Sick Profit: Investigating Private Equity’s Stealthy Takeover of Health Care Across Cities and Specialties


Two-year-old Zion Gastelum died simply days after dentists carried out root canals and put crowns on six child tooth at a clinic affiliated with a non-public fairness agency.

His dad and mom sued the Kool Smiles dental clinic in Yuma, Arizona, and its non-public fairness investor, FFL Companions. They argued the procedures had been finished needlessly, in step with a company technique to maximise earnings by overtreating children from lower-income households enrolled in Medicaid. Zion died after being identified with “mind harm brought on by an absence of oxygen,” based on the lawsuit.

Kool Smiles “overtreats, underperforms and overbills,” the household alleged within the swimsuit, which was settled final yr below confidential phrases. FFL Companions and Kool Smiles had no remark however denied legal responsibility in court docket filings.

Personal fairness is quickly shifting to reshape well being care in America, coming off a banner yr in 2021, when the deep-pocketed companies plowed $206 billion into greater than 1,400 well being care acquisitions, based on business tracker PitchBook.

Searching for fast returns, these buyers are shopping for into eye care clinics, dental administration chains, doctor practices, hospices, pet care suppliers, and hundreds of different corporations that render medical care practically from cradle to grave. Personal equity-backed teams have even arrange particular “obstetric emergency departments” at some hospitals, which may cost expectant moms a whole bunch of {dollars} further for routine perinatal care.

As non-public fairness extends its attain into well being care, proof is mounting that the penetration has led to greater costs and diminished high quality of care, a KHN investigation has discovered. KHN discovered that corporations owned or managed by non-public fairness companies have agreed to pay fines of greater than $500 million since 2014 to settle at the very least 34 lawsuits filed below the False Claims Act, a federal legislation that punishes false billing submissions to the federal authorities with fines. More often than not, the non-public fairness house owners have prevented legal responsibility.

New analysis by the College of California-Berkeley has recognized “scorching spots” the place non-public fairness companies have quietly moved from having a small foothold to controlling greater than two-thirds of the marketplace for doctor providers reminiscent of anesthesiology and gastroenterology in 2021. And KHN discovered that in San Antonio, greater than two dozen gastroenterology places of work are managed by a non-public equity-backed group that billed a patient $1,100 for her share of a colonoscopy cost — about thrice what she paid in one other state.

It’s not simply costs which might be drawing scrutiny.

Whistleblowers and injured sufferers are turning to the courts to press allegations of misconduct or different improper enterprise dealings. The lawsuits allege that some non-public fairness companies, or corporations they invested in, have boosted the underside line by violating federal false claims and anti-kickback legal guidelines or by means of different profit-boosting methods that might hurt sufferers.

“Their mannequin is to ship short-term monetary targets and to be able to do this it’s a must to reduce corners,” stated Mary Inman, an lawyer who represents whistleblowers.

Federal regulators, in the meantime, are nearly blind to the incursion, since non-public fairness usually acquires practices and hospitals under the regulatory radar. KHN discovered that greater than 90% of personal fairness takeovers or investments fall under the $101 million threshold that triggers an antitrust evaluation by the Federal Commerce Fee and the U.S. Justice Division.

Spurring Progress

Personal fairness companies pool cash from buyers, starting from rich folks to school endowments and pension funds. They use that cash to purchase into companies they hope to flip at a large revenue, often inside three to seven years, by making them extra environment friendly and profitable.

Personal fairness has poured practically $1 trillion into practically 8,000 well being care transactions through the previous decade, based on PitchBook.

Fund managers who again the offers typically say they’ve the experience to scale back waste and switch round inefficient, or moribund, companies, they usually tout their position in serving to to finance new medication and applied sciences anticipated to profit sufferers in years to come back.

Critics see a far much less rosy image. They argue that non-public fairness’s playbook, whereas it could work in some industries, is sick suited to well being care, when folks’s lives are on the road.

Within the well being care sphere, non-public fairness has tended to seek out authorized methods to invoice extra for medical providers: trimming providers that don’t flip a revenue, chopping employees, or using personnel with much less coaching to carry out expert jobs — actions that will put sufferers in danger, critics say.

KHN, in a collection of articles revealed this yr, has examined a variety of personal fairness forays into well being care, from its marketing of America’s top-selling emergency contraception capsule to purchasing up entire chains of ophthalmology and gastroenterology practices and investing within the booming hospice care business and even funeral homes.

These offers occurred on prime of well-publicized takeovers of hospital emergency room staffing companies that led to outrageous “shock” medical payments for some sufferers, in addition to the shopping for up of entire rural hospital systems.

“Their solely purpose is to make outsize earnings,” stated Laura Olson, a political science professor at Lehigh College and a critic of the business.

Scorching Spots

With regards to acquisitions, non-public fairness companies have comparable appetites, based on a KHN evaluation of 600 offers by the 25 companies that PitchBook says have most ceaselessly invested in well being care.

Eighteen of the companies have dental corporations listed of their portfolios, and 16 listing facilities that provide therapy of cataracts, eye surgical procedure, or different imaginative and prescient care, KHN discovered.

Fourteen have purchased stakes in animal hospitals or pet care clinics, a market by which fast consolidation led to a recent antitrust action by the FTC. The company reportedly also is investigating whether or not U.S. Anesthesia Companions, which operates anesthesia practices in 9 states, has grown too dominant in some areas.

Personal fairness has flocked to corporations that deal with autism, drug habit, and different behavioral well being situations. The companies have made inroads into ancillary providers reminiscent of diagnostic and urine-testing and software program for managing billing and different elements of medical apply.

Personal fairness has finished a lot shopping for that it now dominates a number of specialised medical providers, reminiscent of anesthesiology and gastroenterology, in a couple of metropolitan areas, based on new analysis made accessible to KHN by the Nicholas C. Petris Center at UC-Berkeley.

Though non-public fairness performs a task in simply 14% of gastroenterology practices nationwide, it controls practically three-quarters of the market in at the very least 5 metropolitan areas throughout 5 states, together with Texas and North Carolina, based on the Petris Heart analysis.

Equally, anesthesiology practices tied to non-public fairness maintain 12% of the market nationwide however have swallowed up greater than two-thirds of it in components of 5 states, together with the Orlando, Florida, space, based on the info.

These expansions can result in greater costs for sufferers, stated Yashaswini Singh, a researcher on the Bloomberg Faculty of Public Well being at Johns Hopkins College.

In a research of 578 doctor practices in dermatology, ophthalmology, and gastroenterology published in JAMA Health Forum in September, Singh and her crew tied non-public fairness takeovers to a median enhance of $71 per medical declare filed and a 9% enhance in prolonged, extra expensive, affected person visits.

Singh stated in an interview that non-public fairness might develop protocols that deliver sufferers again to see physicians extra typically than prior to now, which may drive up prices, or order extra profitable medical providers, whether or not wanted or not, that enhance earnings.

“There are extra questions than solutions,” Singh stated. “It truly is a black gap.”

Jean Hemphill, a Philadelphia well being care lawyer, stated that in some instances non-public fairness has merely taken benefit of the realities of working a contemporary medical apply amid rising administrative prices.

Physicians typically promote practices to non-public fairness companies as a result of they promise to take over issues like billing, regulatory compliance, and scheduling — permitting medical doctors to deal with practising medication. (The physicians additionally may reap a giant payout.)

“You possibly can’t do it on a scale like Marcus Welby used to do it,” Hemphill stated, referring to an early 1970s television drama a couple of kindly household physician who made home calls. “That’s what results in bigger teams,” she stated. “It’s a extra environment friendly approach to do it.”

However Laura Alexander, a former vice chairman of coverage on the nonprofit American Antitrust Institute, which collaborated on the Petris Heart analysis, stated she is anxious about non-public fairness’s rising dominance in some markets.

“We’re nonetheless on the stage of understanding the scope of the issue,” Alexander stated. “One factor is evident: Far more transparency and scrutiny of those offers is required.”

‘Income Maximization’

Personal fairness companies typically deliver a “hands-on” method to administration, taking steps reminiscent of putting their representatives on an organization’s board of administrators and influencing the hiring and firing of key staffers.

“Personal fairness workouts immense management over the operations of well being care corporations it buys an curiosity in,” stated Jeanne Markey, a Philadelphia whistleblower lawyer.

Markey represented doctor assistant Michelle O’Connor in a 2015 whistleblower lawsuit filed towards Nationwide Backbone and Ache Facilities and its non-public fairness proprietor, Sentinel Capital Companions.

In only a yr below non-public fairness steering, Nationwide Backbone’s affected person load quadrupled because it grew into one of many nation’s largest ache administration chains, treating greater than 160,000 folks in about 40 places of work throughout 5 East Coast states, based on the swimsuit.

O’Connor, who labored at two Nationwide Backbone clinics in Virginia, stated the mega-growth technique sprang from a “company tradition by which cash trumps the availability of acceptable affected person care,” based on the swimsuit.

She cited a “income maximization” coverage that mandated medical staffers see at the very least 25 sufferers a day, up from 16 to 18 earlier than the takeover.

The ache clinics additionally overcharged Medicare by billing as much as $1,100 for “pointless and sometimes nugatory” again braces and charging as much as $1,800 every for urine drug exams that had been “medically pointless and sometimes nugatory,” based on the swimsuit.

In April 2019, Nationwide Backbone paid the Justice Division $3.3 million to settle the whistleblower’s civil case with out admitting wrongdoing.

Sentinel Capital Companions, which by that point had bought the ache administration chain to a different non-public fairness agency, paid no a part of Nationwide Backbone’s settlement, court docket information present. Sentinel Capital Companions had no remark.

In one other whistleblower case, a South Florida pharmacy owned by RLH Fairness Companions raked in what the lawsuit referred to as an “terribly excessive” revenue on greater than $68 million in painkilling and scar lotions billed to the army medical health insurance plan Tricare.

The swimsuit alleges that the pharmacy paid unlawful kickbacks to telemarketers who drove the enterprise. One physician admitted prescribing the lotions to scores of sufferers he had by no means seen, examined, and even spoken to, based on the swimsuit.

RLH, based mostly in Los Angeles, disputed the Justice Department’s claims. In 2019, RLH and the pharmacy paid a total of $21 million to settle the case. Neither admitted legal responsibility. RLH managing director Michel Glouchevitch advised KHN that his firm cooperated with the investigation and that “the people answerable for any issues have been terminated.”

In lots of fraud instances, nevertheless, non-public fairness buyers stroll away scot-free as a result of the businesses they personal pay the fines. Eileen O’Grady, a researcher on the nonprofit Personal Fairness Stakeholder Mission, stated authorities ought to require “added scrutiny” of personal fairness corporations whose holdings run afoul of the legislation.

“Nothing like that exists,” she stated.

Questions About High quality

Whether or not non-public fairness influences the standard of medical care is hard to discern.

Robert Homchick, a Seattle well being care regulatory lawyer, stated non-public fairness companies “fluctuate tremendously” in how rigorously they handle well being care holdings, which makes generalizing about their efficiency troublesome.

“Personal fairness has some dangerous actors, however so does the remainder of the [health care] business,” he stated. “I believe it’s flawed to color all of them with the identical brush.”

However incipient analysis paints a disturbing image, which took heart stage earlier this yr.

On the eve of President Joe Biden’s State of the Union speech in March, the White Home launched an announcement that accused non-public fairness of “buying up struggling nursing homes” and placing “earnings earlier than folks.”

The covid-19 pandemic had highlighted the “tragic impression” of staffing cuts and different moneysaving techniques in nursing properties, the assertion stated.

Greater than 200,000 nursing residence residents and staffers had died from covid within the earlier two years, based on the White Home, and analysis had linked non-public fairness to inflated nursing prices and elevated affected person loss of life charges.

Some injured sufferers are turning to the courts in hopes of holding the companies accountable for what the sufferers view as lapses in care or insurance policies that favor earnings over sufferers.

Dozens of lawsuits hyperlink affected person hurt to the sale of Florida medical gadget maker Exactech to TPG Capital, a Texas non-public fairness agency. TPG acquired the device company in February 2018 for about $737 million.

In August 2021, Exactech recalled its Optetrak knee replacement system, warning {that a} defect in packaging may trigger the implant to loosen or fracture and trigger “ache, bone loss or recurrent swelling.” Within the lawsuits, greater than three dozen sufferers accuse Exactech of protecting up the defects for years, together with, some fits say, when “full disclosure of the magnitude of the issue … may need negatively impacted” Exactech’s sale to TPG.

Linda White is suing Exactech and TPG, which she asserts is “straight concerned” within the gadget firm’s affairs.

White had Optetrak implants inserted into each her knees at a Galesburg, Illinois, hospital in June 2012. The proper one failed and was changed with a second Optetrak implant in July 2015, based on her lawsuit. That one additionally failed, and he or she had it eliminated and changed with a unique firm’s gadget in January 2019.

The Exactech implant in White’s left knee needed to be eliminated in Could 2019, based on the swimsuit, which is pending in Cook dinner County Circuit Courtroom in Illinois.

In an announcement to KHN, Exactech stated it performed an “in depth investigation” when it obtained reviews of “sudden put on of our implants.”

Exactech stated the issue dated to 2005 however was found solely in July of final yr. “Exactech disputes the allegations in these lawsuits and intends to vigorously defend itself,” the assertion stated. TPG declined to remark however has denied the allegations in court docket filings.

‘Invasive Procedures’

Prior to now, non-public fairness enterprise techniques have been linked to scandalously dangerous care at some dental clinics that handled youngsters from low-income households.

In early 2008, a Washington, D.C., tv station aired a shocking report a couple of native department of the dental chain Small Smiles that included video of screaming youngsters strapped to straightjacket-like “papoose boards” earlier than being anesthetized to bear unnecessary operations like child root canals.

5 years later, a U.S. Senate report cited the TV exposé in voicing alarm on the “corporate practice of dentistry in the Medicaid program.” The Senate report burdened that the majority dentists turned away children enrolled in Medicaid due to low funds and posed the query: How may non-public fairness generate income offering that care when others couldn’t?

“The reply is ‘quantity,’” based on the report.

Small Smiles settled several whistleblower cases in 2010 by paying the federal government $24 million. On the time, it was offering “enterprise administration and administrative providers” to 69 clinics nationwide, based on the Justice Division. It later declared chapter.

However complaints that volume-driven dentistry mills have harmed deprived youngsters didn’t cease.

In response to the 2018 lawsuit filed by his dad and mom, Zion Gastelum was hooked as much as an oxygen tank after questionable root canals and crowns “that was empty or not working correctly” and put below the watch of poorly skilled staffers who didn’t acknowledge the blunder till it was too late.

Zion by no means regained consciousness and died 4 days later at Phoenix Kids’s Hospital, the swimsuit states. The reason for loss of life was “undetermined,” based on the Maricopa County health worker’s workplace. An Arizona state dental board investigation later concluded that the toddler’s care fell under requirements, based on the swimsuit.

Lower than a month after Zion’s loss of life in December 2017, the dental administration firm Benevis LLC and its affiliated Kool Smiles clinics agreed to pay the Justice Department $24 million to settle False Claims Act lawsuits. The federal government alleged that the chain carried out “medically pointless” dental providers, together with child root canals, from January 2009 by means of December 2011.

Of their lawsuit, Zion’s dad and mom blamed his loss of life on company billing insurance policies that enforced “manufacturing quotas for invasive procedures reminiscent of root canals and crowns” and threatened to fireplace or self-discipline dental employees “for producing lower than a set greenback quantity per affected person.”

Kool Smiles billed Medicaid $2,604 for Zion’s care, based on the swimsuit. FFL Companions didn’t reply to requests for remark. In court docket filings, it denied legal responsibility, arguing it didn’t present “any medical providers that harmed the affected person.”

Masking Tracks

Below a 1976 federal legislation referred to as the Hart-Scott-Rodino Antitrust Improvements Act, deal-makers should report proposed mergers to the FTC and the Justice Division antitrust division for evaluation. The intent is to dam offers that stifle competitors, which may result in greater costs and lower-quality providers.

However there’s an enormous blind spot, which stymies authorities oversight of greater than 90% of personal fairness investments in well being care corporations: The present threshold for reporting offers is $101 million.

KHN’s evaluation of PitchBook knowledge discovered that simply 423 out of seven,839 non-public fairness well being care offers from 2012 by means of 2021 had been identified to have exceeded the present threshold.

In some offers, non-public fairness takes a controlling curiosity in medical practices, and medical doctors work for the corporate. In different instances, notably in states whose legal guidelines prohibit company possession of doctor practices, the non-public fairness agency handles a variety of administration duties.

Thomas Wollmann, a College of Chicago researcher, stated antitrust authorities might not be taught of consequential transactions “till lengthy after they’ve been accomplished” and “it’s totally arduous to interrupt them up after the actual fact.”

In August, the FTC took purpose at what it referred to as “a rising pattern towards consolidation” by veterinary medication chains.

The FTC ordered JAB Client Companions, a non-public fairness agency based mostly in Luxembourg, to divest from some clinics within the San Francisco Bay and Austin, Texas, areas as a part of a proposed $1.1 billion takeover of a rival.

The FTC stated the deal would eradicate “head-to-head” competitors, “rising the chance that prospects are pressured to pay greater costs or expertise a degradation in high quality of the related providers.”

Below the order, JAB should obtain FTC approval earlier than shopping for veterinary clinics inside 25 miles of the websites it owns in Texas and California.

The FTC wouldn’t say how a lot market consolidation is an excessive amount of or whether or not it plans to step up scrutiny of well being care mergers and acquisitions.

“Each case is fact-specific,” Betsy Lordan, an FTC spokesperson, advised KHN.

Lordan, who has since left the company, stated regulators are contemplating updates to rules governing mergers and are reviewing about 1,900 responses to the January 2022 request for public comment. At the least 300 of the feedback had been from medical doctors or different well being care staff.

Few business observers anticipate the considerations to abate; they may even enhance.

Buyers are flush with “dry powder,” business parlance for cash ready to stoke a deal.

The Healthcare Personal Fairness Affiliation, which boasts about 100 funding corporations as members, says the companies have $3 trillion in belongings and are pursuing a imaginative and prescient for “building the future of healthcare.”

That type of speak alarms Cornell College professor Rosemary Batt, a longtime critic of personal fairness. She predicts that buyers chasing outsize earnings will obtain their targets by “sucking the wealth” out of increasingly more well being care suppliers.

“They’re consistently on the lookout for new monetary methods and techniques,” Batt stated.

KHN’s Megan Kalata contributed to this text.

KHN (Kaiser Well being Information) is a nationwide newsroom that produces in-depth journalism about well being points. Along with Coverage Evaluation and Polling, KHN is likely one of the three main working applications at KFF (Kaiser Household Basis). KFF is an endowed nonprofit group offering info on well being points to the nation.

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