The non-governmental healthcare/pharmaceutical sector has one of the highest average levels of profitability (almost 20%) of any major corporate sector in the country. They spend over $12 billion annually in advertising, have hundreds and hundreds of lobbyists, and like virtually all for-profit corporations, they have only one stakeholder to whom they are responsible: their shareholders. For private equity firms in this sector, their stakeholders are their partners and investors. The obligation to the general public, employees and customers is regulated by statutes and regulations. Their “altruism” is a marketing effort, often subsidized by government.
For pharmas, they have a ticking clock – the 20 years exclusivity granted under US patent laws. But for reasons I have explained in the past, sometimes the resulting post-patent-term generics remain pretty pricey anyway. For pharmas, that limited window of patent exclusivity often drives these behemoths to maximize efforts to generate profitability… fast. Oxycontin fueled the opioid crisis as the manufacturers, Purdue Pharma, aggressively marketed the drug with physician incentives and false advertising… and became the poster-pharma for addiction. The Sackler family, the principal owners, have struggled with numerous lawsuits and ultimate bankruptcy for their misplaced zeal.
We’ve seen examples of egregious investors buying a patent and then jacking up the price astronomically. In 2015, Turing Pharmaceuticals CEO Martin Shkreli, a boyish-looking 34, outraged patients and U.S. lawmakers by raising the price of anti-parasitic drug Daraprim to $750 a pill, from $13.50. A 5,000% price hike on an existing life-saving drug. Eventually convicted in a fraudulent Ponzi scheme, Shkreli exemplified the toxic mix between profits and healthcare.
But the profit-profit-profit pressures are on hedge funds and private equity to seek out assets they can buy, add efficiencies in whatever way they can, and then flip the reconfigured company back into the marketplace. The investor-buyers tend to use lots of debt, secured and paid for by the revenue flow of their acquisitions. They often like to “roll-up” similar assets, where administration costs can be seriously reduced by centralized control of many similar entities under one management umbrella.
When private equity enters the healthcare arena, the one element of their investment that is deprioritized is healthcare. See also my November 13th Mutually Exclusive: Massive Profits or Solid Healthcare? blog for an analysis of private equity’s taking over emergency rooms and then providing outsourced management and care, with disastrous consequences. Private equity has been increasingly interested in healthcare as one industry that they never expect to go out of style. The consequences of this trend do not augur well for patients served by their acquisition targets, as Reed Abelson and Margot Sanger-Katz explain in the December 27th New York Times: “The rate of serious medical complications increased in hospitals after they were purchased by private equity investment firms, according to a major study of the effects of such acquisitions on patient care in recent years…
“The study, published in JAMA [The Journal of the American Medical Assn.] on Tuesday [12/26], found that, in the three years after a private equity fund bought a hospital, adverse events including surgical infections and bed sores rose by 25 percent among Medicare patients when compared with similar hospitals that were not bought by such investors. The researchers reported a nearly 38 percent increase in central line infections, a dangerous kind of infection that medical authorities say should never happen, and a 27 percent increase in falls by patients while staying in the hospital… ‘We were not surprised there was a signal,’ said Dr. Sneha Kannan, a health care researcher and physician at the division of pulmonary and critical care at Massachusetts General Hospital, who was the paper’s lead author. ‘I will say we were surprised at how strong it was.’
“Although the researchers found a significant rise in medical errors, they also saw a slight decrease (of nearly 5 percent) in the rate of patients who died during their hospital stay. The researchers believe other changes, like a shift toward healthier patients admitted to the hospitals, could explain that decline. And by 30 days after patients were discharged, there was no significant difference in the death rates between hospitals.
“Other researchers who reviewed the study said that while it didn’t provide a complete picture of private equity’s effects, it did raise important questions about the quality of care in hospitals that had been taken over by private equity owners… ‘This is a big deal because it’s the first piece of data that I think pretty strongly suggests that there is a quality problem when private equity takes over,’ said Dr. Ashish Jha, the dean of the Brown University School of Public Health, who has also studied hospital safety extensively.
“Over the last two decades, private equity firms have become major players in health care, purchasing not just hospitals but also a growing number of nursing homes, physician practices and home health care companies. The firms pool money from institutional investors and individuals to form investment funds, often buying hospitals and other entities through high levels of debt, with an eye to reselling them in a few years. A separate recent study suggested the firms were consolidating physician groups in certain local markets, potentially leading to higher prices... So far, these firms own a small share of hospitals in the United States, though the numbers are hard to measure because the transactions are not always public.” USA Today (December 27th), points out another highlight from the study: “Bloodstream infections associated with central line catheters jumped by 38% in the same three years after a private equity purchase, despite a decline in the placement of these tubes..” Makes you feel all warm and fuzzy inside, right?
We spend approximately 17% of our GDP on healthcare, far and away the highest percentage in the world. And yet, the quality of healthcare (and our average life expectancy) is declining. In 1974, President Richard Nixon proposed universal healthcare, a notion that was instantly shot down by his Republican compatriots in Congress. In 2010, the Obama administration – with lots of concessions to for-profit players in the sector – got the Affordable Care Act passed in a moment when Dems had a majority in both houses of Congress. Over time, judicial rulings and GOP riders diluted the benefits under the ACA.
The MAGA GOP has sworn to fight the ACA and certainly any level of universal healthcare, a position that is seriously detrimental to most of their constituents. Although standard in capitalist countries, like Porsche-Mercedes-Audi car-making nation Germany or mega-pricey watches and precision manufacturing equipment-manufacturing Switzerland, MAGA voices scoff at universal healthcare by simply mislabeling it as “creeping socialism.” I like to think of our healthcare priorities as “creeping quality decline.”
I’m Peter Dekom, and while profiteering is destroying the quality of American healthcare, we remain the only developed country that does not have universal healthcare.
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