Making Doctors Better Businessmen

 

I was scanning a medical journal today - I subscribe to one just for old time’s sake - and I ran across an article that reminded me of my cousin Steve’s ideas about business and the profit motive. The article describes what happens when a hospital is acquired by a private equity firm.  

Private equity firms buy businesses that are unprofitable, usually at bargain basement prices. Then they make changes to improve their “efficiency,” and after five to ten years, they sell the businesses at a profit. Alternatively they borrow money using the acquired businesses as collateral and leave it saddled with debt. 

The study included data from 51 hospitals pre and post acquisition by a private equity firm, and from 259 control hospitals public and private hospitals similar in size and location. They found that hospital acquired conditions, specifically falls, intravenous line and post surgical infections increased by 25% after acquisition, despite admitting younger healthier patients. Hospital stays were shorter after acquisition but there were fewer discharges home. Instead patients were transferred to other hospitals or to skilled nursing homes. 

Previous studies have shown that private equity firms increase profits by cutting staffing and salaries while increasing charges. This study shows that these changes lead to an alarming increase in hospital acquired conditions. 

Medicare pays for only a certain number of days of hospitalization for each diagnosis, so these hospitals just transferred the patients with complications to other facilities. Medicare also penalizes hospitals with more hospital acquired conditions so these conditions might be underreported. This suggests the problem is even worse than the numbers indicate. 

This is only one example of how the profit motive effects medical care. When I first went into practice, a private company bought the hospital where I practiced, which had previously been owned by a religious denomination. The first thing I noticed was a change in priorities. The doctors had a weekly meeting where we discussed interesting cases or reviewed medical journal articles. After the new company bought the hospital, some of our meetings became “quality of care” reviews. The discussions had nothing to do with quality of care, but rather length of stay. The shorter the stay, the better the quality. Then after a year or so, the new company started hiring doctors and buying up their practices. This way they had more control over them. This is when I left. 

Like my cousin Steve, I never was a good businessman. I preferred to spend my time taking care of patients instead of worrying about how much money I was making. 

Anyway, after leaving private practice, I went to work for Kaiser Permanente for a salary. Kaiser is organized into two parts, a business and support staff section, and a physician section which is independent. They are concerned with costs, but they maintain standards of care by creating algorithms that reflect best practices according to the medical literature. It’s not a perfect system, but they’ve done pretty well financially, and I was happy there. That’s where I finished my career. I always felt that I was “earning my oxygen.”

Reference: Sneha Kannan, MD; Joseph Dov Bruch, PhD; Zirui Song, PhD. Changes in Hospital Adverse Events and Patient Outcomes Associated With Private Equity Acquisition. Journal of the American Medical Association. 2023;330(24): 2365-2375.