Profits, Providers, and Private Companies: What Happens When Wall Street Owns Your Neonatal Care or Anesthesia Practice? Part one
Myron Yaster MD and William Greeley MD, MBA
“The world is full of obvious things which nobody by any chance ever observes.” Sherlock Holmes
“No matter what anyone says, it’s always about money”. Mark Rogers MD
When I first started attending annual meetings of the ASA, IARS, SCCM, and SPA, the exhibitor halls were jammed packed with what was new and where the profession practice was heading. There were booths for drugs, equipment, books and journals. And yet, over the past couple of years this has changed rather dramatically, and the exhibitor booths are increasingly being dominated by physician management companies and individual hospitals and locum practices looking to recruit faculty. In today’s PAAD, we are going to review a couple of articles on physician management companies (PMCs), private equity (PE) funding and their effects on health care delivery in the United States and why we should care. I must admit that while I was researching articles for today’s PAAD, I was astonished at how little literature exists in the anesthesia literature on this topic which was “hiding in plain sight”. Indeed, today’s featured articles come from JAMA Internal Medicine1, 2 and not from our professional journals Anesthesiology or Anesthesia and Analgesia. Indeed, I discovered these articles after reading about the effects of PMCs and PE in NICUs in this month’s issue of Pediatrics.3, 4 How could something that affects so many of us be so under the radar in our professional publications?
The role of PMCs and private equity funding is by no means an area of my expertise. I’ve recruited my dear friend and colleague Dr. Bill Greeley who is an expert to help. Finally, the goal of the PAAD is to keep the information provided short, about 5-7 minute reads. I had to divide today’s PAAD into 2 parts to make this possible. Myron Yaster MD
But first a few words from Dr. Galucomflecken
Original article
La Forgia A, Bond AM, Braun RT, Yao LZ, Kjaer K, Zhang M, Casalino LP. Association of Physician Management Companies and Private Equity Investment With Commercial Health Care Prices Paid to Anesthesia Practitioners. JAMA Intern Med. 2022 Apr 1;182(4):396-404. PMID: 35226052
Editorial
Francis J Crosson. Physician Management Companies-Should We Care? JAMA Intern Med. 2022 Apr 1;182(4):404-406. doi: 10.1001/jamainternmed.2022.0001. PMID: 35226040
Original article
Yu J, Tyler Braun R, Bond AS, La Forgia AM, RoyChoudhury A, Zhang M, Kim J, Casalino LP. Physician Management Companies and Neonatology Prices, Utilization, and Clinical Outcomes. Pediatrics. 2023 Apr 1;151(4):e2022057931. PMID: 36929378
Editorial
Scott A. Lorch, MD, MSCE. Profits, Providers, and Private Companies: What Happens When Wall Street Owns Your Neonatal Care. Pediatrics (2023) 151 (4): e2022060788. https://doi-org.proxy.hsl.ucdenver.edu/10.1542/peds.2022-060788
La Forgia et al. found that “prices paid to anesthesia practitioners increased after hospital outpatient departments and ambulatory surgery centers contracted with a PMC and were substantially higher if the PMC received PE investment. This research provided insights into the role of corporate ownership in health care relevant to policy makers, payers, practitioners, and patients”.2 The authors further posited that “the proliferation of PMCs and PE firms in health care has raised concerns about increasing upward pressure on prices for in-network care, which can contribute to higher insurance premiums and higher patient cost-sharing.” In an accompanying editorial Crosson points out that PE firms typically invest in businesses for 3 to 7 years with expectation of > 20% returns. He noted that the opportunities to add revenue and decrease costs are not infinite and questions the long-term viability of the PMC PE backed business model.
These results are almost identical to the findings by Yu et al. in their study of what happens when PMCs own neonatal intensive care practices.3, 4 These authors found that "PMC-NICU affiliation was associated with a 70.4% mean differential increase in prices paid to PMC’s by insurers across the five most common types of critical and intensive care days in PMC affiliated NICUs compared with price increases in non-PMC affiliated NICUs”. Further, the increases in prices did not show an improvement in resource utilization, readmissions, or clinical outcomes. In other words, there was a substantial increase in prices with no added value. The authors point out the extent, if any, to which PMC share revenue from higher prices with employed neonatologists is unknown. In the accompanying editorial by Lorch, he also notes the 56% increase in price is paid for physician services after PE affiliation, without changes in patient outcome. He further notes that these dramatic increases in prices stem from changes in negotiation leverage by moving from a small physician practice to a large multi-site corporation. This increase in costs eventually trickle down to businesses and patients in the form of higher cost and decrease benefits for a given health insurance plan. Importantly, he notes that the explicit focus on profit may change the professionalism of care providers. For example, he questions whether such a profit focus will promote an increased use of axillary healthcare services such as radiology, laboratory studies, etc. He concludes with the statement that “it appears that private equity firms and PMCs may be another example of lower value, higher cost care in the unique US health care market”.
Originally, most PMCs provided physician practices and healthcare entities with “back office” management services, relieving physicians of these tasks and reducing practice costs (e.g., using purchasing scale to lower supply costs, or reducing staffing). PMCs also sought to enhance practice revenue by using economies of scale in contracting. Later, rather than providing these services to physician practices on a consulting basis, many PMCs choose to take ownership positions in the facilities and physician practices as an investment for their private shareholders and/or for private equity (PE) firms, seeking a greater share of the profits. This intensified the financial incentives for the physicians and the practices. “To gain facility contracts, PMCs can either acquire an anesthesia group and take over the group’s existing facility contracts, or they can submit bids on facility requests for proposals. After winning a contract bid, PMCs may employ some or all the existing anesthesia practitioners in the facility, fill positions using practitioners already employed by the PMC, or a combination of both. A practitioner may choose to join a PMC to reduce administrative responsibilities and receive the economic benefits of a larger organization, such as greater income stability, particularly given recent concerns of underpayment from large insurance companies”.2 Currently, “the 8 largest anesthesia focused PMCs own approximately 22% of all anesthesia practices”.2 North American Partners in Anesthesia (NAPA) is the nation's largest anesthesia staffing company, employing 6,000 clinicians at 500 facilities in 21 states. The company is owned by two well-heeled private-equity firms, American Securities of New York City and Leonard Green & Partners in Los Angeles.
In tomorrow’s PAAD we will discuss the world of PE funding and how it works.
References
1. Crosson FJ. Physician Management Companies-Should We Care? JAMA internal medicine. Apr 1 2022;182(4):404-406. doi:10.1001/jamainternmed.2022.0001
2. La Forgia A, Bond AM, Braun RT, et al. Association of Physician Management Companies and Private Equity Investment With Commercial Health Care Prices Paid to Anesthesia Practitioners. JAMA internal medicine. Apr 1 2022;182(4):396-404. doi:10.1001/jamainternmed.2022.0004
3. Yu J, Tyler Braun R, Bond AS, et al. Physician Management Companies and Neonatology Prices, Utilization, and Clinical Outcomes. Pediatrics. 2023;151(4)doi:10.1542/peds.2022-057931
4. Lorch SA. Profits, Providers, and Private Companies: What Happens When Wall Street Owns Your Neonatal Care. Pediatrics. 2023;151(4)doi:10.1542/peds.2022-060788