By Jason Ruchaber, CFA, ASA
In my opinion, the demonization of private equity in healthcare services is misguided and largely fails to recognize this simple truth, the reimbursement policies and extraordinary compliance costs superimposed by the government are the primary reasons physicians do not remain in private practice. Declining reimbursement and increasing costs continue to erode physician practice profitability (and yes, outside of government businesses must actually be profitable to stay in business….)
When it is no longer financially viable to stay in private practice, physicians are faced with four choices 1) Close their doors (retire/leave medicine), 2) leave the community and practice elsewhere with better reimbursement, 3) become an employee of a hospital or health system, or 4) partner with private equity (and remain in private practice). Both #1 and #2 are generally bad for the communities they serve, and #3 immediately increases the cost of care (and limits choices) by forcing reimbursement under the hospital fee schedule – which can be several times higher for the same exact same services. #4 can provide an alternative that is beneficial to the public and helps drive cost efficiencies to healthcare.
When the government discusses private equity, however, it is almost always with disdain. “When private equity firms buy out healthcare facilities only to slash staffing and cut quality, patients lose out,” said Chair Lina M. Khan of the FTC. “Through this inquiry, the FTC will continue scrutinizing private equity roll-ups, strip-and-flip tactics and other financial plays that can enrich executives but leave the American public worse off.”
https://buff.ly/439TJHp
PE is undoubtedly focused on generating a return on its investment, but that return most commonly comes from temporary reductions in physician compensation and cost efficiencies related to non-clinical functions – not a reduction in the quality of care. In fact, under many value-based reimbursement models, PE returns are enhanced only with reduced cost of care and improvements to the quality of care.
To paraphrase Mark Twain, ““It ain’t what [the government] doesn’t know that gets [us] into trouble. It’s what [they] know for sure that just ain’t so.”