Private Equity: The Perps Behind Destructive Hospital Surprise Billing
Private Equity: The Perps Behind Destructive Hospital Surprise Billing by for Naked Capitalism
I have to confess to having missed how private equity is a central bad actor in the “surprise billing” scam that is being targeted by Federal and state legislation. This abuse takes place when hospital patients, even when using a hospital that is in their insurer’s network, are hit with charges for “out of network” services that are billed at inflated rack rates. Even patients who have done everything they can to avoid being snared, like insisting their hospital use only in-network doctors for a surgery and even getting their identities in advance to assure compliance, get caught. The hospital is in charge of scheduling and can and will swap in out-of-network practitioners at the last minute.
Private equity maven and co-director of the Center for Economic and Policy Research Eileen Appelbaum explained in an editorial in The Hill in May how private equity firms have bought specialist physicians’ practices to exploit the opportunity to hit vulnerable patients with egregious charges:
Physicians’ groups, it turns out, can opt out of a contract with insurers even if the hospital has such a contract. The doctors are then free to charge patients, who desperately need care, however much they want.
This has made physicians’ practices in specialties such as emergency care, neonatal intensive care and anesthesiology attractive takeover targets for private equity firms….
Emergency rooms, neonatal intensive care units and anesthesiologists’ practices do not operate like an ordinary marketplace. Physicians’ practices in these specialties do not need to worry that they will lose patients because their prices are too high.
Patients can go to a hospital in their network, but if they have an emergency, have a baby in the neonatal intensive care unit or have surgery scheduled with an in-network surgeon, they are stuck with the out-of-network doctors the hospital has outsourced these services to….
It’s not only patients that are victimized by unscrupulous physicians’ groups. These doctors’ groups are able to coerce health insurance companies into agreeing to pay them very high fees in order to have them in their networks.
They do this by threatening to charge high out-of-network bills to the insurers’ covered patients if they don’t go along with these demands. High payments to these unethical doctors raise hospitals’ costs and everyone’s insurance premiums.
As an example, Appelbaum cites the work of Yale economists who examined what happened when hospitals outsourced their emergency room staffing to the two biggest players, EmCare, which has been traded among several private equity firms and is now owned by KKR and TeamHealth, held by Blackstone:
….after EmCare took over the management of emergency services at hospitals with previously low out-of-network rates, they raised out-of-network rates by over 81 percentage points. In addition, the firm raised its charges by 96 percent relative to the charges billed by the physician groups they succeeded.
The study also described how TeamHealth extorted insurers by threatening them with high out-of-network charges for “must have” services:
…in most instances, several months after going out-of-network, TeamHealth physicians rejoined the network and received in-network payment rates that were 68 percent higher than previous in-network rates.
We’d wondered why California legislation to combat surprise billing got yanked so quickly, with the opponents not even bothering to offer excuses. The official story was that hospitals objected, but the speed of the climbdown looks to have much more to do with the political clout of private equity donors.