we see this more in pharmaceuticals rather than in providers,” he continued. “Outside companies realized a glaring market imperfection in pharmaceuticals, and found that if they were willing to price to the limit of their monopoly power, they could make an exceptional amount of money. So people might be worried that the same thing could happen with providers.”
The real driver of health care spending
By Edward M Murphy
CommonWealth, July 9, 2018
The revenue and profitability of these corporations support the proposition that high pharmaceutical prices and insurance-related administrative costs account for much of the extraordinary expense of our system. US health policy, or the absence thereof, has enabled these businesses annually to drive costs up for the benefit of their bottom line. That effect will continue. Not surprisingly, the big health care companies are developing new strategies to enhance their businesses and drive their profits going forward.
The term now heard often among health care giants is â€œvertical integration,â€� which means combining upstream suppliers with downstream buyers to control the flow of business. If this strategy persists, health care delivery will evolve significantly although it is unlikely to become less expensive. The most prominent current example of vertical integration is the planned $68 billion acquisition of Aetna by CVS.
How would these companies work together? A Wall Street analyst recently described the vision as a way to â€œidentify high risk patients and preemptively get them into a Minute Clinic.â€� Thus, your health insurer could send you to a local store for diagnosis, treatment, drugs, and anything else you might need from the shelves. This will keep even more of the health care dollar under their control.
Similarly, Cigna is in the process of acquiring Express Scripts, a huge pharmacy benefits manager, for $54 billion, another attempt to bring more services under one roof. United Health, a leader of vertical integration, previously bought a pharmacy benefit manager but co-pays and deductibles for its patients have continued to climb.
If this course continues, the health care system will evolve quickly, giving fewer and larger companies even more market leverage. Integration of this kind benefits the large corporations that initiate it but there is no evidence it will lead to lower costs, improved access, or enhanced quality. These changes are driven by highly focused corporate financial interests and are occurring without reference to public policy. Thatâ€™s because there is no coherent public policy to guide these changes.
It is not in the interest of huge profit-making corporations to restrain the overall cost of the US health care system. In fact, their interest is served by driving health care expenditures higher. Any progress will require driving down pharmaceutical pricing and reducing administrative costs imposed by middlemen. We are not doing that yet but, ultimately, we must.
Three quotes from these two articles say it all:
“Outside companies realized a glaring market imperfection in pharmaceuticals, and found that if they were willing to price to the limit of their monopoly power, they could make an exceptional amount of money. So people might be worried that the same thing could happen with providers.”
“It is not in the interest of huge profit-making corporations to restrain the overall cost of the US health care system. In fact, their interest is served by driving health care expenditures higher.”
“These changes are driven by highly focused corporate financial interests and are occurring without reference to public policy. Thatâ€™s because there is no coherent public policy to guide these changes.”
No coherent public policy? How about enacting and implementing a publicly financed, publicly administered, single payer, improved Medicare for all? Now!
Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.
Source: Finance Solidaire