Introduction to Private Equity in Healthcare
[00:00:00] Stacey Richter: Episode 474, "Private Equity in Healthcare. The Big Data Points You Really Need to Know Altogether In One Episode". Today I speak with Yashaswini Singh, PhD.
The Role of Private Equity in Healthcare
[00:00:29] Stacey Richter: Lots of talk and lots of research these days about private equity in healthcare. So I am so pleased to bring you Yashaswini Singh PhD, who is one of the authors of a lot of that research. Dr. Yashaswini Singh has been spending the last several years trying to understand the corporate transformation of medicine and the tension between medicine as a profession and healthcare as a business.
To listen to this episode or read the show notes with mentioned links, visit the episode page.
She says the key concern here has always been that business obligations to shareholders might not always align with physician obligations to their patients.
In this episode, we are gonna tie up or roll up, if you will, the recurring themes about private equity in healthcare that are just kind of flying around all over the place right about now.
So this show, it is a little longer than normal maybe, but I decided not to edit it so much because if you do decide to listen to the whole shebang, you certainly can check the box that you got, at least the nuts and bolts of the situation.
Challenges and Ethical Concerns
[00:01:29] Stacey Richter: And look, it must be said right outta the gate here that not all private equity paths to profitability are inherently wrong, and that matters because healthcare is increasingly becoming much more capital intensive. Money is required.
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. Ben Schwartz coming up and he talked about how it's a very different view, 10 feet from the bedside than 10,000 feet from it. But yeah, this is healthcare that we are talking about and dollars that are made are made from the sick and from the old or from the disabled.
You get the wrong types of folks in leadership or decision making roles, and even the most originally patient first strategy can devolve into a really humanitarian disaster. And I might not be exaggerating when I say that, depending on what's being done and to whom.
Impact on Physicians and Patients
[00:02:28] Stacey Richter: So again, today I am talking with Yashaswini Singh, and we talk about typical private equity paths to profitability and how that might impact plan sponsors, patients, for sure, and also physicians and other clinicians.
And speaking of benefit consultants or plan sponsors, I just wanted to point out that if weirdly suddenly plan costs go up 15 to 25% in some local market, might wanna check who just bought up and rolled up all of the physician practices in that area.
It certainly could be a local or maybe not local hospital system, but sometimes it's not. Private equity, after all, has invested over $1 trillion in US healthcare in the past decade, and currently there is just such a lack of transparency relative to who owns what and what they're doing until, of course, the downstream effects are deeply pervasive.
Case Studies and Examples
[00:03:22] Stacey Richter: To that end, Dr. Adam Brown wrote an article, he was on Relentless Health Value last year, but the title of that article is, "Private Equity's Growing Role in Disability Care Demands Urgent Oversight. Patients Are Not Lines on a Balance Sheet".
Dr. Brown wrote, "Private equity is not inherently bad." Hey, I just said that. "It's not inherently bad when firms are responsible and transparent, they can fuel innovation, expand access, and help modernize outdated systems."
But when left unchecked firms incentives are often misaligned with the core mission of healthcare to care for people. This argument is not speculative.
In the show today, I really like how Dr. Yashaswini Singh puts it. She says, "You've seen one private equity strategy. You've seen one private equity strategy".
[00:04:08] Stacey Richter: And because of that diversity in how PE operates, it's slippery to get a handle on. It's hard to grasp what may have already happened or is underway, and what's gonna happen in the future is sort of hard to predict sometimes.
But it is becoming increasingly clear that there are certain playbooks, certain strategies that tend to be deployed by private equity, and some of them are much better than others, which is why getting a handle on these patterns in these playbooks is a really important conversation to be had, especially for you lot in this tribe who are some of the key decision makers in this country when it comes to buying or providing healthcare or setting policies.
Because if we know these playbooks, the knowledge is power when it comes to discerning the good kind of stuff from the really dangerous things. We need all of us to be working to try to make sure that the value accruing to the patient is the North Star, as Dr. Steve Schutzer puts it and which I keep quoting.
So knowing these strategies and their typical impact equips you, me, us, all of us, the listeners, to be on the alert and not get caught, you know, flatfooted after you, we, all of us, someone has already signed the contract. Because the impact of private equity is for real, and many of us don't understand the mouse type in the contract and the elephant size impact that it will have on all of our lives and patients' lives until it's too late.
Yashaswini Singh, PhD is an economist by training my guest today. She works as an assistant professor at Brown University at the School of Public Health.
My name is Stacey Richter, and this podcast is sponsored by Aventria Health Group.
Yashaswini Singh, PhD, welcome to Relentless Health Value.
[00:05:52] Yashaswini Singh: Thank you so much for having me.
[00:05:53] Stacey Richter: I love how you put it that there is this tension between the business of medicine and medicine. I just saw an article about this the other day, as a matter of fact. So I feel like your work is getting traction. You know, it's like human versus spreadsheet.
[00:06:07] Yashaswini Singh: Absolutely. And if we think about medicine as the profession, for the longest time, medical professionals who go to med school take the oath to do no harm to patients, they're not really spending a lot of time thinking about the business side of things, and so this kind of leaves a void or a gap to fill, if you will, for those who are thinking about the business side of things. The sophisticated financial managers, the managerial know-how and technical know-how on the managerial side to come in.
[00:06:35] Stacey Richter: Yeah, and I think the point that you're making is if we're talking about the business of medicine and doctors learning the business of medicine, the point isn't, oh, doctors should learn the business of medicine so that they can exploit the business of medicine.
The point is, if you don't understand the business of medicine as a physician, you're gonna leave yourself wide open to be blindsided by somebody doing something that you only figure out what they're up to when it's too late.
[00:06:59] Yashaswini Singh: That's right.
Sector-Specific Strategies
[00:07:00] Stacey Richter: So private equity, which if you wanna say money with a capital M, here we are. If you are just gonna sum up the impact of private equity on healthcare, that's a big question, but is there an answer?
[00:07:15] Yashaswini Singh: I'll start with saying private equity has a pretty pervasive expansive presence, not just in the American healthcare system, but the overall US economy.
Private equity firms, again, just to kind of level set a little bit here. These refer to firms who invest in private companies with the intention of delivering high returns for their investors over generally short investment time periods. So three to seven years. PE is certainly not new, but healthcare has emerged as a lucrative target for PE in the last decade or so. So if I were to summarize the impacts of PE, you know, it is a tough question.
But I can tell you that in the last decade, PE firms have invested over a trillion dollars in the American healthcare system. And this has ranged from every 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 living facilities, hospice and home health.
And so the evidence is still unfolding partly because of the private nature of these transactions. There are very few reporting and disclosure requirements, so PE deals in effect, can happen without any notifications to policy makers or regulators and so on.
So it's really hard to understand where these transactions are happening and what they mean for care delivery. Myself and other academics in this space have spent a lot of time trying to understand these questions a little bit better.
[00:08:43] Stacey Richter: So already kind of light on policy. It sounds like. But based on your research and others, what have you been able to dig up about the impact when private equity buys up healthcare entities?
[00:08:55] Yashaswini Singh: The research so far shows that unsurprisingly, when E firms invest in healthcare facilities, a lot changes practices or healthcare entities become more performance oriented.
Which means there's a large emphasis on driving profitability. This can be achieved by increasing the negotiated prices that entities receive from commercial insurers, increasing the volume of profitable, lucrative surgeries and procedures, cutting back on surgeries and procedures that might be critical from the patient perspective, but not so great for the bottom line.
Also changes in staffing, workforce composition changes and so on. So the list is never ending, but all of these changes serve one goal, which is to increase the profitability of the investment for PE firms, which then kind of furthers the incentive PE firms have to exit investments over short time periods.
[00:09:47] Stacey Richter: So just to recap and also connect some dots back to earlier episodes of Relentless Health Value, because I think there's a lot of connectivity if you really start thinking about this. One thing that is very clear in healthcare is the price of something or the cost of something, or the profitability. If we're just thinking about this from the business of medicine side, the profitability of a service has very little to do with the value accruing to the patient of that service.
So in effect, what I'm hearing you say is that as we start to increase, you know, what private equities are looking at is like, where is the business most profitable, which is going to be doubling down on the things that are the highest cost, the highest profitability, and decreasing what's done that is less or not profitable.
And that may or may not be aligned with 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 because I've just had multiple conversations about this kind of thing in a row. But what would you say is really the intuitive impacts of private equity. Let's start with the obvious stuff.
[00:11:00] Yashaswini Singh: Sure. So I would say the intuitive thing about private equity investments in healthcare is that these are financial funds who are seeking to deliver financial returns for their investors. So that part is intuitive, and if you think about how you might drive profitability for your investors. You can either do that by increasing revenue, or you can do that by cutting down on cost. Now, increased revenue in healthcare often takes the form of increasing negotiated prices, doing more stuff, the profitable stuff that is good for your bottom line, and then cutting costs takes the form of changes in staffing.
If you think about the largest cost in healthcare, it's often tied to staffing. And so it's no surprise that staffing is affected once PE firms invest in healthcare facilities.
[00:11:45] Stacey Richter: And you know, it's interesting because I was just talking to Dr. Eric Bricker, when you decrease staff, the less time a doctor has to spend in a room with a patient, the more tests they wind up ordering 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, like you intuitively save staffing costs, but maybe unintuitive and I could be getting ahead of myself here 'cause we're gonna talk about unintuitive and maybe this was something that you were gonna mention. You do wind up jacking up profitable service lines in ways that many doctors themselves don't quite understand the 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. Then what?
[00:12:26] Yashaswini Singh: So I wanna talk about the less intuitive part here, right? The less intuitive thing about all of this is how you increase revenue and how you cut costs. There's no question that investors are in it to improve their profitability. So then the question becomes, well, how exactly are investors seeking to improve profitability within primary care, for example, that historically, you know, isn't seen as a money making area, and does that look different than how investors might be seeking to improve profitability from invest in hospitals?
So I know from my work, and I love to say this, if you've seen one private equity acquisition, you've seen one private equity acquisition. And what I mean by that is the investment strategy is so sector specific, the profitability mechanisms are so sector specific that it's really hard for a lay person to understand what's specific changes come about following these investments.
So, to me, the intuitive part is always, you know, investors are out here to improve profitability, but we really have to look under the hood to understand what that means. If you are a fertility clinic, improving profitability might look very different than if you're a nursing home, which might then look very different than if you're a retina practice and so on.
[00:13:36] Stacey Richter: For example, in the interview actually with Dr. Bricker, one of the things that we talk about is, taking advantage of provider stop-loss provisions. It's basically a very effective way to make lots of zeros as a hospital. And anybody that doesn't know what I'm talking about, go back and listen to that. But like that is a fantastic business strategy.
So that is kind of just one example of what you're talking about. Obviously a fertility clinic isn't gonna be doing that same thing. Someone's gonna look through and try to 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.
[00:14:14] Yashaswini Singh: Yeah. And you know, one popular misconception about investments in this space is that these are Wall Street bankers with no understanding of how healthcare operates. And so they have no business to be investing or operating in healthcare. But the reality is that a lot of these firms are very sophisticated in their understanding of exactly how healthcare markets operate.
Exactly what regulations are in space, how policies and regulations are expected to change over time. And so the reality could not be farther from this, right? Like these are not ignorant investors without an understanding of how healthcare operates. These are savvy, sophisticated investors. Often with their own consulting arms who really take time to understand what the landscape of each setting they're investing in looks like.
I'll give you another example, right? We talked about how PE strategy can look so different across settings. Just as an example of that, private equity investors in hospitals and nursing homes, for example, often use real estate leasebacks.
[00:15:16] Stacey Richter: So you just said PE strategy can look different in different areas and for hospitals and nursing homes, they use real estate leasebacks.
What's a real estate leaseback?
[00:15:25] Yashaswini Singh: So what that means is, you know, they might enter into a transaction and immediately follow that with a purchase of the real estate that a hospital sits on. You think about hospitals that occupy blocks and blocks of really valuable real estate in downtown Philadelphia and downtown Boston.
Following a PE investment, the investor might take over the real estate and then lease it back to the entity. So not only from the hospital perspective have they lost out on their most valuable asset, they now have to make rental payments on something that they previously owned. So in that example, the PE investor has already realized on their expected profitability without making any operational or managerial changes.
[00:16:06] Stacey Richter: Yeah. It sounds like a really cheap way to buy downtown valuable real estate. The price of the whole hospital might actually be less than the price of the underlying real estate. Wow.
[00:16:16] Yashaswini Singh: That's exactly right. And we've seen that exact thing unfold in Massachusetts with the Steward Saga. But what we forget is before Steward, there was Hahnemann Hospital in Philadelphia and there are hundreds if not more, of hospitals that have similar experiences that are waiting to unfold.
But then if you contrast that with PE investments in other settings, physician practices, for example, which I spend a lot of my time thinking and reading and studying, the physician practice strategy for PE firms has always been that of consolidation. You might have heard of this being referred to as platform and add-on consolidation or roll up consolidation, but the strategy followed by PE firms is straightforward and it just involves gradually increasing market share by rolling up smaller entities, smaller physician practices, into one platform umbrella.
So real estate is not the play here. The play is more related to consolidating market share, increasing market share, and then using that leverage to negotiate higher prices from commercial payers.
[00:17:16] Stacey Richter: Yeah, there's playbooks here and, and it definitely feels like two big ones are figure out who's got the real estate and then go get it, lease it back.
Like there's a, the hospital in Pennsylvania there, there's so many examples of that happening. And like the Hahnemann in Philadelphia was really sad because it was really an essential safety net hospital. And I think it's out of business now. Like there was some drama, but now this community has no hospital.
But you know, someone figured out the best way to make profit off of that. It's a legit way to return dollars 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 transferring them over to healthcare is do a roll up.
So you have market power, you're creating a regional monopoly, like that's kind of the goal and yeah, sure, that works.
[00:18:09] Yashaswini Singh: That's exactly right. They are not here to look out for patient wellbeing. If that is a side effect of the strategies that they deploy to serve their investors, that's fine. But, none of this should be a surprise to us.
You know, investors are sophisticated in identifying profitability strategies. These strategies look different across healthcare settings. Then the question is, you know, where does the patient and the healthcare worker fit into all of this? Are they just collateral damage or should we be doing more to safeguard their interests.
[00:18:39] Stacey Richter: So before we get too far, 'cause I'm gonna ask you very specifically, like what some of the impacts on the ground are for both physicians, because there's certainly a lot of research, some of which you have done, which I definitely wanna talk about, about like what happens when 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 here and say, like you also have private equity standing up, digital health. Are there any examples where vis-a-vis some playbook strategy, something good happened? Like we, we've talked about two examples, which kind of clearly you sort of see how it doesn't go well from a physician standpoint and a patient standpoint intuitively, but maybe is there another example here?
[00:19:27] Yashaswini Singh: Theoretically, at least, there's an argument that the current healthcare system in the United States has too many things that are wrong with it, right? There are redundancies and there's so much waste and inefficiencies, and so some might say that private equity firms with their emphasis on driving efficiencies are here to rectify some of the issues with the healthcare system that can be so frustrating for consumers and patients of healthcare.
The reality though, is that the empirical literature hasn't really documented any of these purported benefits for patients or healthcare workers. There are some examples of maybe very specific sectors that are characterized by specific market attributes 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. You know, there's more quality transparency you can kind of shop around. It's more retail in nature. In that sector there's some early evidence that suggests private equity firms and chain ownership might facilitate knowledge transfers that help doctors understand kind of what the best practices cutting edge technology looks like.
And then that can generate some beneficial outcomes for patients. But I'm a little wary of generalizing that to other settings in healthcare. Fertility services can look so different than most of the healthcare services a lay patient utilizes.
[00:20:53] Stacey Richter: I could see there could certainly be opportunities to improve efficiency, but there also would be a siren call once an inefficiency is discovered, to exploit that inefficiency.
Because as we know, when you start paying for volume, inefficiency is not necessarily not rewarded. So, yeah, I could definitely see that it would take a certain individual. Tom Lee, Dr. Tom Lee on the show several months 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 you don't have the money, you can't scale.
But if you want to be able to do this in such a way where the business side doesn't start to dominate the mission side, you have to have a guy like Dr. Tom Lee who's able to explain what the direction of the company is. And also figure out how to communicate that ultimately this is gonna be better for investors, that there can be a win-win.
So I think one of the lessons that I am kind of seeing here, just like you said, that you've seen one private equity investment, you've seen one private, like another variable just relative to what their ultimate impact is positive or negative on patients and physicians in the practice is gonna be, who's the leadership in the organization and how good are they at not getting shoved down a path which is detrimental.
The other thing that I have heard is also just, you know, competition will always ultimately have a positive impact. If you have a private equity firm that is now competing with a local, huge, consolidated health system, it's actually possible that that private equity investment could create a more functioning market and kind of chip away at the existing monopoly because now the local hospital has competition.
This has actually come up in several podcasts lately. Ge Bai mentioned it for sure, Chris Crawford, and then also Dr. Rushika Fernandopulle talked about this as a potential benefit of private equity in those shows.
[00:22:54] Yashaswini Singh: Yeah, I really agree with you there. You know, I definitely think there is a win-win. I wanna be clear that there is certainly a need for private investment in healthcare, particularly in areas like primary care, where it's just so impossible for an independent primary care physician to not only compete, but also just remain financially viable and operate and open to patients.
And so there's this need for private investment, which private equity firms have realized and are seeking to fill. And that need is justified. But at the same time, there are very real tangible impacts for patients and healthcare workers that are undesirable.
Policy and Regulation
[00:23:30] Yashaswini Singh: And so then, you know, from my perspective, the policy question is how can we design a healthcare system where you're incentivizing private capital to enter areas where there's a demonstrated need, but at the same time putting guardrails and checks and balances to make sure some of the worst outcomes for patients and healthcare workers are in check.
And I think I agree with you there, like the leadership of organizations plays a big role here. And I would argue that not only does good lead leadership make a difference, but also informed leadership. And in my conversations with doctors, and other healthcare leaders, it's not always clear to me that entities have the 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 place on physicians to ask them to be well-versed in contract law and ask them to be well-versed in kind of all of the financial maneuverings that PE firms might bring into a practice.
[00:24:29] Yashaswini Singh: But I do think there's more we can do to just create more awareness and information transparency around what it means to partner with a PE firm, what it means to bring an investor on board, and what changes can you reasonably expect in the six month horizon, the one year horizon. And then longer term when the initial PE firm exits the investment and maybe brings a new firm on board.
[00:24:50] Stacey Richter: Yeah, it definitely sounds like one of those things, if you're not educated on contract law before you go in, you're gonna get educated on it afterwards, so it's just a matter of timing.
Just to recap and then I definitely kind of wanna get into the potential impacts for physicians and patients, but before we do, we're kind of assembling a to-do list, if you will, to make sure that private equity is a force of good. The value of their money is realized as much as possible by patients and the clinicians who are really trying to serve those patients.
And it sounds like being aware, first of all, just being educated and being aware of what is happening here 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 without the margin, but if we're thinking about the why, like what happens when private equity tends to take over that doctors probably should be aware of?
[00:25:49] Yashaswini Singh: I spend a lot of my time studying these effects of how private equity investments change physician practice patterns and what that means for patients.
In brief, when PE firms acquire physician practices, the cost of care goes up. And so this takes the form of price increases in the ballpark of 10 to 25% depending on the clinical area you look at. At the same time, there's also evidence that I've shown in my work that doctors are made to see more patients do more tests like diagnostic imaging services and blood draws and so on. Things we talked about earlier.
And oftentimes this increase in testing and imaging services has unclear patient benefit. Now, on the workforce side, we've also seen that given the importance of staffing in shaping your practice costs, 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 when investors acquire physician practices, there are a couple of changes that happen to the healthcare workforce. First, there's a greater reliance on advanced practice providers, nurse practitioners, physician assistants, and so on, because oftentimes they can be cheaper to hire and employed than physician staff.
At the same time because there's, you know, a lot of performance oriented changes that are brought into the practice, this might create undesirable employment conditions for some physicians, and then it's no surprise that we've seen an increase in physician turnover.
I had a recent study come out in the journal, Health Affairs with co-authors from Brown that showed following private equity acquisitions of physician practices, physician turnover increases from 4% to over 20% in the three years following acquisition.
So just think about that for a second, right? That's a fifth of your practice that is leaving every single year after private equity investments. So what does that mean for care continuity if you're a patient. What does that mean for subsequent employment if you're a physician. These are all important questions that we should be thinking about and physicians should be thinking about when they choose to engage in such partnerships.
[00:27:58] Stacey Richter: That's nuts. So I'm just gonna start from the end and work backwards. You have 20% of physicians turning over after a PE takeover.
[00:28:10] Yashaswini Singh: That's right. And PE deploys a platform and add-on consolidation model, which means that in certain areas there might not be a lot of non-PE practices for you to go to if you are one of those 20% physicians who are looking to exit PE practices.
I've talked with a lot of physicians that you know have shaped and informed my work, and anecdotally I've heard that physician turnover often takes the form of physicians having to leave states and moving across the country and search for alternative employment.
And so this can be really disruptive depending on you know, what career stage you're at, depending on other factors that shape employment decisions and also really disruptive for your patient panel.
[00:28:52] Stacey Richter: Yeah, you know, I never really thought about that before, but you know, maybe this goes in the not so intuitive, right out of the gate category of impact, but it's pretty obvious what the impact is on a community when prices are going up 10 to 25% when there's increases in, you know, as we were talking about for profitable things like imaging and to what ends question mark when throughput, you know, visits start getting shorter and shorter because throughput is being pushed when you start having, this is how working at the top of your license became a euphemism for maybe not so great stuff.
All these things, it's really clear what the impact of some of this consolidation or some of these other things has on the community. But what I never really thought about is, if you have one entity that owns all the practices in an area that really limits the options for doctors.
[00:29:47] Yashaswini Singh: That's right. And you know, this is amplified by the use of agreements to noncompete and noncompete and nondisclosure agreements are very commonly deployed in employment agreements between PE acquired entities and physicians that they employ. And so not only might there be very few non-PE employment alternatives for a physician, the physician might also be then constrained by how far they need to travel for in order to seek alternative employment arrangements, right?
Noncompetes in healthcare often stipulate a geographic radius and a time period, within which you cannot either join a competitor or start your own practice. In some cases, these can be as expensive as a hundred miles. And so a hundred miles can look very different depending on where you are. It could require you to move across multiple states.
And then who's hiring there? Is it another PE practice? Increasingly with the growth of PE investors and consolidation in physician practices, increasingly we're seeing specific regions experience a decline in non-PE employment opportunities for doctors.
[00:30:51] Stacey Richter: One of the things that you mentioned in there that probably has an outsize impact is just you were talking about the performance platforms that get put into place. We talk a lot about burnout and we talk a lot about moral injury, but if there is a performance platform that's being put in place, this could be certainly one of those areas where a mission-driven individual who intuitively understands the value and the importance of garnering trust with patients and spending time and having relationships like that's hard to count. So now you're on this performance platform that is just a throughput machine.
This could certainly result in a very demoralizing environment where there is a misalignment in objectives. And that's rough.
[00:31:40] Yashaswini Singh: I couldn't agree more. You know the number of stories I've heard from physicians who say their contracts say if you do just making something up right now, you know, a hundred thousand injections, you get rewarded with an X dollar bonus per year.
At the same time, if you see a hundred patients, you get rewarded with a certain bonus that correlates to that volume. That is so at odds with if you talk with physicians and ask them what they truly value, more often than not you hear it's spending time with the patient, right? Fostering that trust in the physician patient relationship is what at the end of the day, a lot of physicians get into medicine for.
But, increasingly the emphasis on the performance oriented nature of the practice of medicine is taking away from what physicians value and derive most joy from and most wellbeing and sort of job satisfaction from.
[00:32:31] Stacey Richter: If I'm a doc who values the doctor patient relationship, I can see how this would be horrifying to have to deal with a financial incentive that may not be in my patient's best interest.
[00:32:40] Yashaswini Singh: That's exactly right. And I've even heard, you know, of weekly emails that go out at some of these practices that kind of rank different physicians against each other, kind of like a scoreboard. So you can see where you're at compared to your colleagues.
[00:32:54] Stacey Richter: Oh wow. It's exactly like "Glenngarry Glen Ross”, except instead of ABC, Always Be Closing, it's ABI, Always Be Injecting.
[00:33:04] Yashaswini Singh: It's certainly one way to drive efficiencies, but then the broader question is: Is that the type of healthcare system we're comfortable with? And as patients, if our healthcare decisions are being influenced by that type of incentive mechanism is that something we're comfortable with?
[00:33:18] Stacey Richter: Yeah, good question. Is that something that we're comfortable with? It also really reminds me of those accusations of pill mills that some of the private equity backed behavioral health entities got accused of being.
Alright, so what to do about this? And we've already, we've started our list here. We have a few things that are already on it. We talked about making sure that there is in fact a way for physicians or anyone with a practice to get educated on what's gonna happen in order to make sure that there are contract terms and preventative things that are put in place to mitigate the negative as much as possible.
Or at least if we're making a devil's bargain, we know what 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 get a little bit turned there. What am I missing?
[00:34:12] Yashaswini Singh: Yeah, so, you know, I would again, emphasize that the PE strategy is so sector specific. And so it's really important that we're aware of the specific policy concern we want to address with policy levers and policy tools.
And so as an example, if everything we've talked about makes you concerned about consolidation, then a policy remedy for that is greater antitrust enforcement and scrutiny. This can be done by the federal antitrust authorities, the Department of Justice and the Federal Trade Commission, but also increasingly we've seen a lot of states take the lead here with greater authority and greater momentum from the office of the Attorney General, Healthcare Commissions and so on, wanting to shed more light on PE practices in healthcare markets.
Now, as another example, if you're not concerned about consolidation, but you're concerned about physician autonomy, and how these financial forces might conflict with physician autonomy, then what we're talking about isn't related to antitrust. What we're talking about has more to do with guardrails around the corporate practice of medicine.
Now, the corporate practice of medicine doctrine exists across a handful of states. And in theory, they're supposed to prevent the corporate influence of corporate actors over how physicians practice medicine. I say in theory because in practice we haven't really seen these restrictions to have any material impact on either slowing down or preventing corporate actors in medicine.
And so there's some room there to take a closer look at the current status of corporate practice, of medicine doctrines, and bring them into the current climate, the current landscape, because the practice of medicine now is very different than when these doctrines are put in place.
And then finally, ownership transparency is something that is the lowest of hanging fruits here. You cannot solve a problem, you cannot see. You cannot even agree on the magnitude of a problem if you don't have data to track these trends and understand where PE investors are in healthcare. Is this something even to be disproportionately concerned about and so on?
And so requiring more transparency of ownership structures, not just limited to private equity firms, but other types of corporate entities that might be investing in healthcare, we'll go a long way in helping us understand just how much of this is something that we need to be concerned about.
[00:36:27] Stacey Richter: So we've got education, we've got policy that we've talked about. Then also, as you said, if consolidation is a concern, what are we doing relative to antitrust to prevent some of these monopolies and all the downstream impact that they may have. Then also governance of the corporate practice of medicine. Like we've already said, doctors can't own hospitals, right? So maybe some doctors did some things and that's how that wound up happening.
And I know there's strong feelings about that. But if we're gonna say: Hey, doctors can't own hospitals, then okay, now you've got a corporation opening a hospital and they also 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's just like boards on hospitals. Like go try to figure out for some of these hospitals who's on the board, it's the same thing. Go try to figure out who owns the hospital even, or who owns some of these practices like that should be available if you just think about it logically.
[00:37:21] Yashaswini Singh: Yeah. And you know, policymakers and regulators are increasingly realizing that this is something that they cannot ignore.
So there's agreement that this is a trend that warrants greater attention. There's less of an agreement on what needs to be done about it. Because they often don't know, is this a 2% problem? Is this a 52% problem or are 100% of all doctors in this specialty in my constituency employed by PE firms, right?
There's just very little awareness around those numbers. But not only policymakers and regulators, many times, even doctors themselves don't know who the ultimate parent entities that own a practice are. And so if you are a doctor or if you're a resident entering this profession in your evaluating your different employment options, you might not even know what you're entering into because of the lack of awareness and lack of transparency.
[00:38:11] Stacey Richter: Well, at least nationwide, we know it's a $1 trillion impact. I think you'd said PE has invested over $1 trillion in US healthcare in the past decade.
The other thing I could think of is that if you do have doctor practices who need cash. Maybe another thing to do would be to offer the opportunity for these doctors to get money some other way.
[00:38:33] Yashaswini Singh: That's such a great idea, right? I mean, a driving force behind all of these trends that we've talked about is the simple fact that the practice of medicine has become increasingly complicated, and practicing medicine as an independent practitioner has become just impossible.
So you're right that making it easier for doctors to practice independently should be a policy priority as well. And in fact, just last year, Indiana passed a law to offer tax credits to physicians, particularly in primary care if they're seeking to do that themselves, right?
So this idea that. If the only option available to physicians 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 available to physicians if they want to practice medicine in today's landscape.
There are alternative strategies that will make it easier for independent physicians to remain independent, if in fact that is what they choose to do.
[00:39:32] Stacey Richter: So some kind of like small business medical loan so that you can get capital without so many strings attached it sounds like.
[00:39:39] Yashaswini Singh: That's exactly right.
[00:39:40] Stacey Richter: Is there anything that we neglected to talk about that you want to mention right now?
Future Outlook and Conclusion
[00:39:44] Yashaswini Singh: I'll just say this has been such a great conversation and I want to emphasize that private equity firms reflect this broader trend towards the corporatization of medicine. They aren't the only entities that are reshaping the way medicine is practiced.
You have hospitals buying up doctor practices. You have large conglomerates like CVS, Aetna, and so on, and so it's going to be a very interesting time to see how these forces interact and evolve with each other.
Private equity in particular invests in healthcare and all sectors, but in healthcare specifically with the incentive to exit. And so as we think about what exit looks like, what exit means, there might be more potential for us to see these different types of forces interacting with each other, right?
If a PE firm exits their investment by selling to a health insurance subsidiary or a hospital, is that something we should be differentially concerned about than if a PE firm is just selling to another PE firm? So these are all forces that we'll be looking to in the future, certainly from a research perspective, but also will be important for practitioners to consider.
[00:40:49] Stacey Richter: Yashaswini Singh, PhD. Thank you so much for being on Relentless Health Value today.
[00:40:54] Yashaswini Singh: Thank you so much. This was great fun.
[00:40:55] Peter Hayes: I'm Peter Hayes. I'm the principal of Healthcare Solutions and have been involved in healthcare for 30 plus years. I encourage everyone to sign up for the Relentless Health Newsletter. It's just a great source of what's happening in healthcare today. To me, it's the most trusted source that I use to really try to stay current with the complexities of the healthcare system. So thank you everyone, and I hope you listen and start the good fight and try to make healthcare a little bit better for all of us. Thank you.