Private Equity Ownership and Health Care Prices

There is a lot of attention on the role of institutional financial firm ownership of health care providers in our health care cost problem.  These institutions include private equity and venture capital firms; the lines of distinction between the two have become blurry but private equity firms tend to actually buy entire businesses or practices and to make larger investments.  While theoretically such ownership could bring expertise that improves quality and lowers costs, all the evidence I see does not support that theory, particularly in regard to costs.  In fact, many of these investors seem to be focused on creating local monopolies or oligopolies and raising prices as much as they can.

A new study in Health Affairs supports the presence of this phenomenon, finding that after an acquision of a gastroenterology practice by a PE firm, prices were raised 28% on average.  That is a huge additional cost to the system.  These increases are possible because in this specialty in particular there has been massive consolidation of practices.  There are almost no independent practices, and the ones owned by health systems are just as bad at focusing on constantly raising prices.  (HA Article)

I have for many, many years warned about the pernicious effects of provider consolidation, regardless of who the new owner is.  If we want to reduce costs, we need to return the system to having multiple smaller practices across every specialty and primary care; we need to limit how many assets a financial buyer can own in any market; and we need to break up the large health systems, particularly in regard to vertical integration–hospitals must be solely hospitals and divest all their physician practices and other provider types.  That is the surest way to return competition and lower prices to the system.