The corporatization of medicine is not new. As Paul Starr masterfully documented in his historical account of American medicine, throughout the 20th Century various private organizations pursued bureaucratic control over the delivery of healthcare. Initially, the medical profession was largely successful in resisting efforts to corporatize healthcare. Several decades of mergers, acquisitions and corporate alliances, however, have firmly entrenched corporate ownership in American healthcare. In their article Private Equity and the Corporatization of Health Care, Erin Fuse Brown and Mark Hall explore the latest chapter of this trend—the acquisition of physician practices by private equity (PE) firms.
An aging population, advancements in medical technology and drug therapies, and other factors have fueled tremendous growth in the health care sector, which today comprises one-sixth of the U.S. economy. As the healthcare sector has expanded, private equity (PE) investors have recognized health care organizations as potential sources for profit-making. In Part I of their article, Fuse Brown and Hall explain that this PE incursion into health care is a particularly aggressive form of corporate investment. When PE firms target physician practices, they assume control over practices’ business strategies and downgrade physician ownership to minority status. This leaves acquired physician practices no longer governed by health professionals with ethical obligations that put patients’ medical needs before profits. Moreover, PE’s goal of boosting profitability leads to a focus on quick fixes and practices designed to maximize revenue rather than long-term operational changes that would enhance the quality and efficiency of care.
The authors identify several risks posed by the PE model. First, incremental acquisitions can result in horizontal market consolidation, which can increase prices, reduce the quality of medical care, and limit access. Second, astute PE investors have capitalized on various market inefficiencies for profit, such as exploiting billing loopholes, engaging in aggressive risk-coding, and steering patients to unnecessary or inefficient care. These practices in turn risk increasing overall healthcare spending without any corresponding improvements in quality. Third, PE control of physician practices threatens physicians’ clinical independence and can result in reduced staffing levels, potentially compromising the quality of patient care and physician morale. The authors also highlight several studies of PE in health care that support these concerns.
Fuse Brown and Hall convincingly argue that mitigating these risks requires an immediate and comprehensive policy response. The good news, as thoroughly covered in Part II of their article, is that existing legal tools under federal and state law can address many of the risks posed by PE investment in physician practices. These include antitrust laws that can target horizontal consolidation and fraud and abuse laws that police improper medical billing and self-referral. The authors also call for the revival of two policies that have fallen into disfavor, the corporate practice of medicine doctrine and state fee-splitting laws. In addition, employment laws can target PE practices that curtail physicians’ clinical and professional autonomy, such as non-compete, anti-disparagement, and non-disclosure provisions in physician employment contracts.
The article’s examination of existing legal tools provides a timely and indispensable roadmap for policymakers and legal practitioners seeking to safeguard the healthcare system from the adverse consequences of PE investment in physician practices. For example, regulators and qui tam litigators looking to curb PE-owned practices’ inappropriate billing and referral practices will benefit greatly from the authors’ in-depth analysis of fraud and abuse case law and regulations. Fuse Brown and Hall also discuss specific steps regulators can take to strengthen existing enforcement tools. For instance, antitrust regulators can increase their scrutiny of PE firms’ incremental acquisitions by lowering the mandatory reporting thresholds for pre-merger review and updating federal antitrust merger guidelines to address serial add-on acquisitions across broader geographic markets.
The authors’ meticulous analysis of existing laws, however, reveals a regulatory landscape that in many respects is ill-equipped to address the risks posed by PE investment in health care. To close these gaps, the authors propose various legislative actions designed to strengthen existing laws. For instance, states can amend their medical practice laws to eliminate loopholes that have allowed PE investors to circumvent the corporate practice of medicine prohibition. The authors also advocate for new legislation that would create additional policy tools for mitigating the risks of PE in healthcare, including closing Medicare billing loopholes, enhancing transparency in PE ownership and financial structures, and eliminating the tax advantages enjoyed by PE investors. Finally, in a nod to federalism, the authors stress the essential role played by states in responding to PE’s incursion into health care, both as co-enforcers of applicable federal law and overseers of medical practice laws that have no federal counterpart.
In sum, this provocative article is a must-read for anyone concerned with the continued march toward the corporatization of health care. While corporatization can support the shift to value-based care by providing needed capital, economies of scale, and innovation, its underlying profit motive also threatens medicine’s traditional professional values. Fuse Brown and Hall argue that with PE’s incursion into health care, the pendulum has swung too far in the direction of profiteering. Their article issues an urgent call to utilize existing policy levers to protect the healthcare system from the potential risks posed by PE. But Fuse Brown and Hall also caution that our existing legal tools are outdated and that legislative and regulatory action is needed to if we are to fully address the potential harms of PE investment in health care.
