As Americans are overwhelmed with medical bills, patient financing is now a multibillion-dollar business, with private equity and big banks lined up to cash in when patients and their families can’t pay for care.

[Ed.: NYPAN strongly supports passage of the NY Health Act]

Private equity has succeeded in depicting itself as part of the productive economy of health care services. even as it is increasingly being recognized as being parasitic. The essence of this toxic parasitism is not only to drain the host’s nourishment, but also to dull the host’s brain so that it often does not even recognize that the parasite is there. This is the illusion that health care services in the United States suffer under today.

Parasitic private equity is consuming US health care from the inside out, weakening its structure and strength and enriching investors at the expense of patient care and patients. Incremental health reforms have failed. It’s time to move past political barriers to achieve consensus on real reform. says J.E. McDonough, Professor of Practice at the Harvard T. H. Chan School of Public Health. Private equity firms are financial termites devouring the woodwork and foundations of the US health care system. 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; mental health, substance abuse, eating disorder, and autism services; urgent care facilities; and emergency medical transportation.” Private equity has become a growing and diversified part of the American health care economy. Demonstrated results of private equity ownership include higher patient mortality, higher patient costs, fewer jobs, poorer quality, and closed facilities.

What is Private Equity?

A private equity fund is a large unregulated pool of money run by financiers who use that money to invest in and/or buy companies and restructure them. They seek to recoup gains through dividend pay-outs or later sales of the companies to strategic acquirers or back to the public markets through initial public offerings. But that doesn’t capture the scale of the model. There are also private equity-like businesses who scour the landscape for companies, buy them, and then use extractive techniques such as price gouging or legalized forms of complex fraud to generate cash by moving debt and assets like real estate among shell companies. PE funds also lend money and act as brokers, and are morphing into investment bank-like institutions. Some of them are public companies.

While the movement is couched in the language of business, using terms like strategy, business models returns of equity, innovation, and so forth, and proponents refer to it as an industry, private equity is not business. On a deeper level, private equity is the ultimate example of the collapse of the enlightenment concept of what ownership means. Ownership used to mean dominion over a resource, and responsibility for caretaking that resource. PE is a political movement whose goal is extend deep managerial controls from a small group of financiers over the producers in the economy. Private equity transforms corporations from institutions that house people and capital for the purpose of production into extractive institutions designed solely to shift cash to owners and leave the rest behind as trash. Like much of our political economy, the ideas behind it were developed in the 1970s and the actual implementation was operationalized during the Reagan era.

Matt Stoller, distinguished journalist, describes the essential business plan of private equity:

Economists Akerloff, Romer, Public Health Professor McDonough elaborate:

Professor McDonough notes that in the past 45 years the US economy has become heavily financialized more rapidly and decisively than in our peer nations. “Just as General Electric’s Jack Welch transformed (ruined) 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 by private equity’s “financial intermediaries who view healthcare organizations as vehicles for extracting wealth.”

Don McCanne, M.D., Physicians for a Nation Health Program (PNHP) describes private equity modus operandi:

Conveniently, Dr. McCanne notes, the debt is left with the practices they purchased, and the equity investors walk away with the money. How does this benefit the patients? How does this benefit the health care professionals? We know how it benefits the equity firm investors, but does anyone seriously contend that this is what health care should be about? But that’s what it has become.

Consequences:

As Americans are overwhelmed with medical bills, patient financing is now a multibillion-dollar business, with private equity and big banks lined up to cash in when patients and their families can’t pay for care. By one estimate from research firm IBISWorld, profit margins top 29% in the patient financing industry, seven times what is considered a solid hospital margin.

Mental health services controlled by a buyout king

The Private Equity Newsletter reports that psychiatrists, psychologists, clinical social workers once ran their own practices. Now the local therapist office could be controlled by a buyout king. Venture capitalists and private-equity firms are pouring billions of dollars into mental-health businesses, including psychology offices, psychiatric facilities, telehealth platforms for online therapy, new drugs, meditation apps and other digital tools. Nine mental-health startups have reached private valuations exceeding $1 billion last year, including Cerebral Inc. and BetterUp Inc.

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Private Equity Is a Parasite Consuming the US Health System