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The Big Story: Feds and States Move to Curb Private Equity’s Takeover of Healthcare

“Good old American capitalism is getting a hard look under the healthcare regulatory microscope. And not a moment too soon, in the eyes of some.”

Tell your story or someone else will

By David Jarrard

4-minute read

We all know private equity is a powerful force shaping healthcare delivery today, spending billions of dollars annually to acquire providers, invest in technologies and much more. A juggernaut.

But despite its ubiquitous presence and momentum, PE rarely reveals itself to tell its story. The silence is costly.

Into the vacuum created by its absence, largely uncontested and unfriendly narratives about the role and impact of healthcare PE have rushed in, and none of them are good. The longer PE remains silent, the worse it gets.

It’s the classic communications theorem: If you don’t tell your story, someone else will tell it for you. And you won’t like what they say. You cannot choose whether a story about you will exist, but you can choose to shape it.

PE in healthcare is currently being pummeled in an avalanche of bad news.

  • The FTC, DOJ and HHS have launched a “cross-government inquiry on impact of corporate greed in healthcare,” says the government, telegraphing its conclusions.
  • Investigative reporters are concluding that “if your primary interest is profits, your primary interest is not patient care.” Health Affairs just issued a study worried that PE acquisitions of physician practices grew seven-fold between 2012-21, calling for close scrutiny by the FTC. JAMA weighed in, too, on what they say are the negative patient outcomes associated with PE investors.
  • In a move that could directly affect investment strategies, a California lawmaker introduced bellwether legislation that would empower the state’s AG to review PE and hedge fund healthcare transactions.
  • And don’t get us started on Steward Healthcare and its former CEO’s $40 million yacht.

Open mic night

The FTC’s “request for information” is an open-mic night for all comers to talk about private equity in healthcare.

Will PE take the stage?

It should, says Andy Slavitt, former director of CMS and private investor at Townhall Ventures.

“If [investors] are not marketing and communicating what they’re doing and how they’re adding value, they should not be surprised when people reach the wrong interpretation,” he said from the stage at the MWE HPE conference earlier this month.

Slavitt brings private and public perspectives to the conversation, calling for more and clearer communication between both sectors to build trust and collaboration. And soon.

“This whole, ‘Leave me alone, I’m doing fine, I don’t have to tell you how good I’m doing,’ that’s not a strategy,” continued Slavitt. “That will run out. You have to communicate.”

He highlighted the headline examples of PE firms purchasing emergency rooms and buying anesthesia groups – then raising rates. “When no one tells the other stories, it’s not surprising that the next congressional hearing is going to focus on those issues. So, we push hard for people to tell the positive stories. Because they’re there.”

Some are speaking up. Modern Healthcare’s Alex Kacik last week quoted execs from the new American Independent Medical Practice Association, which “advocates for physicians operating under management services organizations, many of which are owned by private equity firms, as an alternative to health system and insurer employment models.”

“Management services organizations can be attractive to physicians because they handle administrative tasks like billing, some legal matters and marketing,” he wrote. “They can also improve physician practices’ leverage in contract negotiations with insurers. But opinions differ on whether physicians can maintain their clinical authority under MSOs with private equity owners.”

Kacik is right, of course. There is no shortage of opinions on private equity in healthcare.

(Our colleagues at the MWE HPE conference captured more takeaways for a HIgh Stakes podcast. Check that out here.)

The experience of care: new Jarrard survey looks at trust in PE

So, what matters to consumers? How do they feel about PE-backed healthcare?

In our latest national consumer survey, released today, we found that two-thirds of the U.S. public agree that “when outside investors like private equity buy hospitals or doctors’ practices, the focus shifts from a mission to care for patients to making money.”

Nearly half of the U.S. public claim to know about and understand PE, and nearly a quarter claim to have seen stories about its growing presence in healthcare. Just over a third trust investors to improve the quality of care. Slightly less than a third trust them to lower the cost of care.

Still – and here’s a key – good care and positive patient experience eclipse any business model.

Over half agree that “As long as the care my doctor and medical team provide is good, it doesn’t bother me if the organization they work for is owned by private equity.”

Providing an outstanding patient experience and presenting a clear message about how that care benefits the community will help inoculate PE-backed providers from attacks based on their business model.

Needed: A PE Community Impact Report

Private equity is not the only player in healthcare needing to tell its story well, clearly and often.

Nonprofit hospitals have long been required to report the value of their benefits as part of their annual filing with the IRS. These mandated community benefit reports are often used by hospitals well beyond just checking a regulatory box. They can serve as the foundation for a rich story that shares the ways the organization has benefited the communities they serve.

Quality of care, employment, financial support, subsidized services, research, community sponsorships, charity and uncompensated care, payroll and economic impact? It’s all there. Investor-owned hospitals create benefit reports, too, and include taxes paid, growth and scale, along with other metrics.

The model is far from perfect. The definitions of what counts as a “benefit” are inconsistent and in need of a sharp pencil and consistent execution. Thoughtful leaders continue to tinker with it. And to be clear, we’re not suggesting the establishment of another government-required report.

Instead, it’s discipline of storytelling and relationship building, underpinned by the information in the community benefit report, that healthcare PE investors and PE-based providers need to adopt and soon. Start with an impact report and build from there to demonstrate the full scope of your work.

Can you imagine such a PE narrative shift? It needs to happen fast. Can you anticipate how today’s negative narrative can fuel new regulations and laws that will not serve your organization or patients well? PE, it will no longer serve you to stay away from the cameras. And besides, “Patient’s deserve to know whether private equity owns their healthcare,” one might say.

Deliver great care. Provide excellent patient experience. And tell that story.


Contributors: Sheila Biggs, Emme Nelson Baxter, Kevin Phillips, Isaac Squyres, David Shifrin

Image Credit: Shannon Threadgill