Termites in the House of Health Care
by John McDonough - The Milbank Quarterly - November 14, 2022
Over the past two decades, the financing phenomenon known as private equity has achieved growing prominence as a force in the American economy and in the United States health care system. Because private equity is a curious and obscure phenomenon to most Americans, numerous metaphors have been advanced over time to characterize its footprint and impact. Just last month, a Kaiser Health News video portrayed it as an octopus with tentacles invading every part of American health care. A 2019 article in The Nation used the headline: “How Private Equity Vampires Are Killing Everything.” A 2008 Wall Street Journal column compared private equity with pirates. You get the idea.
Here’s another metaphor, perhaps more benign, but equally threatening. Private equity firms are financial termites devouring the woodwork and foundations of the US health care system. As Laura Katz Olson documents in her new book, Ethically Challenged: Private Equity Storms US Health Care, “PE firms are gobbling up physician and dental practices; homecare and hospital agencies; substance abuse, eating disorder, and autism services; urgent care facilities; and emergency medical transportation.”
Giant private equity firms were the main actors who turned “surprise medical billing” into a national patient crisis that resulted in a new federal law to ban such billing to patients. After building footholds in hospital emergency departments, private equity firms have created so-called “obstetrics emergency departments” (OBEDs) for the primary purpose of squeezing more revenue from patients and their insurance companies.
Just as termites are characterized as “some of the most successful insects on earth,” private equity has become a growing and diversified part of the American health care economy. A reported 123 public equity deals in health care in 2010 ballooned to 1,171 such buyouts in 2020 at a price tag of $105 billion, including clinics and outpatient services, elder and disabled care, hospitals and other inpatient services, pharmaceuticals, infertility clinics, dialysis centers, hospices, and much more. Demonstrated results of private equity ownership include higher patient mortality, higher patient costs, fewer jobs, poorer quality, and closed facilities.
How Did the American Health Care System Get Into This Mess?
One might point the finger at the late award-winning economist Milton Friedman who wrote a consequential New York Times op-ed in September 1970, the title of which says it all: “The Social Responsibility of Business Is to Increase Its Profits.” Are there corporate obligations to workers, consumers, community, and/or the environment? “Subversive” and “nonsense,” concluded Friedman.
For an op-ed, even in the New York Times, Friedman’s message had long legs. In the mid-1970s, sympathetic academics developed “agency theory” to provide a conceptual model to advance “shareholder power.” One widely-used approach was to make corporate executives more shareholder-friendly by paying them more in stock options and less in salaries. Executives began to reap the same financial rewards and setbacks as the owners of company stock. “Maximizing shareholder value” or MSV became and continues to be a mantra in many C-suites, in consulting firms starting with McKinsey, and in business schools.
The 1980s saw a new trend of US financial market deregulation and the arrival of leveraged buyout companies (LBOs) that used junk bonds and other shady devices to buy out firms that could provide large and quick profits to activated owners. The notorious RJ Reynolds-Nabisco LBO of the late 1980s (portrayed in the 1992 best-seller Barbarians at the Gate) put a damper on the field until its re-emergence in the late 1990s and early 2000s in the form of private equity.
In the 2000s, private equity firms began getting familiar with the health sector, learning to appreciate its regular and reliable cash flows from patient visits, especially the government-funded kind via Medicare and Medicaid. A private equity fund, infused with investments from public and private pension funds, money market investors, and wealthy individuals, buys up individual medical firms, mostly with new debt. The private equity fund owners then recoup their modest initial investments, requiring newly acquired entities to pay off the new debt from existing operations and from management fees assessed on them. Private equity firms “roll up” similar practices—dental service firms were one early target—and then sell off the larger entity within three to seven years for an outsized profit. These are familiar moves across the private equity sector.
Because individual “rolled-up” firms cost much less than the $200 million threshold to capture the attention of the US Federal Trade Commission (FTC), the eyes of regulators never noticed. Other familiar moves include downsizing staff, pushing patients to accept more and more expensive services, upcoding bills to obtain higher reimbursements, and increasing employee workloads.
Health Care Becomes Like the Rest of the Economy
From its 19th century battles over physician licensure to the reform of American medical education following the 1910 Flexner Report, US medical care has always regarded itself as different from the rest of the economy. Physicians and hospitals wanted, and still want, to get paid as much as possible while upholding moral and ethical obligations to patients. This can be seen in the push throughout the 20th century for state laws to ban the “corporate practice of medicine.” Those bans were intended to isolate medicine from shareholder-driven market competition by establishing barriers to protect US medical care from investor-owned corporations.
Over the past 45 years, however, the US economy became heavily financialized, more rapidly and decisively than in our peer nations. Just as General Electric’s Jack Welch transformed his company from a goods manufacturer to a financial services company, so have financial flood waters now penetrated every corner of American health care. Private equity is winning, and any health care organization is a potential takeover target. Patients and patient visits become commodities and data points to be exploited for high profits. As Appelbaum and Batt write, private equity’s “financial intermediaries view healthcare organizations as vehicles for extracting wealth.”
How bad does this get in the real world? Consider Noble Health, a private equity-backed Kansas City startup launched in 2019. In rural Missouri, Noble acquired Audrain and Callaway Community Hospitals in the early days of the COVID-19 pandemic. In March 2022, all hospital services ceased with the furlough of 181 employees. Notes Kaiser Health News, “…venture capital and private equity firm Nueterra Capital launched Noble in December 2019 with executives who had never run a hospital, including Donald R. Peterson, a co-founder who prior to joining Noble had been accused of Medicare fraud.”
Or consider the fate of St. Joseph’s Home for the Aged in Richmond, Virginia, as retold in The New Yorker. A New Jersey private equity firm called the Portopiccolo Group bought the home, “reduced stuff, cut amenities, and set the stage for a deadly outbreak of COVID-19” that included a doubling in patient deaths. The numbers of stories of private equity-generated health system harm grows rapidly. And if the health part of the business goes bust, as occurred in 2019 at Philadelphia’s now closed Hahnemann Hospital, the underlying real estate still offers rich rewards.
What to Do?
One step forward is to generate broader awareness of private equity’s impact on US health care. Dr. Arnold Relman, late editor of the New England Journal of Medicine, presciently wrote in 1980 of an emerging “medical-industrial complex.” As “vast new funds were moving into medical care,” wrote Relman, “the health care system was rapidly changing from a professional service primarily devoted to the care of the sick into a lucrative and competitive marketplace for investors and investor-owned corporations.”
A second direction requires greater transparency and more thorough disclosure about the investments and activities of private equity firms. The US Securities and Exchange Commission, the Federal Trade Commission, and other regulators are now moving to engage private equity in the interests of sunshine and consumer protection. Current disclosure requirements are inadequate. Particularly in the health care space, more aggressive enforcement of the federal Small Claims Act can be important, especially in Medicare and Medicaid. State governments also have tools to protect state, regional, and local health care systems.
Senator Elizabeth Warren’s (D-MA) proposed Stop Wall Street Looting Act (SB 3022) would impose structural reforms to increase transparency, protect worker, community, and customer rights, reform private equity taxation rules, and more. With only five Senate co-sponsors, and 16 for a House companion bill (HR 5648), the issue currently lacks momentum.
Private equity is not the only force in US health care needing reform. Health insurers, hospitals, drug makers, pharmacies, and others have placed financial interests ahead of patient needs. No other part of the system, though, is designed so thoroughly to maximize short-term financial benefit to shareholders above all else. Action is overdue to stop the rot.
John E McDonough is a Professor of Practice at the Harvard T. H. Chan School of Public Health
About the Author
John E. McDonough, DrPH, MPA, is a professor of public health practice at the Harvard University TH Chan School of Public Health in the Department of Health Policy and Management. Between 2008 and 2010, he served as a senior adviser on national health reform to the US Senate Committee on Health, Education, Labor, and Pensions, where he worked on the writing and passage of the Affordable Care Act. Between 2003 and 2008, he was executive director of Health Care For All, a Massachusetts consumer health advocacy organization, where he played a leading role in the passage of the 2006 Massachusetts health reform law. From 1985 to 1997, he was a member of the Massachusetts House of Representatives where he cochaired the Joint Committee on Health Care. His articles have appeared in the New England Journal of Medicine, Health Affairs and other journals. He has written several books including Inside National Health Reform in 2011 and Experiencing Politics: A Legislator’s Stories of Government and Health Care in 2000, both by the University of California Press and the Milbank Fund. He holds a doctorate in public health from the University of Michigan and a master’s in public administration from the Kennedy School of Government at Harvard University.
'Ellen Needs Insurance' is the real story of an actor in her quest to get coverage
by Manuel Lopez Restrepo - NPR - November 10, 2022
Creative inspiration can strike from anywhere. For married couple Ellen Haun and Dru Johnston, both in the entertainment industry, it came from a place of necessity.
Haun is a member of the Screen Actors Guild, and realized earlier this fall that she would be $804 short of meeting the minimum earnings required by the union to qualify for health insurance.
"Every year, you have to earn $26,470 to qualify for health insurance for the next year. So I didn't think I was going to hit it. I kind of started panicking," Haun said. "I started trying to submit myself for a bunch of different auditions. I asked my agents if they could get me as many auditions as possible. I started doing background work to kind of chip away at what I needed to hit my minimum."
But despite that scramble, she began to fear there wasn't enough time or potential bookings for her to meet her deadline of December 31. After discussing this crisis, the couple came up with an unorthodox solution – why not make a short film about Ellen needing health insurance, cast her in it, and pay her the $804 she needed?
Thus, the concept for the short film, Ellen Needs Insurance, was born.
It will be written and produced by Haun and Johnston, with Haun starring and Johnston directing. The process for receiving approval from the Screen Actors Guild on a project can be lengthy and bureaucratic, so they made sure to find an executive producer, Darren Miller, who would keep their production in check with paperwork and deadlines.
Now, their main focus is casting parts and crowdfunding the project so they can begin filming in December.
The team is aiming to raise $30,000 for the project, a lofty sounding number for a one-woman show. So far, they've raised over $10,000. Haun and Johnston figured, if they were going through all the trouble of making a film for this purpose, why not help others in a similar position?
"We were like, if we're going to do that, we're going to go all out, and we might as well try to get as many actors as possible health insurance," Johnston said.
They are now looking to cast 15 actors who are also close to meeting their health insurance minimum, and then pay them the specific amount needed to hit the target.
If they surpass their fundraising goal, they say they will write and cast more parts for the production to spread the wealth as far as possible. The couple has written a script, and Haun says she is looking forward to making something she feels proud of.
"I think this is why both Dru and I are in comedy. Writing about the absurdity of how much [insurance] costs and how hard it is to keep your doctor if your insurance changes? I don't know, there's humor in it. It makes me feel a lot better to laugh about it," Haun said.
Seed and Spark
The couple says that struggling to meet insurance minimums is not unique to their circumstances. The uncertainty of working in the entertainment industry, and life itself, means that sometimes you just won't know how many jobs you'll be booking. In fact, Johnston came up with the idea for a meta health insurance film five years earlier, when he found himself in a similar situation, but ended up missing the window to qualify that year.
"In this industry, they often say an idea is never dead. It just kind of goes to sleep and remains dormant. And in the worst possible way, that's exactly what this idea is, a dystopian idea [that] just keeps coming back around," Johnston said.
"We just kind of wanted to show how crazy it is that no matter how hard you hustle, insurance is just this thing that should not be tied to your employment."
For Haun, it's more than just commentary.
"Insurance, as an actor, kind of becomes emotional. I remember the first time I qualified, I was 27. I had just booked a really big commercial. I was so proud of myself and I was so excited," she said. "And then, as the years have gone on, I'm like, I'm really glad I have this insurance coverage. But also, this doesn't work great."
Millions of Americans have health insurance that isn’t ‘good enough’
The open enrollment season for health insurance is gearing up at a time when more people in the United States have health insurance than ever before. Yet millions of Americans who enroll this fall still won’t be able to easily afford the health care they need or will be hit with medical bills they can’t pay.
Why? Because whether you have health insurance through an employer, the individual market, or even through Medicare, high health care costs and coverage exclusions are making insurance less protective each year.
To be sure, being insured is still much better than being uninsured, something that’s been known for decades. The Affordable Care Act built on nearly 60 years of progress in expanding insurance coverage. Starting with the inception of Medicare and Medicaid in 1965, successive, incremental reforms have brought the U.S. to the point where now only 8.3% of Americans are uninsured. Although that is higher than any other industrialized country, it proves that political will and steady reforms —the American way — can bring us to a better, healthier place.
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Such a low rate of uninsured people is worth celebrating. Yet is it also important to ask about the millions who are insured: How good is their health insurance? Unfortunately, the answer for too many Americans is “Not good enough.”
While the ACA created a limit on how much some people have to pay when they get sick, health plans frequently fail to keep people out of medical debt, provide timely access to health care they need, or ensure that people can afford the medications they need to stay healthy.
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In a recent survey conducted by the Commonwealth Fund, which we work for, 40% of working age adults who were insured for the full year said they had to skip or delay health care they needed because they could not pay for it. Thirty-seven percent struggled to pay medical bills over the past year or were paying off medical debt over time. Among all respondents, 23% were underinsured, meaning their health care costs and deductibles were especially high compared to their incomes, and they suffered nearly as much as those who were uninsured: 60% reported delays in care due to cost, and 60% of those who did get care reported problems paying their medical bills.
In short, too many Americans are covered by health insurance with such huge cost barriers and exclusions that it’s coverage in name only. And this is far from just a problem for people with private insurance: 20% of Medicare enrollees ages 65 and older are also underinsured.
The major culprit in all of this is the cost of care. The U.S. is projected to have spent $4.3 trillion on health care in 2021, more than any other country. Why are medical costs here higher than anywhere in the world? Because medical prices are higher here than anywhere in the world. The prices that commercial insurers and employers pay to providers are directly linked to how much people are asked to pay out of their own pockets in the form of deductibles, copays, and coinsurance because commercial insurers and employers pass part of the costs onto consumers. And as long as prices continue to rise unabated, insurers will continue to ask patients to pay more, while also continuing their relentless efforts to deny payment for the care they need.
The U.S. can do better. People paying premiums for health insurance should be guaranteed affordable care when they or their family members need it.
There are several ways to assure that health insurance lives up to its promise. First and foremost, something must be done about how much Americans pay for health care. Actually bringing costs down would be the ideal solution but, as a start, it may be more practical just to stop them from growing so quickly. Coverage must also be improved to protect people from high out-of-pocket spending.
Curtailing rising prices will require action from multiple parties. To start, the federal government should vigorously enforce a current law — one that’s largely ignored — that requires hospitals to publish the prices they actually collect from health insurers. Employers can’t be smart buyers unless they know these prices. Employers must also factor prices into their purchasing decisions. If there is no competition in their health care market, they have a role to play in supporting government efforts to break up local monopolies or regulate prices, like Maryland’s all-payer model for lowering provider prices and Rhode Island’s insurance market regulation for slowing the growth in health care spending. Comprehensive reform in how Americans pay for care — to emphasize value, rather than volume — is also key.
Of course, cost control will take time and people need help now. Policymakers have several options, especially in the ACA marketplaces. Congress could expand access to care and reduce medical debt by shrinking the deductibles in marketplace plans and lowering their out-of-pocket limits. If temporary premium subsidies in the Inflation Reduction Act were made permanent, many more Americans could afford to stay covered. Adding an out-of-pocket maximum to Medicare would also provide seniors relief.
The U.S. is in a much better place than when the push began toward providing all Americans meaningful health insurance. Without action from policymakers and industry stakeholders, rising costs will chip away at these gains and more and more Americans will be stuck with coverage in name only.
David Blumenthal is an internal medicine physician and president of The Commonwealth Fund. Sara Collins is an economist who leads The Commonwealth Fund’s health care coverage and access program. Editor’s note: The Commonwealth Fund has grant-funded STAT reporting on racism in health and medicine as well as ongoing coverage of reproductive health and climate change and health.
Medicare Advantage or Just Medicare?
The New Old Age
It’s annual enrollment season once again. Here’s a look at the pros and cons of the two approaches to health insurance.
The proportion of eligible Medicare beneficiaries enrolled in Medicare Advantage plans will exceed 50 percent next year, experts estimate.
The sales pitches show up in your mailbox and inbox, in robocalls and texts. Ads target you on radio and television and social media. Touting Medicare Advantage plans, these campaigns promise low premiums and all kinds of extra benefits.
And they work. The proportion of eligible Medicare beneficiaries enrolled in Medicare Advantage plans, funded with federal dollars but offered through private insurance companies, has hit 48 percent. By next year, a majority of beneficiaries will probably be Advantage plan enrollees.
The annual enrollment period is once again underway. Beginning last month and until Dec. 7, beneficiaries can switch from traditional Medicare to Medicare Advantage or vice versa, or switch between Advantage plans. So it’s a good moment to look at the differences between these two approaches.
“It’s a very consequential decision, and the most important thing is to be informed,” said Jeannie Fuglesten Biniek, senior policy analyst at the Kaiser Family Foundation and co-author of a recent literature review comparing Advantage and traditional Medicare.
A key finding, Dr. Biniek said: “Both Medicare Advantage and traditional Medicare beneficiaries reported that they were satisfied with their care — a large majority in both groups.”
Examining 62 published studies, the researchers found that Advantage plans performed better on a few measures. For instance, beneficiaries were more likely to use preventive services such as the annual wellness visit and flu and pneumonia vaccinations. Advantage beneficiaries were also more likely to say that they had a doctor, a “usual source of care.”
Traditional Medicare beneficiaries, on the other hand, experienced fewer affordability problems if they had supplementary Medigap policies, but worse affordability problems if they didn’t. And they were more likely to use high-quality hospitals and nursing homes.
None of these differences, however, have prompted widespread shopping or shifting between the programs in either direction. (Dozens of lawsuits accusing some Medicare Advantage insurers of fraudulently inflating their profits have apparently not made much difference to consumers, either.)
A prime rationale for Advantage plans is that consumers can compare them to find the best individual coverage. But in 2020, only three in 10 Medicare beneficiaries compared their current plans with others, a Kaiser Family Foundation survey reported.
Even fewer beneficiaries changed plans, which may reflect consumer satisfaction or the daunting task of trying to evaluate the pluses and minuses. This year, the average beneficiary can choose from 38 Advantage plans, the Commonwealth Fund reports.
Yet Medicare Advantage and traditional Medicare, also known as original or fee-for-service Medicare, operate quite differently, and the health and financial consequences can be dramatic.
Advantage plans offer simplicity. “It’s one-stop shopping,” Dr. Biniek said. “You get your drug plan included and you don’t need a separate supplemental policy,” the kind that traditional Medicare beneficiaries often buy.
Medicare Advantage may appear cheaper because many plans charge low or no monthly premiums. Unlike traditional Medicare, Advantage plans also cap out-of-pocket expenses. Starting next year, beneficiaries will pay no more than $8,300 in in-network expenses, excluding drugs — or $12,450 with the kind of plan that also permits participants to use out-of-network providers at higher costs.
Only about one-third of Advantage plans allow that choice, however. “Most plans operate like an H.M.O. — you can only go to contracted providers,” said David Lipschutz, associate director of the Center for Medicare Advocacy.
Advantage enrollees may also be drawn in by benefits that traditional Medicare can’t offer. “Vision, dental and hearing are the most popular,” Mr. Lipschutz said, but plans may also include gym memberships or transportation.
“We caution people to look at what the scope of the benefits actually are,” he added. “They can be limited or not available to everyone in the plan. Dental care might cover one cleaning and that’s it, or it may be broader.” Most Advantage enrollees who use these benefits still wind up paying most dental, vision or hearing costs out of pocket.
As for traditional Medicare, “the big pro is that there are no networks,” Dr. Biniek said. “You can see any doctor that accepts Medicare, which is just about any doctor,” and use any hospital or clinic.
Traditional Medicare beneficiaries also largely avoid the delays and frustrations of “prior authorization.” Advantage plans require this advance approval for many procedures, drugs or facilities.
“Your doctor or the facility says that you need more care” — in a hospital or nursing home, say — “but the plan says, ‘No, five days, or a week, or two weeks, is fine,’” Mr. Lipschutz said. The patient must either forgo care or pay out of pocket.
Advantage participants who are denied care can appeal; when they do, the plans reverse their denials 75 percent of the time, according to a 2018 report by the Department of Health and Human Services’ Office of Inspector General. But only about 1 percent of beneficiaries or providers file appeals, “which means there’s a lot of necessary care that enrollees are going without,” Mr. Lipschutz said.
Another Office of Inspector General report this spring determined that 13 percent of services denied by Advantage plans met Medicare coverage rules and would have been approved under traditional Medicare.
Although people can switch between Medicare Advantage plans fairly easily, switching from traditional Medicare to Advantage involves a major caveat.
Because traditional Medicare sets no cap on out-of-pocket expenses, the 20 percent co-pay can add up quickly for hospitalizations or expensive tests and procedures. Most beneficiaries therefore rely on supplemental insurance, also called Medigap policies, to cover those costs; either they buy a policy or they have supplementary coverage through an employer or Medicaid.
Beneficiaries who leave traditional Medicare for Medicare Advantage plans give up those Medigap policies. If they later grow dissatisfied and want to return to traditional Medicare, insurers may deny their Medigap applications or charge high prices based on factors like pre-existing conditions.
“Many people think they can try out Medicare Advantage for a while, but it’s not a two-way street,” Mr. Lipschutz said. Except in four states that guarantee Medigap coverage at set prices — New York, Massachusetts, Connecticut and Maine — “it’s one type of insurance that can discriminate against you based on your health,” he said.
David Meyers, a health services researcher at Brown University, and his colleagues have been tracking differences between original Medicare and Medicare Advantage for years, using data from millions of people.
The team has found that Advantage beneficiaries are 10 percent less likely to enter the highest-quality hospitals, 4 to 8 percent less likely to be admitted to the highest-quality nursing homes and half as likely to use the highest-rated cancer centers for complex cancer surgeries, compared with similar patients in the same counties or ZIP codes.
In general, patients with high needs — they were frail, were limited in their daily living activities or had chronic conditions — were more likely to switch to traditional Medicare than those without high needs.
Why was that? “When you’re healthier, you may run into fewer of the limitations of networks and prior authorization,” Dr. Meyers hypothesized. “When you have more complex needs, you come up against those more frequently.”
Trying to figure out which kind of Medicare, including a Part D drug plan, is actually to your advantage can be difficult even for knowledgeable consumers. Advantage plan networks change frequently; doctors and hospitals that are in-network this year may be out the next. Drug formularies change, too. A new Senate report documented deceptive marketing and advertising practices that added to the confusion, prompting Medicare to promise increased policing.
The best allies, along with Medicare’s website and its toll-free 1-800-MEDICARE number, are the federally funded State Health Insurance Assistance Programs, whose trained volunteers can help people assess Medicare and drug plans.
These state programs “are unbiased and don’t have a pecuniary interest in your decision making,” Mr. Lipschutz said. But their appointments tend to fill up fast at this time of year. Don’t delay.
https://www.nytimes.com/2022/11/05/health/medicare-seniors-health.html
