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Private Equity in U. S. Health Care – Part 2: The Wolves of Wall Street Are Hungry
by Michael Flynn, MD
Blue Cross and Blue Shield( BC / BS) became a forprofit company, Wellpoint, in 1994. Before becoming Wellpoint in 1993, BC / BS administrative cost was 5 %, with 95 % of revenue going to provide health care. 1 As a for-profit, BC / BS administrative cost increased to 20-35 % with health care revenue falling to 65-80 %. The administrative cost of traditional Medicare is a low 1.3 %. 2 The costs of administering the private Medicare Advantage and part D drug plans are higher, in the 8 % range.
The current health care industry in the U. S. is an insanely complex system focused on extracting profit from health care activities more than on 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. 3 Preauthorization, networks, deductibles, copayments, surprise billing, non-covered services, denial of coverage and the inevitable out-of-pocket costs have created this system of nightmare complexity. This allows the for-profit health insurance companies to extract hundreds of billions of dollars from U. S. health care as administrative costs, political contributions, robust executive compensation and investor dividends. 4 The source of this revenue is the income from premiums paid by citizens, with the expectation of obtaining health care insurance coverage.
The combination of hundreds of for-profit health insurance companies, an essentially unregulated pharmaceutical industry, the mysterious activities of pharmacy benefit managers( middlemen functioning as intermediaries among drug production, distribution,
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pricing, pharmacies, hospitals and health systems, and patients / consumers) plus the impact of the economic predators, private equity( PE) companies: all of these add up to the U. S. spending twice as much on health per person as other first world / developed countries. 5
The negative impact on the quality of care provided in health facilities owned by PE companies has been well documented. 6, 7 There is an even worse consequence of the involvement of PE companies in U. S. health care. The economic policies of PE companies’ purchases of hospitals, physician practices, nursing homes, health care systems and whatever health facilities they can acquire, can result in bankruptcy. Most of these activities are carried out under the cloak of secrecy.
A recent example is the collapse of the 31 hospital Steward Health Care System in Boston in May 2024. 8, 9 Steward was the descendant of the Caritas Christi hospital chain owned by the Archdiocese of Boston. Cerberus Capital Management purchased non-profit Caritas Christi Health Care from the Archdiocese in 2010, rebranding it a for-profit Steward Health Care. Steward signed a sale-leaseback agreement with Medical Properties Trust( MPT – real estate investment trust company), selling the land and buildings occupied by the hospitals to MPT then leasing them back to Steward, a move that put money back into the management firm’ s own pockets via payments on the lease. By 2020, Cerberus had made $ 800 million from the initial investment and then sold it back to Steward’ s management team. Over the next few years concerns about the quality of care arose, and financial disintegration occurred. Steward could not keep up with the rent payments
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