A SECOND OPINION
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Private Equity in U . S . Health Care by MICHAEL FLYNN , MD
The current health care industry in the U . S . is an insanely complex system focused on extracting profit from health care activities instead of providing high quality care to its citizens . U . S . health care is burdened with over 900 for-profit health insurance companies , each with multiple different plans ranging from excellent to minimal coverage depending on the cost of the premiums . 1 Pre-authorization , networks , deductibles , co-payments , surprise billing , uncovered services , denial of coverage , out of pocket costs : all were created by this system of nightmare complexity .
This allows the for-profit health insurance companies to extract hundreds of billions of dollars in administrative costs , political contributions , outrageous executive compensation and investor dividends . 2
The pharmaceutical industry functions in a minimally regulated environment raising prices on drugs like insulin that have been around for decades . 3 With the recent passage of the Inflation Reduction Act , Medicare is now able to negotiate the cost of a limited number of the most expensive drugs . 4 The average person ’ s pharmaceutical spending in the U . S ., was more than $ 1,400 , higher than any peer nation , according to the Organization for Economic Cooperation & Development . 5 Thirty percent of Americans do not take all prescribed medication at some point in the past year because of cost .
Pharmacy Benefit Managers are middlemen functioning in a mysterious world between drug manufacturer , drug distribution , health care insurance companies , pharmacies , health systems , hospitals and consumers / patients . 6 They negotiate drug prices with manufacturers and pharmacies , establish drug formularies and pharmacy networks and process drug claims . They manage to profit from every step in this process making the cost of drugs in the U . S . exponentially higher than any other developed nation .
Medical debt incurred from unpaid medical bills is the leading cause of bankruptcy in the U . S . 7 Forty percent of U . S . adults , or about 100 million people , are in debt because of medical and dental bills . Medical debt and medical bankruptcy in other first world / developed nations ( Canada , UK , European Union , Japan , Taiwan , Australia , New Zealand ) is either non-existent or occurs in a fraction of the frequency in the U . S . 8
The financial exploitation of the current system is becoming exponentially worse as the Wolves of Wall Street , in the form of private equity ( PE ) companies , purchase a wide assortment of health care facilities . These economic / financial predators are buying nursing homes , hospitals , physician practices , surgical centers , emergency rooms , laboratories , imaging facilities , anything they can get their hands on . These are leveraged buy outs with 25-30 % equity from the purchasers and 70-75 % debt with the collateral being the facility ( hospital , physician practice , surgical center ).
The non-professional component is bought with the goal of making a 15-25 % return on investment annually for three to seven years and then sell for a profit . This is not meant to be a long happy marriage . Return on investment is accomplished in an assortment of ways depending on the type of facility obtained . The overall strategy is to “ improve efficiency .”
Seventy percent of nursing homes in the U . S . are PE owned . “ Improving efficiency ” in nursing homes involves staff reduction with ensuing negative impact on care . Often over-medicated patients remain in bed with fecal filled diapers , often not fed on a regular basis , left sitting on toilets , and so on - there are many other well documented negative care consequences . In a nursing home in Tampa , a resident died from a fecal contaminated bed sore . 9 The understandably distressed family sued the PE owners . They encountered a nightmare corporate structure . One company owned
36 LOUISVILLE MEDICINE OPINION