In Episode 474 of 'Relentless Health Value', host Stacey Richter interviews Dr. Yashaswini Singh, an economist and assistant professor at Brown University, about the growing influence of private equity (PE) in healthcare.
The conversation delves into the corporate transformation of medicine, highlighting the potential misalignment between business interests and patient care. Dr. Singh discusses the diverse strategies PE firms use to drive profitability, such as increasing negotiated prices, consolidating market share, employing real estate leasebacks, and emphasizing performance metrics that may not align with patient benefits.
The episode also examines the significant impacts these strategies have on physicians, including increased turnover and changes in practice patterns, as well as the broader implications for patients and communities. Dr. Singh stresses the importance of informed leadership, education, policy enforcement, and transparency to ensure that private investments ultimately benefit healthcare systems without compromising patient care.
=== LINKS ===
🔗 Show Notes with all mentioned links:
https://cc-lnk.com/EP474
✉️ Enjoy this podcast? Subscribe to the free weekly newsletter:
https://relentlesshealthvalue.com/join-the-relentless-tribe
🫙 Support the podcast with a small donation to the Tip Jar:
https://relentlesshealthvalue.com/join-the-relentless-tribe
🎤 Listen on Apple Podcasts https://podcasts.apple.com/us/podcast/feed/id892082003?ls=1
🎤 Listen on Spotify https://open.spotify.com/show/6UjgzI7bScDrWvZEk2f46b
📺 Subscribe to our YouTube channel https://www.youtube.com/@RelentlessHealthValue
=== CONNECT WITH THE RHV TEAM ===
✭ LinkedIn https://www.linkedin.com/company/relentless-health-value/
✭ Threads https://www.threads.net/@relentlesshealthvalue/
✭ Bluesky https://bsky.app/profile/relentleshealth.bsky.social
✭ X https://twitter.com/relentleshealth/
05:53 What is the tension between business and medicine?
07:05 What is the impact of private equity on healthcare?
08:46 How does healthcare change when private equity invests in medical facilities?
10:54 What are the intuitive impacts of private equity in healthcare?
12:28 What are the less intuitive effects of private equity on healthcare?
13:36 EP472 with Eric Bricker, MD.
14:15 What are the misconceptions about private equity investors acquiring healthcare facilities?
16:17 The Stew
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Episode 474, "Private Equity inHealthcare. The Big Data Points You Really
Need to Know Altogether In One Episode".
Today I speak with Yashaswini Singh, PhD.
(00:21):
American Healthcare Entrepreneurs andExecutives You Want To Know, Talking
Relentlessly Seeking Value.
Lots of talk and lots of research thesedays about private equity in healthcare.
So I am so pleased to bring youYashaswini Singh PhD, who is one of
the authors of a lot of that research.
(00:42):
Dr. Yashaswini Singh has been spending thelast several years trying to understand
the corporate transformation of medicineand the tension between medicine as a
profession and healthcare as a business.
She says the key concern here hasalways been that business obligations to
shareholders might not always align withphysician obligations to their patients.
(01:04):
In this episode, we are gonna tie upor roll up, if you will, the recurring
themes about private equity in healthcarethat are just kind of flying around
all over the place right about now.
So this show, it is a little longer thannormal maybe, but I decided not to edit
it so much because if you do decide tolisten to the whole shebang, you certainly
(01:24):
can check the box that you got, at leastthe nuts and bolts of the situation.
And look, it must be said right outtathe gate here that not all private
equity paths to profitability areinherently wrong, and that matters
because healthcare is increasinglybecoming much more capital intensive.
Money is required.
(01:44):
The problem starts happening though,when money becomes the mission in ways
that are detrimental to patient's health.
It becomes a win lose.
I'm interviewing actually, Dr. BenSchwartz coming up and he talked about
how it's a very different view, 10 feetfrom the bedside than 10,000 feet from it.
But yeah, this is healthcare that weare talking about and dollars that
(02:07):
are made are made from the sick andfrom the old or from the disabled.
You get the wrong types of folksin leadership or decision making
roles, and even the most originallypatient first strategy can devolve
into a really humanitarian disaster.
And I might not be exaggeratingwhen I say that, depending on
what's being done and to whom.
(02:28):
So again, today I am talking withYashaswini Singh, and we talk about
typical private equity paths toprofitability and how that might impact
plan sponsors, patients, for sure, andalso physicians and other clinicians.
And speaking of benefit consultantsor plan sponsors, I just wanted to
point out that if weirdly suddenlyplan costs go up 15 to 25% in some
(02:53):
local market, might wanna check whojust bought up and rolled up all of
the physician practices in that area.
It certainly could be a localor maybe not local hospital
system, but sometimes it's not.
Private equity, after all, has investedover $1 trillion in US healthcare in
the past decade, and currently thereis just such a lack of transparency
(03:14):
relative to who owns what and whatthey're doing until, of course, the
downstream effects are deeply pervasive.
To that end, Dr. Adam Brown wrote anarticle, he was on Relentless Health
Value last year, but the title ofthat article is, "Private Equity's
Growing Role in Disability CareDemands Urgent Oversight. Patients
(03:35):
Are Not Lines on a Balance Sheet".
Dr. Brown wrote, "Private equity is notinherently bad." Hey, I just said that.
"It's not inherently bad when firmsare responsible and transparent, they
can fuel innovation, expand access,and help modernize outdated systems."
But when left unchecked firms incentivesare often misaligned with the core
(03:56):
mission of healthcare to care for people.
This argument is not speculative.
In the show today, I really likehow Dr. Yashaswini Singh puts it.
She says, "You've seen one privateequity strategy. You've seen
one private equity strategy".
And because of that diversityin how PE operates, it's
slippery to get a handle on.
It's hard to grasp what may havealready happened or is underway, and
(04:19):
what's gonna happen in the future issort of hard to predict sometimes.
But it is becoming increasingly clearthat there are certain playbooks, certain
strategies that tend to be deployed byprivate equity, and some of them are
much better than others, which is whygetting a handle on these patterns in
these playbooks is a really importantconversation to be had, especially for
(04:41):
you lot in this tribe who are some ofthe key decision makers in this country
when it comes to buying or providinghealthcare or setting policies.
Because if we know these playbooks,the knowledge is power when it comes
to discerning the good kind of stufffrom the really dangerous things.
We need all of us to be working to try tomake sure that the value accruing to the
(05:02):
patient is the North Star, as Dr. SteveSchutzer puts it in, which I keep quoting.
So knowing these strategies and theirtypical impact equips you, me, us,
all of us, the listeners, to be on thealert and not get caught, you know,
flatfooted after you, we, all of us,someone has already signed the contract.
(05:23):
Because the impact of private equityis for real, and many of us don't
understand the mouse type in thecontract and the elephant size impact
that it will have on all of our livesand patients' lives until it's too late.
Yashaswini Singh, PhD is aneconomist by training my guest today.
She works as an assistantprofessor at Brown University
at the School of Public Health.
(05:44):
My name is Stacey Richter,and this podcast is sponsored
by Aventria Health Group.
Yashaswini Singh, PhD, welcometo Relentless Health Value.
Thank you so much for having me.
I love how you put it that thereis this tension between the
business of medicine and medicine.
I just saw an article about thisthe other day, as a matter of fact.
So I feel like your workis getting traction.
(06:05):
You know, it's likehuman versus spreadsheet.
Absolutely.
And if we think about medicine asthe profession, for the longest time,
medical professionals who go to medschool take the oath to do no harm to
patients, they're not really spending alot of time thinking about the business
side of things, and so this kind ofleaves a void or a gap to fill, if
you will, for those who are thinkingabout the business side of things.
(06:27):
The sophisticated financial managers, themanagerial know-how and technical know-how
on the managerial side to come in.
Yeah, and I think the point thatyou're making is if we're talking about
the business of medicine and doctorslearning the business of medicine, the
point isn't, oh, doctors should learnthe business of medicine so that they
can exploit the business of medicine.
The point is, if you don't understandthe business of medicine as a physician,
(06:51):
you're gonna leave yourself wide opento be blindsided by somebody doing
something that you only figure outwhat they're up to when it's too late.
That's right.
So private equity, which if you wannasay money with a capital M, here we are.
If you are just gonna sum up the impactof private equity on healthcare, that's
(07:11):
a big question, but is there a answer?
I'll start with saying private equity hasa pretty pervasive expansive presence,
not just in the American healthcaresystem, but the overall US economy.
Private equity firms, again, just tokind of level set a little bit here.
These refer to firms who invest in privatecompanies with the intention of delivering
(07:36):
high returns for their investors overgenerally short investment time periods.
So three to seven years.
PE is certainly not new, but healthcarehas emerged as a lucrative target
for PE in the last decade or so.
So if I were to summarize the impactsof PE, you know, it is a tough question.
But I can tell you that in thelast decade, PE firms have invested
over a trillion dollars in theAmerican healthcare system.
(07:59):
And this has ranged fromevery setting where care is
delivered from cradle to grave.
So this includes neonatal services,primary care, hospital services,
cardiology, urology, oncology,everything in between, all the way
to nursing homes, assisted livingfacilities, hospice and home health.
And so the evidence is stillunfolding partly because of the
private nature of these transactions.
(08:21):
There are very few reportingand disclosure requirements, so
PE deals in effect, can happenwithout any notifications to policy
makers or regulators and so on.
So it's really hard to understandwhere these transactions are happening
and what they mean for care delivery.
Myself and other academics inthis space have spent a lot of
time trying to understand thesequestions a little bit better.
(08:43):
So already kind of light on policy.
It sounds like.
But based on your research andothers, what have you been able to
dig up about the impact when privateequity buys up healthcare entities?
The research so far shows thatunsurprisingly, when PE firms invest
in healthcare facilities, a lot changespractices or healthcare entities
(09:05):
become more performance oriented.
Which means there's a largeemphasis on driving profitability.
This can be achieved by increasing thenegotiated prices that entities receive
from commercial insurers, increasingthe volume of profitable, lucrative
surgeries and procedures, cutting backon surgeries and procedures that might
be critical from the patient perspective,but not so great for the bottom line.
(09:28):
Also changes in staffing, workforcecomposition changes and so on.
So the list is never ending, but allof these changes serve one goal, which
is to increase the profitability of theinvestment for PE firms, which then kind
of furthers the incentive PE firms have toexit investments over short time periods.
So just to recap and also connectsome dots back to earlier episodes
(09:52):
of Relentless Health Value, because Ithink there's a lot of connectivity if
you really start thinking about this.
One thing that is very clear in healthcareis the price of something or the cost
of something, or the profitability.
If we're just thinking about this fromthe business of medicine side, the
profitability of a service has verylittle to do with the value accruing
(10:14):
to the patient of that service.
So in effect, what I'm hearing you sayis that as we start to increase, you
know, what private equities are lookingat is like, where is the business
most profitable, which is going tobe doubling down on the things that
are the highest cost, the highestprofitability, and decreasing what's
done that is less or not profitable.
(10:38):
And that may or may not be alignedwith what's actually good for patients,
which is kind of not part of this math.
But let me ask you this question.
What I just said is very intuitive.
Maybe it's very intuitive for me becauseI've just had multiple conversations
about this kind of thing in a row.
But what would you say is really theintuitive impacts of private equity.
(10:59):
Let's start with the obvious stuff.
Sure.
So I would say the intuitive thingabout private equity investments in
healthcare is that these are financialfunds who are seeking to deliver
financial returns for their investors.
So that part is intuitive, and ifyou think about how you might drive
profitability for your investors.
You can either do that byincreasing revenue, or you can
(11:20):
do that by cutting down on cost.
Now, increased revenue in healthcareoften takes the form of increasing
negotiated prices, doing more stuff,the profitable stuff that is good for
your bottom line, and then cutting coststakes the form of changes in staffing.
If you think about the largest cost inhealthcare, it's often tied to staffing.
And so it's no surprise thatstaffing is affected once PE firms
(11:43):
invest in healthcare facilities.
And you know, it's interesting becauseI was just talking to Dr. Eric Bricker,
when you decrease staff, the less timea doctor has to spend in a room with
a patient, the more tests they wind upordering faster, more scans and MRIs.
And there's a lot of correlation there,which I also thought was fascinating
that not only when you cut staff, likeyou intuitively save staffing costs, but
(12:05):
maybe unintuitive and I could be gettingahead of myself here 'cause we're gonna
talk about unintuitive and maybe this wassomething that you were gonna mention.
You do wind up jacking up profitableservice lines in ways that many doctors
themselves don't quite understandthe system is manipulating them.
Okay.
So obviously, as you just said,there's two ways to increase profit.
You're gonna increase revenue,you're gonna decrease costs.
(12:25):
Then what?
So I wanna talk about the lessintuitive part here, right?
The less intuitive thing aboutall of this is how you increase
revenue and how you cut costs.
There's no question that investors arein it to improve their profitability.
So then the question becomes, well, howexactly are investors seeking to improve
profitability within primary care, forexample, that historically, you know,
(12:47):
isn't seen as a money making area,and does that look different than how
investors might be seeking to improveprofitability from invest in hospitals?
So I know from my work, and I loveto say this, if you've seen one
private equity acquisition, you'veseen one private equity acquisition.
And what I mean by that is theinvestment strategy is so sector
specific, the profitability mechanismsare so sector specific that it's
(13:11):
really hard for a lay person tounderstand what's specific changes
come about following these investments.
So, to me, the intuitive part isalways, you know, investors are out
here to improve profitability, butwe really have to look under the
hood to understand what that means.
If you are a fertility clinic, improvingprofitability might look very different
than if you're a nursing home, whichmight then look very different than
(13:33):
if you're a retina practice and so on.
For example, in the interview actuallywith Dr. Bricker, one of the things
that we talk about is, taking advantageof provider stop-loss provisions.
It's basically a very effective wayto make lots of zeros as a hospital.
And anybody that doesn't know what I'mtalking about, go back and listen to that.
But like that is afantastic business strategy.
(13:55):
So that is kind of just one exampleof what you're talking about.
Obviously a fertility clinic isn'tgonna be doing that same thing.
Someone's gonna look through and tryto find the, maybe the weak spots
in the controls that are in place,and then, for lack of a better word,
take advantage of them, exploit them.
Yeah.
And you know, one popular misconceptionabout investments in this space is that
(14:19):
these are Wall Street bankers with nounderstanding of how healthcare operates.
And so they have no business to beinvesting or operating in healthcare.
But the reality is that a lot ofthese firms are very sophisticated
in their understanding of exactlyhow healthcare markets operate.
Exactly what regulations are inspace, how policies and regulations
(14:40):
are expected to change over time.
And so the reality could notbe farther from this, right?
Like these are not ignorantinvestors without an understanding
of how healthcare operates.
These are savvy, sophisticated investors.
Often with their own consulting armswho really take time to understand
what the landscape of each settingthey're investing in looks like.
(15:01):
I'll give you another example, right?
We talked about how PE strategy canlook so different across settings.
Just as an example of that, privateequity investors in hospitals
and nursing homes, for example,often use real estate leasebacks.
So you just said PE strategy canlook different in different areas
and for hospitals and nursing homes,they use real estate leasebacks.
(15:24):
What's a real estate leaseback?
So what that means is, you know, theymight enter into a transaction and
immediately follow that with a purchase ofthe real estate that a hospital sits on.
You think about hospitals thatoccupy blocks and blocks of really
valuable real estate in downtownPhiladelphia and downtown Boston.
Following a PE investment, the investormight take over the real estate and
(15:48):
then lease it back to the entity.
So not only from the hospitalperspective have they lost out on
their most valuable asset, theynow have to make rental payments on
something that they previously owned.
So in that example, the PE investorhas already realized on their expected
profitability without making anyoperational or managerial changes.
Yeah.
It sounds like a really cheap way tobuy downtown valuable real estate.
(16:10):
The price of the whole hospitalmight actually be less than the
price of the underlying real estate.
Wow.
That's exactly right.
And we've seen that exact thing unfoldin Massachusetts with the Steward Saga.
But what we forget is before Steward,there was Hahnemann Hospital in
Philadelphia and there are hundreds ifnot more, of hospitals that have similar
(16:32):
experiences that are waiting to unfold.
But then if you contrast that withPE investments in other settings,
physician practices, for example, whichI spend a lot of my time thinking and
reading and studying, the physicianpractice strategy for PE firms has
always been that of consolidation.
You might have heard of this beingreferred to as platform and add-on
consolidation or roll up consolidation,but the strategy followed by PE
(16:55):
firms is straightforward and itjust involves gradually increasing
market share by rolling up smallerentities, smaller physician
practices, into one platform umbrella.
So real estate is not the play here.
The play is more related to consolidatingmarket share, increasing market share,
and then using that leverage to negotiatehigher prices from commercial payers.
(17:16):
Yeah, there's playbooks here and, andit definitely feels like two big ones
are figure out who's got the real estateand then go get it, lease it back.
Like there's a, the hospital inPennsylvania there, there's so
many examples of that happening.
And like the Hahnemann in Philadelphiawas really sad because it was really
an essential safety net hospital.
And I think it's out of business now.
(17:38):
Like there was some drama, but nowthis community has no hospital.
But you know, someone figured out thebest way to make profit off of that.
It's a legit way to returndollars to investors.
So that's sort of one playbook.
And then the other playbook, as you said,which again, it's just taking playbooks
from other industries and transferringthem over to healthcare is do a roll up.
(18:02):
So you have market power, you're creatinga regional monopoly, like that's kind
of the goal and yeah, sure, that works.
That's exactly right.
They are not here to lookout for patient wellbeing.
If that is a side effect of thestrategies that they deploy to
serve their investors, that's fine.
But, none of this shouldbe a surprise to us.
You know, investors are sophisticatedin identifying profitability strategies.
(18:26):
These strategies look differentacross healthcare settings.
Then the question is, you know, wheredoes the patient and the healthcare
worker fit into all of this?
Are they just collateral damageor should we be doing more
to safeguard their interests.
So before we get too far, 'cause I'm,I'm gonna ask you very specifically, like
what some of the impacts on the groundare for both physicians, because there's
(18:48):
certainly a lot of research, some ofwhich you have done, which I definitely
wanna talk about, about like what happenswhen PE buys a physician practice.
Like what's the impact on doctors,but then also on patients.
But I do just wanna take a moment hereand say, like you also have private
equity standing up, digital health.
Are there any examples wherevis-a-vis some playbook strategy,
(19:14):
something good happened?
Like we, we've talked about twoexamples, which kind of clearly you
sort of see how it doesn't go wellfrom a physician standpoint and a
patient standpoint intuitively, butmaybe is there another example here?
Theoretically, at least, there's anargument that the current healthcare
system in the United States has too manythings that are wrong with it, right?
(19:36):
There are redundancies and there'sso much waste and inefficiencies, and
so some might say that private equityfirms with their emphasis on driving
efficiencies are here to rectify someof the issues with the healthcare
system that can be so frustrating forconsumers and patients of healthcare.
The reality though, is that the empiricalliterature hasn't really documented
(20:01):
any of these purported benefitsfor patients or healthcare workers.
There are some examples of maybevery specific sectors that are
characterized by specific marketattributes where PE can be beneficial.
So one example is in the fertility space,for example, which again looks very
different than the rest of healthcare.
(20:22):
You know, there's more qualitytransparency you can kind of shop around.
It's more retail in nature.
In that sector there's some early evidencethat suggests private equity firms
and chain ownership might facilitateknowledge transfers that help doctors
understand kind of what the best practicescutting edge technology looks like.
And then that can generate somebeneficial outcomes for patients.
(20:44):
But I'm a little wary of generalizingthat to other settings in healthcare.
Fertility services can look sodifferent than most of the healthcare
services a lay patient utilizes.
I could see there could certainly beopportunities to improve efficiency,
but there also would be a siren callonce an inefficiency is discovered,
to exploit that inefficiency.
(21:05):
Because as we know, when you startpaying for volume, inefficiency
is not necessarily not rewarded.
So, yeah, I could definitely see thatit would take a certain individual.
Tom Lee, Dr. Tom Lee on the show severalmonths ago, he definitely talked about
this and the one thing that he said is,when dealing with private equity, like
you might need money because if youdon't have the money, you can't scale.
(21:29):
But if you want to be able to do thisin such a way where the business side
doesn't start to dominate the missionside, you have to have a guy like
Dr. Tom Lee who's able to explainwhat the direction of the company is.
And also figure out how tocommunicate that ultimately this
is gonna be better for investors,that there can be a win-win.
(21:50):
So I think one of the lessons that Iam kind of seeing here, just like you
said, that you've seen one private equityinvestment, you've seen one private,
like another variable just relative towhat their ultimate impact is positive
or negative on patients and physiciansin the practice is gonna be, who's the
leadership in the organization and howgood are they at not getting shoved
(22:11):
down a path which is detrimental.
The other thing that I have heard isalso just, you know, competition will
always ultimately have a positive impact.
If you have a private equity firmthat is now competing with a local,
huge, consolidated health system, it'sactually possible that that private
(22:32):
equity investment could create a morefunctioning market and kind of chip
away at the existing monopoly becausenow the local hospital has competition.
This has actually come upin several podcasts lately.
Ge Bai mentioned it for sure,Chris Crawford, and then also
Dr. Rushika Fernandopulle talkedabout this as a potential benefit
(22:52):
of private equity in those shows.
Yeah, I really agree with you there.
You know, I definitelythink there is a win-win.
I wanna be clear that there is certainlya need for private investment in
healthcare, particularly in areaslike primary care, where it's just so
impossible for an independent primarycare physician to not only compete,
but also just remain financially viableand operate and open to patients.
(23:17):
And so there's this need for privateinvestment, which private equity firms
have realized and are seeking to fill.
And that need is justified.
But at the same time, there are veryreal tangible impacts for patients and
healthcare workers that are undesirable.
And so then, you know, from myperspective, the policy question is
how can we design a healthcare systemwhere you're incentivizing private
(23:39):
capital to enter areas where there'sa demonstrated need, but at the same
time putting guardrails and checksand balances to make sure some of
the worst outcomes for patients andhealthcare workers are in check.
And I think I agree with youthere, like the leadership of
organizations plays a big role here.
And I would argue that not only doesgood lead leadership make a difference,
(24:01):
but also informed leadership.
And in my conversations with doctors,and other healthcare leaders, it's not
always clear to me that entities havethe information they need to enter into
these partnerships in an informed manner.
One might say that it's too much.
It's an unrealistic burden to placeon physicians to ask them to be
(24:21):
well-versed in contract law and askthem to be well-versed in kind of all
of the financial maneuverings thatPE firms might bring into a practice.
But I do think there's more we can do tojust create more awareness and information
transparency around what it means topartner with a PE firm, what it means
to bring an investor on board, and whatchanges can you reasonably expect in the
(24:42):
six month horizon, the one year horizon.
And then longer term when the initialPE firm exits the investment and
maybe brings a new firm on board.
Yeah, it definitely sounds like one ofthose things, if you're not educated on
contract law before you go in, you'regonna get educated on it afterwards,
so it's just a matter of timing.
Just to recap and then I definitelykind of wanna get into the potential
(25:03):
impacts for physicians and patients, butbefore we do, we're kind of assembling
a to-do list, if you will, to make surethat private equity is a force of good.
The value of their money is realizedas much as possible by patients
and the clinicians who are reallytrying to serve those patients.
And it sounds like being aware,first of all, just being educated
(25:24):
and being aware of what is happeninghere and having no illusions
about the goal of the other party.
Capital is needed.
What is that Danny DeVito quote?
Everybody wants money.
That's why they call it money, right?
Like it's, it is actually essential.
You cannot have a mission withoutthe margin, but if we're thinking
about the why, like what happens whenprivate equity tends to take over that
(25:48):
doctors probably should be aware of?
I spend a lot of my time studyingthese effects of how private equity
investments change physician practicepatterns and what that means for patients.
In brief, when PE firms acquire physicianpractices, the cost of care goes up.
And so this takes the form ofprice increases in the ballpark
of 10 to 25% depending on theclinical area you look at.
(26:12):
At the same time, there's also evidencethat I've shown in my work that doctors
are made to see more patients domore tests like diagnostic imaging
services and blood draws and so on.
Things we talked about earlier.
And oftentimes this increasein testing and imaging services
has unclear patient benefit.
Now, on the workforce side, we'vealso seen that given the importance
(26:36):
of staffing in shaping your practicecosts, a key area that investors look
to to cut costs is around staffing,around workforce composition and so on.
So along those veins, we've seen that wheninvestors acquire physician practices,
there are a couple of changes thathappen to the healthcare workforce.
First, there's a greater relianceon advanced practice providers,
(26:59):
nurse practitioners, physicianassistants, and so on, because
oftentimes they can be cheaper to hireand employed than physician staff.
At the same time because there's, youknow, a lot of performance oriented
changes that are brought into thepractice, this might create undesirable
employment conditions for some physicians,and then it's no surprise that we've
seen an increase in physician turnover.
(27:21):
I had a recent study come out inthe journal, Health Affairs with
co-authors from Brown that showedfollowing private equity acquisitions of
physician practices, physician turnoverincreases from 4% to over 20% in the
three years following acquisition.
So just think about thatfor a second, right?
That's a fifth of your practicethat is leaving every single year
(27:42):
after private equity investments.
So what does that mean for carecontinuity if you're a patient.
What does that mean for subsequentemployment if you're a physician.
These are all important questions that weshould be thinking about and physicians
should be thinking about when theychoose to engage in such partnerships.
That's nuts.
So I'm just gonna start fromthe end and work backwards.
(28:03):
You have 20% of physiciansturning over after a PE takeover.
That's right.
And PE deploys a platform and add-onconsolidation model, which means that
in certain areas there might not be alot of non-PE practices for you to go to
if you are one of those 20% physicianswho are looking to exit PE practices.
(28:26):
I've talked with a lot of physiciansthat you know have shaped and informed
my work, and anecdotally I've heardthat physician turnover often takes
the form of physicians having to leavestates and moving across the country
and search for alternative employment.
And so this can be really disruptivedepending on you know, what career stage
you're at, depending on other factorsthat shape employment decisions and also
(28:50):
really disruptive for your patient panel.
Yeah, you know, I never really thoughtabout that before, but you know, maybe
this goes in the not so intuitive, rightout of the gate category of impact, but
it's pretty obvious what the impact ison a community when prices are going
up 10 to 25% when there's increases in,you know, as we were talking about for
(29:13):
profitable things like imaging and towhat ends question mark when throughput,
you know, visits start getting shorterand shorter because throughput is being
pushed when you start having, this is howworking at the top of your license became
a euphemism for maybe not so great stuff.
All these things, it's really clearwhat the impact of some of this
consolidation or some of theseother things has on the community.
(29:37):
But what I never really thought aboutis, if you have one entity that owns
all the practices in an area thatreally limits the options for doctors.
That's right.
And you know, this is amplified by theuse of agreements to non-compete and
non-compete and non-disclosure agreementsare very commonly deployed in employment
(29:59):
agreements between PE acquired entitiesand physicians that they employ.
And so not only might there be very fewnon-PE employment alternatives for a
physician, the physician might also bethen constrained by how far they need to
travel for in order to seek alternativeemployment arrangements, right?
Non-competes in healthcare often stipulatea geographic radius and a time period,
(30:22):
within which you cannot either join acompetitor or start your own practice.
In some cases, these can be asexpensive as a hundred miles.
And so a hundred miles can look verydifferent depending on where you are.
It could require you tomove across multiple states.
And then who's hiring there?
Is it another PE practice?
Increasingly with the growth ofPE investors and consolidation in
(30:44):
physician practices, increasinglywe're seeing specific regions
experience a decline in non-PEemployment opportunities for doctors.
One of the things that you mentionedin there that probably has an
outsize impact is just you weretalking about the performance
platforms that get put into place.
We talk a lot about burnout and wetalk a lot about moral injury, but
(31:05):
if there is a performance platformthat's being put in place, this
could be certainly one of those areaswhere a mission-driven individual who
intuitively understands the value andthe importance of garnering trust with
patients and spending time and havingrelationships like that's hard to count.
So now you're on this performance platformthat is just a throughput machine.
(31:30):
This could certainly result in a verydemoralizing environment where there
is a misalignment in objectives.
And that's rough.
I couldn't agree more.
You know the number of stories I'veheard from physicians who say their
contracts say if you do just makingsomething up right now, you know, a
(31:51):
hundred thousand injections, you getrewarded with an X dollar bonus per year.
At the same time, if you see a hundredpatients, you get rewarded with a certain
bonus that correlates to that volume.
That is so at odds with if you talk withphysicians and ask them what they truly
value, more often than not you hear it'sspending time with the patient, right?
(32:11):
Fostering that trust in thephysician patient relationship is
what at the end of the day, a lotof physicians get into medicine for.
But, increasingly the emphasis on theperformance oriented nature of the
practice of medicine is taking awayfrom what physicians value and derive
most joy from and most wellbeingand sort of job satisfaction from.
(32:31):
If I'm a doc who values the doctorpatient relationship, I can see how
this would be horrifying to have todeal with a financial incentive that may
not be in my patient's best interest.
That's exactly right.
And I've even heard, you know, ofweekly emails that go out at some
of these practices that kind of rankdifferent physicians against each
other, kind of like a scoreboard.
So you can see where you're atcompared to your colleagues.
(32:54):
Oh wow.
It's exactly like "GlennGary GlenRoss", except instead of ABC, Always Be
Closing, it's ABI, Always Be Injecting.
It's certainly one way to driveefficiencies, but then the broader
question is, is that the type ofhealthcare system we're comfortable with.
And as patients, if our healthcaredecisions are being influenced by
(33:15):
that type of incentive mechanism isthat something we're comfortable with?
Yeah, good question.
Is that something thatwe're comfortable with?
It also really reminds me of thoseaccusations of pill mills that some of
the private equity backed behavioralhealth entities got accused of, of being.
Alright, so what to do about this?
And we've already, we'vestarted our list here.
We have a few thingsthat are already on it.
(33:37):
We talked about making sure thatthere is in fact a way for physicians
or anyone with a, with a practice toget educated on what's gonna happen
in order to make sure that there arecontract terms and preventative things
that are put in place to mitigatethe negative as much as possible.
Or at least if we're making adevil's bargain, we know what
(33:57):
we're getting ourselves into.
And then you did also talk about policy,which can be like, Hey, we'll welcome
the money 'cause we need the money.
But at the same time,there's guardrails for PE.
So, you know, tables geta little bit turned there.
What am I missing?
Yeah, so, you know, I wouldagain, emphasize that the PE
strategy is so sector specific.
(34:19):
And so it's really important thatwe're aware of the specific policy
concern we want to address withpolicy levers and policy tools.
And so as an example, if everythingwe've talked about makes you
concerned about consolidation, thena policy remedy for that is greater
antitrust enforcement and scrutiny.
This can be done by the federal antitrustauthorities, the Department of Justice
(34:40):
and the Federal Trade Commission,but also increasingly we've seen a
lot of states take the lead here withgreater authority and greater momentum
from the office of the AttorneyGeneral, Healthcare Commissions and
so on, wanting to shed more light onPE practices in healthcare markets.
Now, as another example, if you're notconcerned about consolidation, but you're
concerned about physician autonomy, andhow these financial forces might conflict
(35:05):
with physician autonomy, then what we'retalking about isn't related to antitrust.
What we're talking about has moreto do with guardrails around the
corporate practice of medicine.
Now, the corporate practiceof medicine doctrine exists
across a handful of states.
And in theory, they're supposedto prevent the corporate influence
of corporate actors over howphysicians practice medicine.
(35:26):
I say in theory because in practice wehaven't really seen these restrictions
to have any material impact oneither slowing down or preventing
corporate actors in medicine.
And so there's some room there totake a closer look at the current
status of corporate practice, ofmedicine doctrines, and bring them
into the current climate, the currentlandscape, because the practice of
(35:46):
medicine now is very different thanwhen these doctrines are put in place.
And then finally, ownershiptransparency is something that is
the lowest of hanging fruits here.
You cannot solve aproblem, you cannot see.
You cannot even agree on the magnitudeof a problem if you don't have data
to track these trends and understandwhere PE investors are in healthcare.
(36:07):
Is this something evento be disproportionately
concerned about and so on?
And so requiring more transparency ofownership structures, not just limited
to private equity firms, but othertypes of corporate entities that might
be investing in healthcare, we'll goa long way in helping us understand
just how much of this is somethingthat we need to be concerned about.
So we've got education, we've gotpolicy that we've talked about.
(36:30):
Then also, as you said, if consolidationis a concern, what are we doing
relative to antitrust to preventsome of these monopolies and all the
downstream impact that they may have.
Then also governance of thecorporate practice of medicine.
Like we've already said, doctorscan't own hospitals, right?
So maybe some doctors did some thingsand that's how that wound up happening.
(36:52):
And I know there's strongfeelings about that.
But if we're gonna say, Hey, doctors can'town hospitals, then okay, now you've got
a corporation opening a hospital and theyalso have, there's some issues there.
So how are we governing that?
You talked about ownership,transparency, which is nuts.
Just how not transparent, it'sjust like boards on hospitals.
Like go try to figure out forsome of these hospitals who's on
(37:12):
the board, it's the same thing.
Go try to figure out who owns thehospital even, or who owns some of these
practices like that should be availableif you just think about it logically.
Yeah.
And you know, policymakers and regulatorsare increasingly realizing that this
is something that they cannot ignore.
So there's agreement that this is atrend that warrants greater attention.
(37:33):
There's less of an agreement onwhat needs to be done about it.
Because they often don'tknow, is this a 2% problem?
Is this a 52% problem or are 100% ofall doctors in this specialty in my
constituency employed by PE firms, right?
There's just very littleawareness around those numbers.
But not only policymakers and regulators,many times, even doctors themselves
(37:54):
don't know who the ultimate parententities that own a practice are.
And so if you are a doctor or if you'rea resident entering this profession in
your evaluating your different employmentoptions, you might not even know what
you're entering into because of the lackof awareness and lack of transparency.
Well, at least nationwide, weknow it's a $1 trillion impact.
(38:15):
I think you'd said PE hasinvested over $1 trillion in US
healthcare in the past decade.
The other thing I could thinkof is that if you do have
doctor practices who need cash.
Maybe another thing to do would beto offer the opportunity for these
doctors to get money some other way.
That's such a great idea, right?
I mean, a driving force behind allof these trends that we've talked
(38:38):
about is the simple fact that thepractice of medicine has become
increasingly complicated, andpracticing medicine as an independent
practitioner has become just impossible.
So you're right that making it easierfor doctors to practice independently
should be a policy priority as well.
And in fact, just last year, Indianapassed a law to offer tax credits
(38:59):
to physicians, particularly inprimary care if they're seeking
to do that themselves, right?
So this idea that.
If the only option available tophysicians to practice medicine is
to partner with a financial investor,like a private equity firm or become an
employee of a hospital or health system,those should not be the only options
(39:20):
available to physicians if they want topractice medicine in today's landscape.
There are alternative strategies thatwill make it easier for independent
physicians to remain independent, ifin fact that is what they choose to do.
So some kind of like smallbusiness medical loan so that you
can get capital without so manystrings attached it sounds like.
That's exactly right.
Is there anything that weneglected to talk about that
(39:43):
you want to mention right now?
I'll just say this has been sucha great conversation and I wanna
emphasize that private equity firmsreflect this broader trend towards
the corporatization of medicine.
They aren't the only entities that arereshaping the way medicine is practiced.
You have hospitals buyingup doctor practices.
You have large conglomerates likeCVS, Aetna and so on, and so it's
(40:06):
going to be a very interesting timeto see how these forces interact
and evolve with each other.
Private equity in particular investsin healthcare and all sectors,
but in healthcare specificallywith the incentive to exit.
And so as we think about what exitlooks like, what exit means, there
might be more potential for us tosee these different types of forces
(40:29):
interacting with each other, right?
If a PE firm exits their investmentby selling to a health insurance
subsidiary or a hospital, is thatsomething we should be differentially
concerned about than if a PE firmis just selling to another PE firm?
So these are all forces that we'll belooking to in the future, certainly from
a research perspective, but also will beimportant for practitioners to consider.
Yashaswini Singh, PhD. Thankyou so much for being on
(40:53):
Relentless Health Value today.
Thank you so much.
This was great fun.
I'm Peter Hayes.
I'm the principal of HealthcareSolutions and have been involved
in healthcare for 30 plus years.
I encourage everyone to sign up forthe Relentless Health Newsletter.
It's just a great source of what'shappening in healthcare today.
To me, it's the most trusted source thatI use to really try to stay current with
(41:15):
the complexities of the healthcare system.
So thank you everyone, and I hopeyou listen and start the good
fight and try to make healthcarea little bit better for all of us.
Thank you.
Episode 474, "Private Equity inHealthcare. The Big Data Points You Really
Need to Know Altogether In One Episode".
Today I speak with Yashaswini Singh, PhD.
(00:21):
American Healthcare Entrepreneurs andExecutives You Want To Know, Talking
Relentlessly Seeking Value.
Lots of talk and lots of research thesedays about private equity in healthcare.
So I am so pleased to bring youYashaswini Singh PhD, who is one of
the authors of a lot of that research.
(00:42):
Dr. Yashaswini Singh has been spending thelast several years trying to understand
the corporate transformation of medicineand the tension between medicine as a
profession and healthcare as a business.
She says the key concern here hasalways been that business obligations to
shareholders might not always align withphysician obligations to their patients.
(01:04):
In this episode, we are gonna tie upor roll up, if you will, the recurring
themes about private equity in healthcarethat are just kind of flying around
all over the place right about now.
So this show, it is a little longer thannormal maybe, but I decided not to edit
it so much because if you do decide tolisten to the whole shebang, you certainly
(01:24):
can check the box that you got, at leastthe nuts and bolts of the situation.
And look, it must be said right outtathe gate here that not all private
equity paths to profitability areinherently wrong, and that matters
because healthcare is increasinglybecoming much more capital intensive.
Money is required.
(01:44):
The problem starts happening though,when money becomes the mission in ways
that are detrimental to patient's health.
It becomes a win lose.
I'm interviewing actually, Dr. BenSchwartz coming up and he talked about
how it's a very different view, 10 feetfrom the bedside than 10,000 feet from it.
But yeah, this is healthcare that weare talking about and dollars that
(02:07):
are made are made from the sick andfrom the old or from the disabled.
You get the wrong types of folksin leadership or decision making
roles, and even the most originallypatient first strategy can devolve
into a really humanitarian disaster.
And I might not be exaggeratingwhen I say that, depending on
what's being done and to whom.
(02:28):
So again, today I am talking withYashaswini Singh, and we talk about
typical private equity paths toprofitability and how that might impact
plan sponsors, patients, for sure, andalso physicians and other clinicians.
And speaking of benefit consultantsor plan sponsors, I just wanted to
point out that if weirdly suddenlyplan costs go up 15 to 25% in some
(02:53):
local market, might wanna check whojust bought up and rolled up all of
the physician practices in that area.
It certainly could be a localor maybe not local hospital
system, but sometimes it's not.
Private equity, after all, has investedover $1 trillion in US healthcare in
the past decade, and currently thereis just such a lack of transparency
(03:14):
relative to who owns what and whatthey're doing until, of course, the
downstream effects are deeply pervasive.
To that end, Dr. Adam Brown wrote anarticle, he was on Relentless Health
Value last year, but the title ofthat article is, "Private Equity's
Growing Role in Disability CareDemands Urgent Oversight. Patients
(03:35):
Are Not Lines on a Balance Sheet".
Dr. Brown wrote, "Private equity is notinherently bad." Hey, I just said that.
"It's not inherently bad when firmsare responsible and transparent, they
can fuel innovation, expand access,and help modernize outdated systems."
But when left unchecked firms incentivesare often misaligned with the core
(03:56):
mission of healthcare to care for people.
This argument is not speculative.
In the show today, I really likehow Dr. Yashaswini Singh puts it.
She says, "You've seen one privateequity strategy. You've seen
one private equity strategy".
And because of that diversityin how PE operates, it's
slippery to get a handle on.
It's hard to grasp what may havealready happened or is underway, and
(04:19):
what's gonna happen in the future issort of hard to predict sometimes.
But it is becoming increasingly clearthat there are certain playbooks, certain
strategies that tend to be deployed byprivate equity, and some of them are
much better than others, which is whygetting a handle on these patterns in
these playbooks is a really importantconversation to be had, especially for
(04:41):
you lot in this tribe who are some ofthe key decision makers in this country
when it comes to buying or providinghealthcare or setting policies.
Because if we know these playbooks,the knowledge is power when it comes
to discerning the good kind of stufffrom the really dangerous things.
We need all of us to be working to try tomake sure that the value accruing to the
(05:02):
patient is the North Star, as Dr. SteveSchutzer puts it in, which I keep quoting.
So knowing these strategies and theirtypical impact equips you, me, us,
all of us, the listeners, to be on thealert and not get caught, you know,
flatfooted after you, we, all of us,someone has already signed the contract.
(05:23):
Because the impact of private equityis for real, and many of us don't
understand the mouse type in thecontract and the elephant size impact
that it will have on all of our livesand patients' lives until it's too late.
Yashaswini Singh, PhD is aneconomist by training my guest today.
She works as an assistantprofessor at Brown University
at the School of Public Health.
(05:44):
My name is Stacey Richter,and this podcast is sponsored
by Aventria Health Group.
Yashaswini Singh, PhD, welcometo Relentless Health Value.
Thank you so much for having me.
I love how you put it that thereis this tension between the
business of medicine and medicine.
I just saw an article about thisthe other day, as a matter of fact.
So I feel like your workis getting traction.
(06:05):
You know, it's likehuman versus spreadsheet.
Absolutely.
And if we think about medicine asthe profession, for the longest time,
medical professionals who go to medschool take the oath to do no harm to
patients, they're not really spending alot of time thinking about the business
side of things, and so this kind ofleaves a void or a gap to fill, if
you will, for those who are thinkingabout the business side of things.
(06:27):
The sophisticated financial managers, themanagerial know-how and technical know-how
on the managerial side to come in.
Yeah, and I think the point thatyou're making is if we're talking about
the business of medicine and doctorslearning the business of medicine, the
point isn't, oh, doctors should learnthe business of medicine so that they
can exploit the business of medicine.
The point is, if you don't understandthe business of medicine as a physician,
(06:51):
you're gonna leave yourself wide opento be blindsided by somebody doing
something that you only figure outwhat they're up to when it's too late.
That's right.
So private equity, which if you wannasay money with a capital M, here we are.
If you are just gonna sum up the impactof private equity on healthcare, that's
(07:11):
a big question, but is there a answer?
I'll start with saying private equity hasa pretty pervasive expansive presence,
not just in the American healthcaresystem, but the overall US economy.
Private equity firms, again, just tokind of level set a little bit here.
These refer to firms who invest in privatecompanies with the intention of delivering
(07:36):
high returns for their investors overgenerally short investment time periods.
So three to seven years.
PE is certainly not new, but healthcarehas emerged as a lucrative target
for PE in the last decade or so.
So if I were to summarize the impactsof PE, you know, it is a tough question.
But I can tell you that in thelast decade, PE firms have invested
over a trillion dollars in theAmerican healthcare system.
(07:59):
And this has ranged fromevery setting where care is
delivered from cradle to grave.
So this includes neonatal services,primary care, hospital services,
cardiology, urology, oncology,everything in between, all the way
to nursing homes, assisted livingfacilities, hospice and home health.
And so the evidence is stillunfolding partly because of the
private nature of these transactions.
(08:21):
There are very few reportingand disclosure requirements, so
PE deals in effect, can happenwithout any notifications to policy
makers or regulators and so on.
So it's really hard to understandwhere these transactions are happening
and what they mean for care delivery.
Myself and other academics inthis space have spent a lot of
time trying to understand thesequestions a little bit better.
(08:43):
So already kind of light on policy.
It sounds like.
But based on your research andothers, what have you been able to
dig up about the impact when privateequity buys up healthcare entities?
The research so far shows thatunsurprisingly, when PE firms invest
in healthcare facilities, a lot changespractices or healthcare entities
(09:05):
become more performance oriented.
Which means there's a largeemphasis on driving profitability.
This can be achieved by increasing thenegotiated prices that entities receive
from commercial insurers, increasingthe volume of profitable, lucrative
surgeries and procedures, cutting backon surgeries and procedures that might
be critical from the patient perspective,but not so great for the bottom line.
(09:28):
Also changes in staffing, workforcecomposition changes and so on.
So the list is never ending, but allof these changes serve one goal, which
is to increase the profitability of theinvestment for PE firms, which then kind
of furthers the incentive PE firms have toexit investments over short time periods.
So just to recap and also connectsome dots back to earlier episodes
(09:52):
of Relentless Health Value, because Ithink there's a lot of connectivity if
you really start thinking about this.
One thing that is very clear in healthcareis the price of something or the cost
of something, or the profitability.
If we're just thinking about this fromthe business of medicine side, the
profitability of a service has verylittle to do with the value accruing
(10:14):
to the patient of that service.
So in effect, what I'm hearing you sayis that as we start to increase, you
know, what private equities are lookingat is like, where is the business
most profitable, which is going tobe doubling down on the things that
are the highest cost, the highestprofitability, and decreasing what's
done that is less or not profitable.
(10:38):
And that may or may not be alignedwith what's actually good for patients,
which is kind of not part of this math.
But let me ask you this question.
What I just said is very intuitive.
Maybe it's very intuitive for me becauseI've just had multiple conversations
about this kind of thing in a row.
But what would you say is really theintuitive impacts of private equity.
(10:59):
Let's start with the obvious stuff.
Sure.
So I would say the intuitive thingabout private equity investments in
healthcare is that these are financialfunds who are seeking to deliver
financial returns for their investors.
So that part is intuitive, and ifyou think about how you might drive
profitability for your investors.
You can either do that byincreasing revenue, or you can
(11:20):
do that by cutting down on cost.
Now, increased revenue in healthcareoften takes the form of increasing
negotiated prices, doing more stuff,the profitable stuff that is good for
your bottom line, and then cutting coststakes the form of changes in staffing.
If you think about the largest cost inhealthcare, it's often tied to staffing.
And so it's no surprise thatstaffing is affected once PE firms
(11:43):
invest in healthcare facilities.
And you know, it's interesting becauseI was just talking to Dr. Eric Bricker,
when you decrease staff, the less timea doctor has to spend in a room with
a patient, the more tests they wind upordering faster, more scans and MRIs.
And there's a lot of correlation there,which I also thought was fascinating
that not only when you cut staff, likeyou intuitively save staffing costs, but
(12:05):
maybe unintuitive and I could be gettingahead of myself here 'cause we're gonna
talk about unintuitive and maybe this wassomething that you were gonna mention.
You do wind up jacking up profitableservice lines in ways that many doctors
themselves don't quite understandthe system is manipulating them.
Okay.
So obviously, as you just said,there's two ways to increase profit.
You're gonna increase revenue,you're gonna decrease costs.
(12:25):
Then what?
So I wanna talk about the lessintuitive part here, right?
The less intuitive thing aboutall of this is how you increase
revenue and how you cut costs.
There's no question that investors arein it to improve their profitability.
So then the question becomes, well, howexactly are investors seeking to improve
profitability within primary care, forexample, that historically, you know,
(12:47):
isn't seen as a money making area,and does that look different than how
investors might be seeking to improveprofitability from invest in hospitals?
So I know from my work, and I loveto say this, if you've seen one
private equity acquisition, you'veseen one private equity acquisition.
And what I mean by that is theinvestment strategy is so sector
specific, the profitability mechanismsare so sector specific that it's
(13:11):
really hard for a lay person tounderstand what's specific changes
come about following these investments.
So, to me, the intuitive part isalways, you know, investors are out
here to improve profitability, butwe really have to look under the
hood to understand what that means.
If you are a fertility clinic, improvingprofitability might look very different
than if you're a nursing home, whichmight then look very different than
(13:33):
if you're a retina practice and so on.
For example, in the interview actuallywith Dr. Bricker, one of the things
that we talk about is, taking advantageof provider stop-loss provisions.
It's basically a very effective wayto make lots of zeros as a hospital.
And anybody that doesn't know what I'mtalking about, go back and listen to that.
But like that is afantastic business strategy.
(13:55):
So that is kind of just one exampleof what you're talking about.
Obviously a fertility clinic isn'tgonna be doing that same thing.
Someone's gonna look through and tryto find the, maybe the weak spots
in the controls that are in place,and then, for lack of a better word,
take advantage of them, exploit them.
Yeah.
And you know, one popular misconceptionabout investments in this space is that
(14:19):
these are Wall Street bankers with nounderstanding of how healthcare operates.
And so they have no business to beinvesting or operating in healthcare.
But the reality is that a lot ofthese firms are very sophisticated
in their understanding of exactlyhow healthcare markets operate.
Exactly what regulations are inspace, how policies and regulations
(14:40):
are expected to change over time.
And so the reality could notbe farther from this, right?
Like these are not ignorantinvestors without an understanding
of how healthcare operates.
These are savvy, sophisticated investors.
Often with their own consulting armswho really take time to understand
what the landscape of each settingthey're investing in looks like.
(15:01):
I'll give you another example, right?
We talked about how PE strategy canlook so different across settings.
Just as an example of that, privateequity investors in hospitals
and nursing homes, for example,often use real estate leasebacks.
So you just said PE strategy canlook different in different areas
and for hospitals and nursing homes,they use real estate leasebacks.
(15:24):
What's a real estate leaseback?
So what that means is, you know, theymight enter into a transaction and
immediately follow that with a purchase ofthe real estate that a hospital sits on.
You think about hospitals thatoccupy blocks and blocks of really
valuable real estate in downtownPhiladelphia and downtown Boston.
Following a PE investment, the investormight take over the real estate and
(15:48):
then lease it back to the entity.
So not only from the hospitalperspective have they lost out on
their most valuable asset, theynow have to make rental payments on
something that they previously owned.
So in that example, the PE investorhas already realized on their expected
profitability without making anyoperational or managerial changes.
Yeah.
It sounds like a really cheap way tobuy downtown valuable real estate.
(16:10):
The price of the whole hospitalmight actually be less than the
price of the underlying real estate.
Wow.
That's exactly right.
And we've seen that exact thing unfoldin Massachusetts with the Steward Saga.
But what we forget is before Steward,there was Hahnemann Hospital in
Philadelphia and there are hundreds ifnot more, of hospitals that have similar
(16:32):
experiences that are waiting to unfold.
But then if you contrast that withPE investments in other settings,
physician practices, for example, whichI spend a lot of my time thinking and
reading and studying, the physicianpractice strategy for PE firms has
always been that of consolidation.
You might have heard of this beingreferred to as platform and add-on
consolidation or roll up consolidation,but the strategy followed by PE
(16:55):
firms is straightforward and itjust involves gradually increasing
market share by rolling up smallerentities, smaller physician
practices, into one platform umbrella.
So real estate is not the play here.
The play is more related to consolidatingmarket share, increasing market share,
and then using that leverage to negotiatehigher prices from commercial payers.
(17:16):
Yeah, there's playbooks here and, andit definitely feels like two big ones
are figure out who's got the real estateand then go get it, lease it back.
Like there's a, the hospital inPennsylvania there, there's so
many examples of that happening.
And like the Hahnemann in Philadelphiawas really sad because it was really
an essential safety net hospital.
And I think it's out of business now.
(17:38):
Like there was some drama, but nowthis community has no hospital.
But you know, someone figured out thebest way to make profit off of that.
It's a legit way to returndollars to investors.
So that's sort of one playbook.
And then the other playbook, as you said,which again, it's just taking playbooks
from other industries and transferringthem over to healthcare is do a roll up.
(18:02):
So you have market power, you're creatinga regional monopoly, like that's kind
of the goal and yeah, sure, that works.
That's exactly right.
They are not here to lookout for patient wellbeing.
If that is a side effect of thestrategies that they deploy to
serve their investors, that's fine.
But, none of this shouldbe a surprise to us.
You know, investors are sophisticatedin identifying profitability strategies.
(18:26):
These strategies look differentacross healthcare settings.
Then the question is, you know, wheredoes the patient and the healthcare
worker fit into all of this?
Are they just collateral damageor should we be doing more
to safeguard their interests.
So before we get too far, 'cause I'm,I'm gonna ask you very specifically, like
what some of the impacts on the groundare for both physicians, because there's
(18:48):
certainly a lot of research, some ofwhich you have done, which I definitely
wanna talk about, about like what happenswhen PE buys a physician practice.
Like what's the impact on doctors,but then also on patients.
But I do just wanna take a moment hereand say, like you also have private
equity standing up, digital health.
Are there any examples wherevis-a-vis some playbook strategy,
(19:14):
something good happened?
Like we, we've talked about twoexamples, which kind of clearly you
sort of see how it doesn't go wellfrom a physician standpoint and a
patient standpoint intuitively, butmaybe is there another example here?
Theoretically, at least, there's anargument that the current healthcare
system in the United States has too manythings that are wrong with it, right?
(19:36):
There are redundancies and there'sso much waste and inefficiencies, and
so some might say that private equityfirms with their emphasis on driving
efficiencies are here to rectify someof the issues with the healthcare
system that can be so frustrating forconsumers and patients of healthcare.
The reality though, is that the empiricalliterature hasn't really documented
(20:01):
any of these purported benefitsfor patients or healthcare workers.
There are some examples of maybevery specific sectors that are
characterized by specific marketattributes where PE can be beneficial.
So one example is in the fertility space,for example, which again looks very
different than the rest of healthcare.
(20:22):
You know, there's more qualitytransparency you can kind of shop around.
It's more retail in nature.
In that sector there's some early evidencethat suggests private equity firms
and chain ownership might facilitateknowledge transfers that help doctors
understand kind of what the best practicescutting edge technology looks like.
And then that can generate somebeneficial outcomes for patients.
(20:44):
But I'm a little wary of generalizingthat to other settings in healthcare.
Fertility services can look sodifferent than most of the healthcare
services a lay patient utilizes.
I could see there could certainly beopportunities to improve efficiency,
but there also would be a siren callonce an inefficiency is discovered,
to exploit that inefficiency.
(21:05):
Because as we know, when you startpaying for volume, inefficiency
is not necessarily not rewarded.
So, yeah, I could definitely see thatit would take a certain individual.
Tom Lee, Dr. Tom Lee on the show severalmonths ago, he definitely talked about
this and the one thing that he said is,when dealing with private equity, like
you might need money because if youdon't have the money, you can't scale.
(21:29):
But if you want to be able to do thisin such a way where the business side
doesn't start to dominate the missionside, you have to have a guy like
Dr. Tom Lee who's able to explainwhat the direction of the company is.
And also figure out how tocommunicate that ultimately this
is gonna be better for investors,that there can be a win-win.
(21:50):
So I think one of the lessons that Iam kind of seeing here, just like you
said, that you've seen one private equityinvestment, you've seen one private,
like another variable just relative towhat their ultimate impact is positive
or negative on patients and physiciansin the practice is gonna be, who's the
leadership in the organization and howgood are they at not getting shoved
(22:11):
down a path which is detrimental.
The other thing that I have heard isalso just, you know, competition will
always ultimately have a positive impact.
If you have a private equity firmthat is now competing with a local,
huge, consolidated health system, it'sactually possible that that private
(22:32):
equity investment could create a morefunctioning market and kind of chip
away at the existing monopoly becausenow the local hospital has competition.
This has actually come upin several podcasts lately.
Ge Bai mentioned it for sure,Chris Crawford, and then also
Dr. Rushika Fernandopulle talkedabout this as a potential benefit
(22:52):
of private equity in those shows.
Yeah, I really agree with you there.
You know, I definitelythink there is a win-win.
I wanna be clear that there is certainlya need for private investment in
healthcare, particularly in areaslike primary care, where it's just so
impossible for an independent primarycare physician to not only compete,
but also just remain financially viableand operate and open to patients.
(23:17):
And so there's this need for privateinvestment, which private equity firms
have realized and are seeking to fill.
And that need is justified.
But at the same time, there are veryreal tangible impacts for patients and
healthcare workers that are undesirable.
And so then, you know, from myperspective, the policy question is
how can we design a healthcare systemwhere you're incentivizing private
(23:39):
capital to enter areas where there'sa demonstrated need, but at the same
time putting guardrails and checksand balances to make sure some of
the worst outcomes for patients andhealthcare workers are in check.
And I think I agree with youthere, like the leadership of
organizations plays a big role here.
And I would argue that not only doesgood lead leadership make a difference,
(24:01):
but also informed leadership.
And in my conversations with doctors,and other healthcare leaders, it's not
always clear to me that entities havethe information they need to enter into
these partnerships in an informed manner.
One might say that it's too much.
It's an unrealistic burden to placeon physicians to ask them to be
(24:21):
well-versed in contract law and askthem to be well-versed in kind of all
of the financial maneuverings thatPE firms might bring into a practice.
But I do think there's more we can do tojust create more awareness and information
transparency around what it means topartner with a PE firm, what it means
to bring an investor on board, and whatchanges can you reasonably expect in the
(24:42):
six month horizon, the one year horizon.
And then longer term when the initialPE firm exits the investment and
maybe brings a new firm on board.
Yeah, it definitely sounds like one ofthose things, if you're not educated on
contract law before you go in, you'regonna get educated on it afterwards,
so it's just a matter of timing.
Just to recap and then I definitelykind of wanna get into the potential
(25:03):
impacts for physicians and patients, butbefore we do, we're kind of assembling
a to-do list, if you will, to make surethat private equity is a force of good.
The value of their money is realizedas much as possible by patients
and the clinicians who are reallytrying to serve those patients.
And it sounds like being aware,first of all, just being educated
(25:24):
and being aware of what is happeninghere and having no illusions
about the goal of the other party.
Capital is needed.
What is that Danny DeVito quote?
Everybody wants money.
That's why they call it money, right?
Like it's, it is actually essential.
You cannot have a mission withoutthe margin, but if we're thinking
about the why, like what happens whenprivate equity tends to take over that
(25:48):
doctors probably should be aware of?
I spend a lot of my time studyingthese effects of how private equity
investments change physician practicepatterns and what that means for patients.
In brief, when PE firms acquire physicianpractices, the cost of care goes up.
And so this takes the form ofprice increases in the ballpark
of 10 to 25% depending on theclinical area you look at.
(26:12):
At the same time, there's also evidencethat I've shown in my work that doctors
are made to see more patients domore tests like diagnostic imaging
services and blood draws and so on.
Things we talked about earlier.
And oftentimes this increasein testing and imaging services
has unclear patient benefit.
Now, on the workforce side, we'vealso seen that given the importance
(26:36):
of staffing in shaping your practicecosts, a key area that investors look
to to cut costs is around staffing,around workforce composition and so on.
So along those veins, we've seen that wheninvestors acquire physician practices,
there are a couple of changes thathappen to the healthcare workforce.
First, there's a greater relianceon advanced practice providers,
(26:59):
nurse practitioners, physicianassistants, and so on, because
oftentimes they can be cheaper to hireand employed than physician staff.
At the same time because there's, youknow, a lot of performance oriented
changes that are brought into thepractice, this might create undesirable
employment conditions for some physicians,and then it's no surprise that we've
seen an increase in physician turnover.
(27:21):
I had a recent study come out inthe journal, Health Affairs with
co-authors from Brown that showedfollowing private equity acquisitions of
physician practices, physician turnoverincreases from 4% to over 20% in the
three years following acquisition.
So just think about thatfor a second, right?
That's a fifth of your practicethat is leaving every single year
(27:42):
after private equity investments.
So what does that mean for carecontinuity if you're a patient.
What does that mean for subsequentemployment if you're a physician.
These are all important questions that weshould be thinking about and physicians
should be thinking about when theychoose to engage in such partnerships.
That's nuts.
So I'm just gonna start fromthe end and work backwards.
(28:03):
You have 20% of physiciansturning over after a PE takeover.
That's right.
And PE deploys a platform and add-onconsolidation model, which means that
in certain areas there might not be alot of non-PE practices for you to go to
if you are one of those 20% physicianswho are looking to exit PE practices.
(28:26):
I've talked with a lot of physiciansthat you know have shaped and informed
my work, and anecdotally I've heardthat physician turnover often takes
the form of physicians having to leavestates and moving across the country
and search for alternative employment.
And so this can be really disruptivedepending on you know, what career stage
you're at, depending on other factorsthat shape employment decisions and also
(28:50):
really disruptive for your patient panel.
Yeah, you know, I never really thoughtabout that before, but you know, maybe
this goes in the not so intuitive, rightout of the gate category of impact, but
it's pretty obvious what the impact ison a community when prices are going
up 10 to 25% when there's increases in,you know, as we were talking about for
(29:13):
profitable things like imaging and towhat ends question mark when throughput,
you know, visits start getting shorterand shorter because throughput is being
pushed when you start having, this is howworking at the top of your license became
a euphemism for maybe not so great stuff.
All these things, it's really clearwhat the impact of some of this
consolidation or some of theseother things has on the community.
(29:37):
But what I never really thought aboutis, if you have one entity that owns
all the practices in an area thatreally limits the options for doctors.
That's right.
And you know, this is amplified by theuse of agreements to non-compete and
non-compete and non-disclosure agreementsare very commonly deployed in employment
(29:59):
agreements between PE acquired entitiesand physicians that they employ.
And so not only might there be very fewnon-PE employment alternatives for a
physician, the physician might also bethen constrained by how far they need to
travel for in order to seek alternativeemployment arrangements, right?
Non-competes in healthcare often stipulatea geographic radius and a time period,
(30:22):
within which you cannot either join acompetitor or start your own practice.
In some cases, these can be asexpensive as a hundred miles.
And so a hundred miles can look verydifferent depending on where you are.
It could require you tomove across multiple states.
And then who's hiring there?
Is it another PE practice?
Increasingly with the growth ofPE investors and consolidation in
(30:44):
physician practices, increasinglywe're seeing specific regions
experience a decline in non-PEemployment opportunities for doctors.
One of the things that you mentionedin there that probably has an
outsize impact is just you weretalking about the performance
platforms that get put into place.
We talk a lot about burnout and wetalk a lot about moral injury, but
(31:05):
if there is a performance platformthat's being put in place, this
could be certainly one of those areaswhere a mission-driven individual who
intuitively understands the value andthe importance of garnering trust with
patients and spending time and havingrelationships like that's hard to count.
So now you're on this performance platformthat is just a throughput machine.
(31:30):
This could certainly result in a verydemoralizing environment where there
is a misalignment in objectives.
And that's rough.
I couldn't agree more.
You know the number of stories I'veheard from physicians who say their
contracts say if you do just makingsomething up right now, you know, a
(31:51):
hundred thousand injections, you getrewarded with an X dollar bonus per year.
At the same time, if you see a hundredpatients, you get rewarded with a certain
bonus that correlates to that volume.
That is so at odds with if you talk withphysicians and ask them what they truly
value, more often than not you hear it'sspending time with the patient, right?
(32:11):
Fostering that trust in thephysician patient relationship is
what at the end of the day, a lotof physicians get into medicine for.
But, increasingly the emphasis on theperformance oriented nature of the
practice of medicine is taking awayfrom what physicians value and derive
most joy from and most wellbeingand sort of job satisfaction from.
(32:31):
If I'm a doc who values the doctorpatient relationship, I can see how
this would be horrifying to have todeal with a financial incentive that may
not be in my patient's best interest.
That's exactly right.
And I've even heard, you know, ofweekly emails that go out at some
of these practices that kind of rankdifferent physicians against each
other, kind of like a scoreboard.
So you can see where you're atcompared to your colleagues.
(32:54):
Oh wow.
It's exactly like "GlennGary GlenRoss", except instead of ABC, Always Be
Closing, it's ABI, Always Be Injecting.
It's certainly one way to driveefficiencies, but then the broader
question is, is that the type ofhealthcare system we're comfortable with.
And as patients, if our healthcaredecisions are being influenced by
(33:15):
that type of incentive mechanism isthat something we're comfortable with?
Yeah, good question.
Is that something thatwe're comfortable with?
It also really reminds me of thoseaccusations of pill mills that some of
the private equity backed behavioralhealth entities got accused of, of being.
Alright, so what to do about this?
And we've already, we'vestarted our list here.
We have a few thingsthat are already on it.
(33:37):
We talked about making sure thatthere is in fact a way for physicians
or anyone with a, with a practice toget educated on what's gonna happen
in order to make sure that there arecontract terms and preventative things
that are put in place to mitigatethe negative as much as possible.
Or at least if we're making adevil's bargain, we know what
(33:57):
we're getting ourselves into.
And then you did also talk about policy,which can be like, Hey, we'll welcome
the money 'cause we need the money.
But at the same time,there's guardrails for PE.
So, you know, tables geta little bit turned there.
What am I missing?
Yeah, so, you know, I wouldagain, emphasize that the PE
strategy is so sector specific.
(34:19):
And so it's really important thatwe're aware of the specific policy
concern we want to address withpolicy levers and policy tools.
And so as an example, if everythingwe've talked about makes you
concerned about consolidation, thena policy remedy for that is greater
antitrust enforcement and scrutiny.
This can be done by the federal antitrustauthorities, the Department of Justice
(34:40):
and the Federal Trade Commission,but also increasingly we've seen a
lot of states take the lead here withgreater authority and greater momentum
from the office of the AttorneyGeneral, Healthcare Commissions and
so on, wanting to shed more light onPE practices in healthcare markets.
Now, as another example, if you're notconcerned about consolidation, but you're
concerned about physician autonomy, andhow these financial forces might conflict
(35:05):
with physician autonomy, then what we'retalking about isn't related to antitrust.
What we're talking about has moreto do with guardrails around the
corporate practice of medicine.
Now, the corporate practiceof medicine doctrine exists
across a handful of states.
And in theory, they're supposedto prevent the corporate influence
of corporate actors over howphysicians practice medicine.
(35:26):
I say in theory because in practice wehaven't really seen these restrictions
to have any material impact oneither slowing down or preventing
corporate actors in medicine.
And so there's some room there totake a closer look at the current
status of corporate practice, ofmedicine doctrines, and bring them
into the current climate, the currentlandscape, because the practice of
(35:46):
medicine now is very different thanwhen these doctrines are put in place.
And then finally, ownershiptransparency is something that is
the lowest of hanging fruits here.
You cannot solve aproblem, you cannot see.
You cannot even agree on the magnitudeof a problem if you don't have data
to track these trends and understandwhere PE investors are in healthcare.
(36:07):
Is this something evento be disproportionately
concerned about and so on?
And so requiring more transparency ofownership structures, not just limited
to private equity firms, but othertypes of corporate entities that might
be investing in healthcare, we'll goa long way in helping us understand
just how much of this is somethingthat we need to be concerned about.
So we've got education, we've gotpolicy that we've talked about.
(36:30):
Then also, as you said, if consolidationis a concern, what are we doing
relative to antitrust to preventsome of these monopolies and all the
downstream impact that they may have.
Then also governance of thecorporate practice of medicine.
Like we've already said, doctorscan't own hospitals, right?
So maybe some doctors did some thingsand that's how that wound up happening.
(36:52):
And I know there's strongfeelings about that.
But if we're gonna say, Hey, doctors can'town hospitals, then okay, now you've got
a corporation opening a hospital and theyalso have, there's some issues there.
So how are we governing that?
You talked about ownership,transparency, which is nuts.
Just how not transparent, it'sjust like boards on hospitals.
Like go try to figure out forsome of these hospitals who's on
(37:12):
the board, it's the same thing.
Go try to figure out who owns thehospital even, or who owns some of these
practices like that should be availableif you just think about it logically.
Yeah.
And you know, policymakers and regulatorsare increasingly realizing that this
is something that they cannot ignore.
So there's agreement that this is atrend that warrants greater attention.
(37:33):
There's less of an agreement onwhat needs to be done about it.
Because they often don'tknow, is this a 2% problem?
Is this a 52% problem or are 100% ofall doctors in this specialty in my
constituency employed by PE firms, right?
There's just very littleawareness around those numbers.
But not only policymakers and regulators,many times, even doctors themselves
(37:54):
don't know who the ultimate parententities that own a practice are.
And so if you are a doctor or if you'rea resident entering this profession in
your evaluating your different employmentoptions, you might not even know what
you're entering into because of the lackof awareness and lack of transparency.
Well, at least nationwide, weknow it's a $1 trillion impact.
(38:15):
I think you'd said PE hasinvested over $1 trillion in US
healthcare in the past decade.
The other thing I could thinkof is that if you do have
doctor practices who need cash.
Maybe another thing to do would beto offer the opportunity for these
doctors to get money some other way.
That's such a great idea, right?
I mean, a driving force behind allof these trends that we've talked
(38:38):
about is the simple fact that thepractice of medicine has become
increasingly complicated, andpracticing medicine as an independent
practitioner has become just impossible.
So you're right that making it easierfor doctors to practice independently
should be a policy priority as well.
And in fact, just last year, Indianapassed a law to offer tax credits
(38:59):
to physicians, particularly inprimary care if they're seeking
to do that themselves, right?
So this idea that.
If the only option available tophysicians to practice medicine is
to partner with a financial investor,like a private equity firm or become an
employee of a hospital or health system,those should not be the only options
(39:20):
available to physicians if they want topractice medicine in today's landscape.
There are alternative strategies thatwill make it easier for independent
physicians to remain independent, ifin fact that is what they choose to do.
So some kind of like smallbusiness medical loan so that you
can get capital without so manystrings attached it sounds like.
That's exactly right.
Is there anything that weneglected to talk about that
(39:43):
you want to mention right now?
I'll just say this has been sucha great conversation and I wanna
emphasize that private equity firmsreflect this broader trend towards
the corporatization of medicine.
They aren't the only entities that arereshaping the way medicine is practiced.
You have hospitals buyingup doctor practices.
You have large conglomerates likeCVS, Aetna and so on, and so it's
(40:06):
going to be a very interesting timeto see how these forces interact
and evolve with each other.
Private equity in particular investsin healthcare and all sectors,
but in healthcare specificallywith the incentive to exit.
And so as we think about what exitlooks like, what exit means, there
might be more potential for us tosee these different types of forces
(40:29):
interacting with each other, right?
If a PE firm exits their investmentby selling to a health insurance
subsidiary or a hospital, is thatsomething we should be differentially
concerned about than if a PE firmis just selling to another PE firm?
So these are all forces that we'll belooking to in the future, certainly from
a research perspective, but also will beimportant for practitioners to consider.
Yashaswini Singh, PhD. Thankyou so much for being on
(40:53):
Relentless Health Value today.
Thank you so much.
This was great fun.
I'm Peter Hayes.
I'm the principal of HealthcareSolutions and have been involved
in healthcare for 30 plus years.
I encourage everyone to sign up forthe Relentless Health Newsletter.
It's just a great source of what'shappening in healthcare today.
To me, it's the most trusted source thatI use to really try to stay current with
(41:15):
the complexities of the healthcare system.
So thank you everyone, and I hopeyou listen and start the good
fight and try to make healthcarea little bit better for all of us.
Thank you.
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Cold Case Files: Miami
Joyce Sapp, 76; Bryan Herrera, 16; and Laurance Webb, 32—three Miami residents whose lives were stolen in brutal, unsolved homicides. Cold Case Files: Miami follows award‑winning radio host and City of Miami Police reserve officer Enrique Santos as he partners with the department’s Cold Case Homicide Unit, determined family members, and the advocates who spend their lives fighting for justice for the victims who can no longer fight for themselves.