As private equity continues to buy up practices in radiology and other specialties, two physicians are offering possible policy solutions to increase scrutiny.
Such investors acquired nearly 7,000 healthcare entities between 2014-2021. But only 0.1% of those firms faced False Claims Acts settlements, editorialists wrote Friday in JAMA [1]. During a time when PE acquisitions in medicine leapt 167%, the number of full-time positions at the Federal Trade Commission climbed only 1%.
Harvard Medical School experts believe regulators need more firepower to begin better understanding the impact of such trends.
“As evidence emerges on the clinical and economic consequences of these buyouts, federal and state policy makers have begun exploring ways to improve oversight and regulation in this space,” Christopher Cai, MD, and Zirui Song, MD, PhD, wrote April 13. “To date, however, a framework for potential policy responses to this growth in private equity ownership remains lacking.”
The two physicians listed three reasons why PE deals in medicine warrant closer examination: (1) The emphasis on rapid returns during a five- to 10-year timeline may lead to price increases and an unnecessary uptick in volume. Among nearly 580 physician groups acquired by PE over a four-year period, prices leapt 11% while volume increased 16%, one study found. (2) PE can introduce new financial risk into medicine, taking on massive amounts of debt and attaching it to the acquired entity rather than the investment firm. Across all sectors including healthcare, companies acquired through a leveraged buyout are 10 times more likely to go bankrupt, another study found. (3) These firms benefit from special tax and regulatory privileges and are subject to less regulatory oversight than their publicly traded counterparts.
Cai and Song suggested four possible policy levers to pull to increase oversight:
1. Expanding regulatory review: Passing federal antitrust reform may be difficult, but states have served as laboratories to experiment with other options. Some have created stricter M&A reporting thresholds than the federal side, which only subjects transactions worth $111.4 million or more to regulatory review, the authors noted. Massachusetts has the ability to sue to stop such deals. And California attempted to give its AG the authority to veto private equity acquisitions, but the proposal ultimately stalled.
2. Limiting moral hazard: Italy at one point outlawed leveraged buyouts entirely, while the European Union passed limits on the shifting of debt risk from a PE firm to purchased companies.
“Taxing private equity earnings at the same rate as ordinary income or tying executive compensation to a broader set of outcomes, such as bankruptcy, might improve accountability, although this effort would be challenging to pass legislatively,” the authors wrote.
3. Improving transparency: The EU also has passed legislation requiring disclosure of the amount of debt assumed during leveraged buyouts, though enforcement has remained inconsistent. In the U.S., Congress also could consider mandating the reporting of other outcomes such as price changes or 90-day mortality rates after discharge.
4. Protecting providers and patients: The authors contend that no laws exist to safeguard these two stakeholders after a PE transaction. They point to the example of Hahnemann Hospital in Philadelphia, which PE interests saddled with debt prior to its bankruptcy. The EU has passed policy limiting asset-stripping for two years after an acquisition, while members of Congress have proposed prioritizing severance pay for employees of firms that go bankrupt after a PE deal.
Read much more in the JAMA opinion piece below.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.