How Private Equity in Healthcare Puts Patients at Risk

CHRISTIANE AMANPOUR, CHIEF INTERNATIONAL ANCHOR: As we heard yesterday on the show from leading science and health journalist Donald McNeil, COVID shook the public healthcare system in the United States to its very foundations, and it’s still struggling with high prices and strained budgets. Dr. Ashish Jha led the Biden administration’s response to the coronavirus pandemic, and now he’s back to his old job as dean of the School of Public Health at Brown University. He joins Hari Sreenivasan to lay out how private equity is disrupting the medical industry across America.

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HARI SREENIVASAN, INTERNATIONAL CORRESPONDENT: Christiane, thanks. Dr. Ashish Jha, thanks so much for joining us. You wrote a recent op-ed in “The Washington Post” talking about private equity and the impact that it is having on U.S. health care today. Lay it out a little bit for us.

DR. ASHISH JHA, DEAN, BROWN UNIVERSITY SCHOOL OF PUBLIC HEALTH AND GENERAL INTERNIST: Yes, absolutely, Hari. You know, we have seen this explosion of private equity into healthcare. What do I mean? Private equity firms buying up doctor’s offices, hospitals, nursing homes, and the impact has been twofold. We have seen that that drives up prices and makes healthcare more inaccessible, more costly. And now, we’re seeing emerging evidence, at least from the hospital sector that when private equity buys up hospitals, healthcare outcomes for patients in those hospitals may actually get worse. So, that’s obviously very concerning. This is really a very big phenomenon with a large entry of private equity farms into the healthcare marketplace.

SREENIVASAN: So, this is not — you know, kind of lay out the difference for us. There are a lot of towns in America who see a large hospital chain come in and take over their kind of facilities and then there have been consequences on whether those facilities have become profitable or not and changes have happened. But what is the role that private equity is playing? What part of the healthcare market are these companies going after?

DR. JHA: Yes. So, what’s interesting is that that phenomenon of health care chains coming in also can have deleterious effects. And we’ve seen that private equity firms. Look, at the end of the day, they’re in it for one reason and one reason only, which is that they’re trying to make money out of this. And their strategy generally has been short-term. Come in a few years, turn it around. And when I say turn it around, I don’t mean necessarily turn the health system around, what I mean is then flip it, sell it to somebody else, make a profit. But often that has real negative effects on the system they bought, whether it was a hospital, a doctor’s office, nursing home. So, it leaves that community often much worse off, even though that private equity firm made a very nice profit out of it.

SREENIVASAN: You write an example of one of your friends and colleagues who have kind of gone through this process. There are lots of doctors who have practices, who want to look at retirement, and then they get an opportunity from a private equity firm to buy the practice. So, what happens traditionally in these cases?

DR. JHA: Yes, the situation I described is very typical. My friend had owned a practice, private practice for a long time. Private equity firm made him an offer. He eventually agreed, sold it. Initially, his life got better. He didn’t have to manage the practice anymore. He got a nice payout. Things seemed great. But then that firm also bought up a lot of other practices, got a lot of market power, raised prices. Some of his patients he had taken care of for 20 years no longer could see him. You know, he walked out of this really with very mixed feelings because for his patients, it was not a very good deal, even though he himself had personally benefited.

SREENIVASAN: So, if a private equity firm buys a group of practices, whether it’s cardiology or it’s pediatric dentistry, don’t they have a greater opportunity to decrease prices, to be able to negotiate with insurance companies and so forth? I mean, wouldn’t theoretically that be better for the patient?

DR. JHA: It could, but here’s actually what’s happening in practice. So, let’s say there are lots of cardiology practices in a community. A private equity firm comes in, buys them all up. Then it goes to the insurance company and says, if you want cardiology in this town, we own all the practices. You have to pay us a lot more. Of course, insurance companies will then just pass on those extra costs to employers and to individuals. So, what happens is people see their prices go up. Profits for private equity firms also go up. And eventually it ends up having a really negative effect on that community. So, while theoretically private equity firms could play all sorts of roles, they’re generally driving prices up.

SREENIVASAN: So, how does that impact, say, for example, the patients that you said, for example, people who might have been coming to your friend for years couldn’t afford to come anymore? Is that because the insurance companies are saying, hey, the prices are just too high and this is now out of network or how does that happen?

DR. JHA: Yes, there are two ways this can happen. One is, so imagine you’re the private equity firm, you now own all these practices, you raise your prices. An insurance company may say, OK, you’re no longer in network. Well, all the patients who have that insurance no longer can come see that that physician. Or they’ll say you’re still a network, but your deductibles are now much, much higher. And so, what that does to patients is that they have to pay a lot more out of pocket, which for a poor person may become prohibitively expensive. Look, I mean, the bigger picture point here is that high prices of health care are causing real problems, real strains for budgets for individuals and companies across the country. And private equity has become a part of that problem, making that problem worse.

SREENIVASAN: Let’s talk, I guess, aside from the money, the thing that most people are concerned about is how does it actually affect how safe I am going to a doctor or a hospital? Is there a difference that can be measured on how the functioning of medicine is happening?

DR. JHA: Yes. Yes. So, this is a question that I think a lot of us have been concerned about for a long time, but we haven’t really had data until recently. It’s a really good study that looked at 50 hospitals that were bought out by private equity firms, compared them to controls hospitals that weren’t. And what they found essentially was medical errors going up in private equity hospitals. People have often said, well, what explains that? How could that be? It’s probably the same doctors and nurses working there.

SREENIVASAN: Right.

DR. JHA: There are a couple of things. We know that private equity firms, when they take over, one of the first things they do is try to reduce costs. One of the easiest ways of reducing costs is reducing your staffing. Cut back on nursing staffing, it’ll save you money, it can put patients at risk. I think that’s clearly probably one part of the mechanism. The other thing is, you know, if you think about all the progress we’ve made in making healthcare safer over the last 20 years, a lot of it is putting in safety protocols, doing a lot of important things that make sure errors don’t happen. Those all cost money. And my, you know, best hypothesis here is companies come in, they buy up these hospitals, they’re trying to find ways to save money, and they’re making decisions that are harming patients.

SREENIVASAN: And this study that you’re referencing is from the “Journal of the American Medical Association” and it said, private equity acquisition was associated with a 25.4 percent increase in hospital acquired conditions, which was driven by falls and central line associated bloodstream infections. How do, you know, something like central line associated bloodstream infections increase at one hospital versus another?

DR. JHA: Yes. So, central line infections, by the way, just a central line is a big IV catheter, usually use it in critically ill patients. Those, when they get infected, can be very, very dangerous. People often die because it’s a very serious infection. We have made a lot of progress as a healthcare community, eliminating those infections or reducing those infections. Again, what makes a difference? Following protocols, having plenty of nurses, making sure you’re really doing things to prevent those infections. We know how to do that. If you make cutbacks on nurse staffing, if you make other types of cutbacks, you can potentially set up people at risk for that. False is similar. You know, elderly people, high risk people in the hospital, they’re not enough nurses around, they get up in the middle of the night, they can have that fall. So, staffing is really critical to keeping people safe in the hospital.

SREENIVASAN: So, when you think of sort of market power at work here, is there an increased concentration? I mean, there was — there’s an article I’m looking at here that said that 13 percent of metro areas that a single private equity firm owns more than half of the physician market for certain specialties now, obviously 13 percent. That’s — we still have 87 left in the country where there might be a more healthy market. But what happens? Is it in small towns? Is it in midsize towns and big cities? Where do we find these kinds of trends?

DR. JHA: Yes. So, market concentration, first of all, is a bad thing. And here’s what I mean. Like when there’s not enough competition, there’s not competition for quality, there’s not competition for pricing and costs. And what we tend to see in concentrated markets as costs go up, quality goes down. That evidence is overwhelmingly clear. In those 13 percent of markets where a private equity firm has more than half the market, they’re not facing much competition to deliver better care at lower cost for patients. In those other 87 percent, you still have a lot of concentration. That 13 percent continues to rise. What I’m worried about is not just where we are today, but where we will be in 2, 4, 5 years if we don’t pay very close attention to this trend and really work on turning it around.

SREENIVASAN: I’m not trying to paint private equity kind of with one brush. I mean, they’re — obviously, they might have different strategies in what they’re doing. And you’re not necessarily advocating for the end of private equity here. I mean, you think that there is a role for them to play.

DR. JHA: Yes, the way I look at this is we’re seeing some bad behavior by some private equity firms, not every private equity firm. There’s also bad behavior by major hospital chains, by other four (ph) companies. So, instead of asking, is this a private equity problem? What I would like to see is. healthy competition in the marketplace. By the way, we have federal laws on that. We just need to enforce those laws to make sure that we don’t have monopolistic behavior. What I’m looking for is more focus on making sure patients are safe in the hospital. There are things that Medicare and other payers can do to really drive that. At the end of the day, what we care about is quality, safety, affordability. What I argue for is let’s pay attention to those metrics. And hey, if a private equity firm can do all that stuff, great. Because that’s what there’s some patients and that’s what we should be focused on.

SREENIVASAN: So, I mean, on the one hand, you’re asking for some kind of financial supervision on, say, when is there a certain threshold that private equity takes over, you know, it tips over into kind of a monopoly status in a particular subgroup of health care. But then, how do we kind of enforce just the safety part of it? How do we kind of look at the data and say, hey, wait, there’s something going on here, the infections or deaths or falls are rising, and we see that the sort of correlation might be this? I mean, correlation is not causation. So, how do we tease that out?

DR. JHA: Yes. So, this is a really important role for an agency like Medicare. Medicare is the largest payer of health care in America. For a long time, Medicare has been developing metrics on quality and safety for hospitals, for doctors. And what I call for is when you have a new transaction, let’s say a private equity firm buys up a health system, that should get monitored. Make sure that prices don’t go up. Make sure that quality doesn’t suffer. Make sure that adverse events, patient safety events don’t go up. Those are things that are very reasonable roles for regulators, state regulators, as well as Medicare to do. I think they should be doing that much more broadly across the entire health care system. But given what we’re seeing with private equity, probably deserves a little extra attention to make sure that patients are not being harmed by this kind of work.

SREENIVASAN: Given how strapped Medicare is, what’s the likelihood that they can do this?

DR. JHA: Well, these are policy decisions we have to make as a country. I mean, I think it’s very important. Certainly, states also often strapped with their regulators. I think that’s a place where, look, if we underfund our government on these issues, if we don’t have enough people working at FTC, if we don’t have enough regulators overseeing and making sure that these transactions are not leading to harm, then we’re going to allow a lot of bad behavior to happen, and we’re not going to allow the markets to function effectively. My view is, markets can be a very important way to manage costs and quality, but they have to be enforced, and the rules around monopoly behavior have to be enforced. And if we don’t have enough enforcement capability, we have to bolster that enforcement capability.

SREENIVASAN: And how do we fix that in a political environment where money is speech, so to speak, and that there are probably pretty active efforts by the people who have a vested interest in perpetuating this status quo?

DR. JHA: This is a problem, I think, across all of our economy. Look, when companies become monopolies, they love being monopolies. They can charge monopoly prices. And the whole point of our federal laws on — against monopolies is that we know consumers do better when there is healthy competition. And that should be, by the way, totally bipartisan. I mean, the idea that markets need to function and they need to function effectively should be something that Republicans and Democrats should be able to get behind. So, I’m hopeful — and we have seen, by the way, for FTC enforcement, we’ve seen good enforcement, both in under Republican and Democratic administrations. I just want to make sure that we’re really aggressively enforcing the rules that already — and laws that already exist, that I think is really important and it should really be bipartisan.

SREENIVASAN: Dr. Jha, while we have you here, you know, there have been several reports recently about upticks in cancers in people under 50, more than 10 percent. What is responsible for this?

DR. JHA: Yes, this is a concerning trend that we’ve noticed. It’s not a brand-new phenomenon. It’s been going up for some period of time. A lot of it driven by colon cancer rates going up, particularly among younger people. In terms of what we should do, it certainly means we should be screening people earlier, looking at risk factors more. You know, the question of what’s causing it, not completely clear. We do know for other kinds of cancer, obesity is a major risk factor. Obviously, rates of obesity have gone up. Smoking can be a risk factor. Thankfully, smoking rates have declined in the country, but that has also flattened in certain groups. So, I would argue that we don’t fully understand why we are seeing this increase. We need to do more research on that to understand that. But the solution here is, we’ve got to move towards more aggressive screening earlier in certain populations to identify these cancers early and deal with it.

SREENIVASAN: You know, this was not just happening in the United States, but it was also happening in parts of Western Europe and Australia. And while there might be specific demographic differences, I mean, is there sort of a sociological similarity that we can start to say, hey, but how does this compare to South Asians or South Americans or Africans?

DR. JHA: Yes, it’s a great question. And what I would argue is that right now, most of the data that is looking at this is being collected in the U.S., collected in Western Europe, Australia. So, this phenomenon may very well be happening in other places like China or South Asia or Latin America. The screening systems for cancer are not as robust in those places. And essentially, one of the things that I think countries like India, for instance, needs to do more of is starting to really put more attention screening for cancer. So, my sense is that what we’re seeing in these countries is because that’s where we’re looking, and this is probably more of a broader phenomenon, but we just don’t have the screening system set up in other places to know for sure that whether it’s happening in other places as well.

SREENIVASAN: You know, when you look from like a 30,000 or maybe five miles up view, considering how much Americans and the American health care system pays, and the fact that as good as we are, we still have so many glaring inefficiencies, deficiencies, cracks where people slip through, you know, how do we alter that? I mean, how do we try to maybe make this a little bit more of a proactive and preventative system versus a reactive system after people have the diseases?

DR. JHA: Yes, it’s — there are several things that I think are important here. One is we’ve had a payment system that has paid piecemeal. It pays for visits. It pays for doctors visit or the hospitalization. We have started a ship that actually began in the George W. Bush administration, accelerated under President Obama, but still not as far along as it needs to be, which is to move payments more towards kind of a population level payment. So, you pay the health system to take care of an entire population and you pay them to keep that population healthy. That is a — that has been a trajectory, but I think it has gone too slow. I would like to see that accelerated. The second part is something we’ve talked about, which is this importance of competition in health care. It turns out in most American health care markets, the market is very, very concentrated. There are not enough different types of doctors and hospitals. And what that has meant is that that focus on quality and prevention just hasn’t really been there. And I think more competition in the marketplace, more of a focus on a different way of paying for healthcare, all of those things can drive it. And then, obviously, there’s a role for government in a lot of European countries. We see very clear regulatory approaches that countries take on these issues. That has been less popular, I would say, in the United States. There are other ways of getting there, but that is another mechanism we could be using.

SREENIVASAN: Dr Ashish Jha, thanks so much for joining us.

DR. JHA: Thank you.