Health systems have recently been the subject of high-profile media accusations that they prioritize “profits over patients”, as an unflattering New York Times series has framed it.
New consumer survey data from strategic healthcare communications consulting firm Jarrard Inc. shows that while consumers find some merit in these claims, they tend to see their local hospital in a better light. As shown in the graphic above, a majority of US adults believe that, on a national level, hospitals are more focused on making money than caring for patients, and that they don’t do enough to help low-income people access high quality care.
Despite only one in five survey participants having seen news stories alleging hospitals fail to provide enough charity care in exchange for tax breaks, 65 percent of survey respondents find those allegations believable.
But while the consumer perception of hospitals may be suffering nationally, the responses were quite different when consumers were asked about their preferred local hospital. More than half strongly agreed that their preferred local hospital is a good community partner—one that puts patient care ahead of making money.
(Just as with Congress: people love to criticize the institution, while continuing to return their own representatives to Washington.) While the negative national attention can be disheartening, at the end of the day, to consumers,healthcare is local, and health systems must continue to build direct consumer relationships to strengthen patient loyalty.
A recent JAMA study of 578 US dermatology, gastroenterology, and ophthalmology practices acquired by PE firms from 2016 to 2020 found a steady rise in spending in the two years after acquisition, indicating that the average charge per commercial claim increased 20 percent, and the average allowed amount per claim rose 11 percent. It also found that, compared to a large control group with similar patient risk scores, PE-acquired practices saw new patient visits increase by 38 percent and total visit volume increase by 16 percent.
The Gist: While the study’s authors note that these findings could be explained by changes in practice operations or management, they point out they could also be caused by an overutilization of profitable services not tied to an increase in value or benefit to the patient.
We think the latter is likely the case here, and that this study provides evidence of PE-induced overutilization aimed at meeting aggressive growth targets.
But this is just the latest wave of ownership-induced overutilization: 20 years ago the same spotlight was on physician-owned imaging, cardiac, and other outpatient diagnostics, with several studies then documenting higher utilization in these facilities. Nonetheless, this latest trend is an important one to document and quantify, as the number of physicians working in PE-backed organizations continues to rise.
Mark Cuban’s pharmacy, Cost Plus Drug Co., has hundreds of drugs marked at discounted prices, but some pharmacy experts say there’s a larger problem that needs fixing, CNBC reported July 28.
The online pharmacy launched in January with about 100 drugs, and by its one-year anniversary, plans to have more than 1,500 medications, according to the company’s website. The business model, which allocates for a $3 pharmacy dispensing fee, $5 shipping fee and a 15 percent profit margin with each order, aims to uproot the pharmaceutical industry, which has faced criticism for years about its opaque business practices.
Gabriel Levitt, the president of PharmacyChecker, a company that monitors the cheapest drug prices, told CNBC there’s more to be done.
“As much as I support the venture, what they’re doing does not address the big elephant in the room,” Mr. Levitt said. “It’s really brand-name drugs that are increasing in price every year and forcing millions of Americans to cut back on medications or not take them at all.”
Brand-name drugs are 80 percent to 85 percent more expensive than generics since brand-name drugs have to repeat clinical tests to prove efficacy, according to the FDA. Cost Plus Drug Co. only offers generics. Mr. Cuban told CNBC he hopes to sell brand-name medications “within six months,” but added that it’s a tentative timeline.
U.S. hospitals performed more than 100,000 surgeries on older patients during the first year of the pandemic, according to a new Lown Institute analysis.
The healthcare think tank relied on Medicare claims data and analyzed eight common low-value procedures. It called the 100,000 procedures unnecessary and potentially harmful in a press release. It found that between March and December 2020, among the most-performed surgeries were coronary stents and back surgeries.
The procedures either offered little to no clinical benefit, according to the institute, or were more likely to harm patients than help them.
“You couldn’t go into your local coffee shop, but hospitals brought people in for all kinds of unnecessary procedures,” Vikas Saini, M.D., president of the Lown Institute, said in a statement. “The fact that a pandemic barely slowed things down shows just how deeply entrenched overuse is in American healthcare.”
Here is the volume of each procedure analyzed, for a total of 106,474 procedures identified:
1. Stents for stable coronary disease: 45,176 2. Vertebroplasty for osteoporosis: 16,553 3. Hysterectomy for benign disease: 14,455 4. Spinal fusion for back pain: 13,541 5. Inferior vena cava filter: 9,595 6. Carotid endarterectomy: 3,667 7. Renal stent: 1,891 8. Knee arthroscopy: 1,596
Among the “U.S. News & World Report” 20 top-ranked hospitals, all had rates of coronary stent procedures above the national average in what the Lown Institute called “overuse.” Four had at least double the national average, including the Cleveland Clinic, Houston Methodist Hospital, Mt. Sinai and Barnes Jewish Hospital. The procedures and overuse criteria were based on previous Lown research.
“We’ve known for over a decade that we shouldn’t be putting so many stents into patients with stable coronary disease, but we do it anyway,” Saini said. “As a cardiologist, it’s frustrating to see this behavior continue at such high levels, especially during the pandemic.”
In response to the Lown analysis, the American Hospital Association said in a statement Tuesday that delays or cancelations in non-emergency care may have negative outcomes on patients. “Lown may define these services as ‘low value,‘ but they can be of tremendous value to the patients who receive them,” the statement read.
It also pointed to its response to last year’s Lown analysis, which it criticized as being based “on data that are not only incomplete, but also not current.” The organization argued the services surveyed only represent a portion of the care hospitals provide. It added that procedures are determined by physicians based on an evaluation of the patient’s medical needs.
From 2003 to 2017, private equity firms focused their acquisition crosshairs on larger hospitals with higher operating margins and greater patient charge-to-cost ratios, according to a new review of healthcare investments published in Health Affairs.
These private equity (PE)-owned hospitals also saw greater increases to their operating margins and charge-to-cost ratios over the course of the 15-year study period than their non-PE-owned counterparts.
Combined with a decrease in all-personnel staffing ratios, the study’s researchers said these data make a case for further investigation into how PE investment may be influencing operational decisions to boost profits and secure favorable exits.
“[Short-term acute care] hospitals’ large size, stable cashflow environment and prevalence of valuable fixed assets (that is, properties) make them highly desirable targets for acquisition,” researchers wrote in Health Affairs. “Broadly speaking, PE acquisition of hospitals invites questions about the alignment of the financial incentives necessary to achieve high-quality clinical outcomes.”
To inform that discussion, the researchers reviewed PE deal data collected by Pitchbook, CB Insights and Zephyr. They also collected information on hospital characteristics and financials from the Centers for Medicare and Medicaid Services’ (CMS) Healthcare Provider Cost Reporting Information System database and the American Hospital Association’s Annual Survey.
Their efforts yielded 42 PE acquisitions involving 282 different hospitals during the 15-year time period. These deals were most frequent among hospitals in Mid-Atlantic and Southern states.
Of note, 161 of the acquired hospitals were tied to a single deal: Bain Capital, Kohlberg Kravis & Roberts and Merrill Lynch Global Private Equity’s roughly $33 billion (more than $21 billion cash, $11.7 billion debt) acquisition of HCA Healthcare in 2007.
The study outlined differences between the PE-acquired hospitals and others that were not acquired before any of the deals (in 2003) and after (in 2017).
Nearly three-quarters of hospitals acquired by PE were for-profit in 2003, versus about a quarter of those that were not acquired, the researchers wrote. By 2017, those respective proportions had increased to 92.3% and 25.3%.
Acquired hospitals were significantly larger in terms of beds and total discharges both in 2003 and in 2017. In fact, while acquired hospitals increased in size during the 15-year window, other hospitals decreased in beds and discharges by 2017.
Nurse staffing ratios were similar on both ends of the study period for both categories of hospitals. However, all-staff ratios were lower among the soon-to-be-acquired hospitals in 2003 and saw a slight decrease over the years, whereas hospitals that had not been acquired instead recorded an increase over time.
In terms of financials, the researchers reviewed measures including net patient revenue per discharge, total operating expenses per discharge and the percentage of discharges paid out by Medicaid. Differences among these three areas were not significant with the exception of a larger 15-year increase in total operating expenses per discharge among non-PE hospitals.
The primary financial differences between the PE and non-PE hospitals were instead found among the organizations’ percent operating margins and charge-to-cost ratio, the researcher wrote.
In 2003, both measures were higher among the soon-to-be acquired hospitals. By 2017, the percent operating margin and charge-to-cost ratio increased 66.5% and 105% among the PE-acquired hospitals, respectively, versus changes of -3.8% and 54.2% for the non-PE hospitals.
These and the study’s other findings outline the playbook an investor could follow to identify a profitable hospital and increase its margins, the researchers wrote.
“Post-acquisition, these hospitals appeared to continue to boost profits by restraining growth in cost per patient, in part by limiting staffing growth,” they wrote.
The trends affirm findings published in a 2020 JAMA Internal Medicine study, which similarly tied PE acquisition to moderate income and charge-to-cost ratio increases over the same time period, the researchers wrote.
The data also contrast “the prevailing narrative” that PE investors target distressed businesses to extract value for a quick turnaround sale, they wrote. Outside of a few outlier acquisitions, the researchers said that PE’s goal for short-term acute care hospitals appears to be the opposite—operations refinement and further profit improvements among potential top performers.
Still, the differing structure of PE investments warrants questions as to whether these groups are promoting high-quality outcomes alongside their high margins, Anaeze Offodile II, M.D., an assistant professor at the University of Texas MD Anderson Cancer Center and the study’s lead author, said during an accompanying Health Affairs podcast.
In contrast to the public market,PE investments often lean on leveraged buyouts that are higher risk and higher reward, he said. Partners are targeting a three-to-seven-year exit window for their investments and often need to hit 20% to 30% annualized returns.
More investigation is needed to determine whether these economic incentives come in tandem with better care or are instead hindering patient outcomes, he said.
“The question becomes ‘Are there unintended consequences or tradeoffs invited due to pursuit of profitability?’” Offodile said during the podcast. “I think someone could make the same argument that if there is a value enhancement strategy by PE firms, then it behooves them to actually raise the level of care delivery up because that enhances the value and engineers a better sale.
“In seeing that sort of exploratory result and how it challenged the prevailing narrative, we’re glad that we took this sort of [setting the] stage approach, and I look [forward] to seeing what we find—which we’re doing now—with respect to quality, spending, access domains,” he said.
Finding a good long-term care facility for a loved one has always been a difficult process. A new National Bureau of Economic Research working paper suggests that families should also be paying attention to who owns the facility, finding asignificant increase in mortality in nursing homes owned by private equity investors.
Examining Medicare data from over 18,000 nursing homes, 1,674 of which were owned by private equity (PE) firms, researchers found that PE ownership increased Medicare patient mortality by 10 percent—translating to a possible 20,150 additional lives lost. PE-owned facilities were also 11 percent more expensive.
Counterintuitively, lower-acuity patients had the greatest increase in mortality. Researchers found staffing decreased by 1.4 percent in PE-owned facilities, suggesting that shorter-staffed facilities may be forced to shift attention to sicker patients, leading to greater adverse effects on patients requiring less care.
Antipsychotic use, which carries a higher risk in the elderly, was also a whopping 50 percent higher.
Nursing homes are low-margin businesses, with profits of just 1-2 percent per year—and PE ownership did not improve financial performance.
Researchers found private equity profited from three strategies:“monitoring fees” paid to services also owned by the PE firm, lease payments after real estate sales, and tax benefits from increased interest payments, concluding that PE is shifting operating costs away from patient care in order to increase return on investment. Private equity investment in care delivery assets has skyrocketed over the past decade.
This study draws the most direct correlation between PE investment and an adverse impact on patient outcomes that we’ve seen so far, highlighting the need for increased regulatory scrutiny to ensure that patient safety isn’t sacrificed for investor returns.
HENRY KOTULA 