By Richard M. Scheffler and Laura M. Alexander | Published July 20, 2021 in The Milbank Quarterly | Link to Full Article
On May 19, 2021, Senator Amy Klobuchar (D-MN), chair of the US Senate Subcommittee on Competition Policy, Antitrust, and Consumer Rights, held a hearing on hospital consolidation and the subsequent increase in hospital prices observed across the U.S. Most hospital markets meet the FTC/DOJ guidelines definition of being highly concentrated and, as a result, are not likely to exhibit competitive levels of prices, quality, or innovation. Yet, the COVID-19 pandemic is shaping the financial outlooks of large and small hospital systems in a manner that is expected to further fuel this consolidation trend. Coming out of the COVID-19 pandemic, private equity funds are sitting on enormous stores of “dry powder,” money they have amassed from investors and are required to spend or return within the next several years. Widespread expectations are that much of that dry powder will be deployed in health care, ultimately leading to vertical integration.
The article explores the harmful effects of post-COVID-19 consolidation through private equity in the healthcare space, emphasizing the damaging effects on local health care markets.
Blue Cross and Blue Shield of North Carolina has partnered with investment firm Deerfield Management Company in a joint venture aimed at helping independent physicians grow and strengthen their practices. The company will offer management infrastructure, technology support and marketplace information. Modern Healthcare sought comments from Dr. Richard Scheffler on the effects of this joint venture on independent physician practices, with Scheffler noting that this could help these physicians “ease the difficulty of managing their own small practice in today’s healthcare environment.”
Read the full article and all of Dr. Scheffler’s insights here.
Modern Healthcare interviewed Richard Scheffler for an article discussing the growing trend of private equity investment in the healthcare sector. They also cite his recent report on the topic. The interview took place after the noteworthy buyout of medical supply company Medline by a trio of private equity firms—Blackstone Group, Carlyle and Hellman & Friedman. As Dr. Scheffler puts it, this may be “the start of an explosion of private equity deals in healthcare.”
Read the full article here.
The Petris Center and American Antitrust Institute (AAI)’s joint report on rising private equity investment in the healthcare industry was cited during the May 19 hearing of the U.S. Senate Committee on the Judiciary’s Subcommittee on Competition Policy, Antitrust, and Consumer Rights as part of the discussion about hospital consolidation and competition. The Petris Center’s Richard Scheffler and AAI’s Laura Alexander were recognized by name as the authors of this report.
Senator Blumenthal (D-CT) expressed concern over the impact of private equity investment on hospital consolidation and quality of patient care. He asked witness Professor Martin S. Gaynor of Carnegie Mellon University for his assessment of the role of hospital debt burden in necessitating hospital closures or mergers. Professor Gaynor then cited Richard Scheffler and Laura Alexander’s recent private equity report, noting that there is significant concern about private equity activity leading to consolidation and potentially diminishing quality of care due to misaligned incentives between private equity investors and patients and physicians.
Hear Senator Blumenthal and Professor Gaynor’s discussion of hospital consolidation and the private equity report during the May 19 hearing, beginning at about 1:25.
Jamie Godwin, Daniel Arnold, Brent Fulton, and Richard Scheffler collaborated and studied the relationship between hospital ownership of physician organizations and prices in “The Association between Hospital-Physician Vertical Integration and Outpatient Physician Prices Paid by Commercial Insurers: New Evidence“. The widespread acquisition of physician practices by hospitals and health systems—a practice known as vertical integration—has been the most significant shift in healthcare provider market structure over the past decade. Market-level hospital-physician vertical integration was positively associated with physician prices for select specialties but was not associated with changes in the use of facility-fee billing. The authors call for more research to be done on quality effects of hospital-physician vertical integration.
Daniel Arnold and Christopher Whaley’s paper, “Who Pays for Health Care Costs? The Effects of Health Care Prices on Wages“, was presented at the Thirteenth Annual FTC Microeconomics Conference. It explores the relationship between rising health care costs and slower wage growth for employer-sponsored insurance.
Using hospital market structure and price assessed for Metropolitan Statistical Areas, they find hospital mergers lead to a $521 increase in hospital prices, a $579 increase in mean hospital spending, and a $638 reduction in wages. The results support that hospital mergers affect consumers through lower wages. Both the direct cost of medical care and the indirect cost to wages and should be considered in health care reforms.
Hear Chris Whaley present the paper on Day 1 (PM) of the conference.
Richard Scheffler and Thomas Price examine The Biden Administration’s path for implementing public option and states’ successes in using “quasi-public options”. Given potential political difficulty in passing national legislation, they identify key states that may enact public option programs. Risk-based capitation may product higher quality outcomes as a payment model.