My last post discussed current and historical business
practices to ration medical care and increase profits by reducing reimbursement
to hospitals and physicians while decreasing benefits to patients. The net result of those practices is shifting
the cost of care to patients or in the extreme case just not paying the bills
at all. The current situation at
Hennepin County Medical Center was the case in point.
This morning an article came out in the Star Tribune HCMC is too big to fail, but Hennepin County leaders
say it’s now on life support (1). That
well-worn description of being too big to fail misses the point that
many large county hospitals have failed.
It did not matter how many services they provided or the fact they were
training physicians. In one famous case all
of the physician trainees were informed the hospital was closing and they
needed to find a new training program.
The most famous case was Hahnemann Medical Center in
Philadelphia 2019. In that case 570
trainee across 35 separate programs.
Hahnemann had been a safety net hospital for low-income populations for
over 170 years. The permanent closure of
Hahnemann resulted in 20% increase emergency room volumes and an 80% increase
in wait times. An additional 12-14 Pennsylvania hospitals are at risk of
closing by 2031 largely due to reductions in Medicaid funding.
The Hahnemann closure was one of the first examples of what
can happen to healthcare assets under private equity management. In the case of Hahnemann, there was a debt
financed purchase of the hospital. The real estate assets were spun off into
private management while the hospital was left to pay off a high interest loan
and went bankrupt 18 months after the acquisition. There was controversy about the 570 residency
slots and 6 local healthcare networks bid $55M – but courts eventually ruled that
they were not assets. The properties
were eventually broken up and sold to recoup the cost of the bankruptcy. The state of Pennsylvania passed laws to
prevent hedge funds or private equity from interfering with healthcare
businesses that are in the public interest and they require a 6 month notice
with a closure plan for any hospital in the state.
Almost on cue – the New England Journal of Medicine (NEJM)
came out with three commentaries (4-6) on what can only be described as the predatory
financing of healthcare. For the record
– I consider rationed healthcare and cost shifting and all the mechanisms
associated with that - predatory financing.
Healthcare is about the only field I know where you can do the work,
business managers can decide not to pay you, and they are backed up by some
government regulation. It is not like the work is elective or some kind of
scam. In all my years of acute care
psychiatry – I was not pulling people in off the street. I was generally trying to solve severe
problems that many other people had decided required hospital care and passed
on to me. Despite that consensus – some
business manager could decide against reimbursement or decide the patient
should pay the bill even if they thought they were covered.
The first paper looks at the issue of health care equity and
the effects of private equity (PE). In an ideal world, private equity companies are supposed to raise capital to acquire companies,
take control of them, improve their efficiency and then sell them in a fairly
short period of time. The general idea
is that PE has substantially higher returns on investment than typical stock
market investments. As the PE industry has grown,
the premium return for investors has become more debatable.
The first paper in the NEJM Perspective looks at the impact
of PE on healthcare financing. The use the CDC definition of health equity:
“Health equity is the state in which everyone has a fair
and just opportunity to attain their highest level of health. Achieving this
requires focused and ongoing societal efforts to address historical and
contemporary injustices; overcome economic, social, and other obstacles to
health and healthcare; and eliminate preventable health disparities.” CDC
As noted in the previous post the safety-net hospital
concept is there to address income and healthcare insurance inequity. The Emergency Medical Treatment & Labor
Act (EMTALA) law is another. EMTALA is
commonly recognized as a rule that no emergency department can turn a person
away who requires that level of care based on ability to pay.
The authors in this piece describe accumulating evidence
that PE has reduced access to care for many vulnerable populations including rural, elderly, low-income, and racial and ethnic groups. Several policy factors and failures have led
to an expansion of PE investment. There is a concern that there is limited
oversight of these companies compared with publicly traded companies. The authors provide several examples of
tactics used by PE firms that have led to the failure of the medical entity,
reduced or no access for patients, and greater profits for the investors.
The first tactic is a sale-leaseback transaction. The
medical facilities acquired are sold to an entity affiliated with the firm and
leased back to the hospital or clinic at inflated rates. During a dividend recapitalization the
PE takes on additional debt to pay investors rather than investing in the
medical business. They give an example of a system where these measures led to
tripled debt while senior managers got large bonuses.
Quality of care has been a marginal issue since managed care
took over medicine in the mid-1990s. In
the above example, quality of care declined to the point it was ranked among
the worst in the state and it was eventually closed leaving residents no access
to acute care. They cite increased deaths in emergency departments and after
surgeries. The same company had a venture in another state that failed as well.
The formula involved cost savings at the expense of employees (lay-offs,
reduced FTEs, reducing physicians in favor of extenders, and cutting low margin
services). On the administrative side
upcoding, surprise bills, and higher charges are used as well as selecting
younger and healthier patients.
They suggest several fixes to the various PE problems that
involve targeting management and accounting practices that can
result in profits for investors, but closed hospitals, produced bad debt, and resulted in no access
to emergency care for the patients involved.
Some of those suggestions include personal liability for some of the
company officers and clawback provisions for profits made by some of these
exploitative techniques. There were no
suggestions about adequate reimbursement for hospitals in the first place.
The second paper (3) discusses a political change at the Centers
for Medicare and Medicaid Services (CMS).
Since the Trump administration is focused on denying that a lack of
equity exists in the country they have changed the focus to efficiency. Efficiency
as in free-market solutions is a long time Republican slogan that lacks any
evidence that it is useful in healthcare.
The most significant piece of evidence that free markets do not work is
the existence of Medicare and Medicaid and the remarkable number of people and services
that they cover. Without those programs – none of that healthcare would be
delivered and there would be considerably more morbidity and mortality.
The program titles have changed from States Advancing
All-Payer Health Equity Approaches and Development to Achieving Healthcare Efficiency
through Accountable Design (AHEAD). It
replaces equity plans with accountability plans including “chronic disease
prevention, choice, and competition.” On
the choice side of the equation increased telehealth, and decreasing qualifications
for networks and providers. This seems
to be a straightforward approach to decreasing quality to produce a cheaper
product. The authors do not state that explicitly but say there is limited
evidence it would work.
The most likely outcome of AHEAD is that it will decrease
investment in safety net facilities.
Combined with Medicaid funding reductions the impact on safety net hospitals
will likely be significant.
The final paper was about medical credit cards. Before reading this paper – I could not think
of a worse idea. The threat of medical
bankruptcy drives the for-profit medical industry in the US. Most medical bankruptcies occur
in the US. That combined with
medical charges and the way they are billed is the primary reason Americans are
highly motivated to have health care insurance. At the time of this post the
Annual percentage Rate (APR) of credit cards in the US is between 20 and 25%
depending on credit rating and other factors.
About 8-9% of the population has medical debt. Three million owe over $10,000.
Since credit cards calculate daily
interest – it could take 20 years to pay off this debt by paying the minimum amounts.
One in every 4 people with medical debt is using a credit
cared to pay it off. There can be incentives
on both sides of the equation. From the
billing side – it is paid of on a timely basis.
From the consumer side – there can be delayed interest arrangements if
the debt of paid off in a specified interval.
That has led to most medical credit card sign up occurring in medical
offices. Compared with the APR rates for
typical consumer cards medical cards may be as high as 40% - people with the
lowest credit ratings incurring the highest rates.
Medical credit cards are complicated by the fact that
insurance companies may not be paying the same rates for the same services that
are being charged to cards due to negotiated deals. The person paying cash pays the higher
amount. In some cases, people may
qualify for medical assistance programs but they are not informed about this
option. The medical providers offering
the cards may get a rebate in terms of lower transaction fees.
The overall conclusion of this final paper is that medical organizations
should not actively market medical credit cards to patients. They suggest that
the existing federal laws be expanded to provide transparency about terms of medical
credit cards and offer more payment options. In my experience, no patient
should be charged more than an insurance company for the same service just
because they are paying cash and are not part of a negotiated fee schedule. Most
of the health care organizations in Minnesota offer monthly payments with specified
minimums – but the interest calculations may not be clear.
In summary what can be learned from the recent financial
problems with Hennepin County Medical Center and these perspective in the NEJM.
First, the public and private financing
of the US healthcare system is getting progressively more precarious. There are more safety net and rural hospital failures,
less quality care, and more expansion of private equity investment. Second, despite the emphasis on access and
cost both of those measures are diminished significantly by the current
financing structures. Despite the current administration’s emphasis on efficiency
over equity there is no way efficiency can be maintained when there are
large shifts in emergency department utilization and admissions due to the
elimination of safety net hospitals. Third
– there are an endless number of ways the system can be gamed to make money or avoid
regulation. Much of that gaming is in the form of rationing and cost shifting
but there are also accounting maneuvers to make it seem like the required
amount of financing dollars is going to medical care. How is that possible in a system that has
seen a 3,000% increase in administrators compared with a 100% increase in
physicians over the past 50 years?
The only rational solution at this point is to eliminate the
healthcare companies and go to a single payer system. Single payer Medicare for all is an idea that
is more frequently floated these days. Medicare traditionally has vey low administrative
costs but it admittedly is less intensive than managed care organizations. In
the previous post I cite the Swiss system as saving a trillion dollars per year
if applied to the US system. I have seen
experts debate how healthcare financing in other countries might affect the
US. I think the only way to find out is
to bring experts from Switzerland to the US and suggest how to make that
transition.
It is apparent that nether political party in the US is
capable of the task.
George Dawson, MD, DFAPA
References:
1: Roper E. HCMC is too big to fail, but Hennepin County leaders
say it’s now on life support.
Minneapolis Star Tribune. March 8, 2026.
2: Rosenbaum L. Losing Hahnemann - Real-Life Lessons in
"Value-Based" Medicine. N Engl J Med. 2019 Sep 26;381(13):1193-1195.
doi: 10.1056/NEJMp1911307. Epub 2019 Aug 28. PMID: 31461591.
3: Pomorski C. The Death of Hahnemann Hospital. New Yorker. June 7, 2021, Vol. 97 Issue 15, p30-37.
Excellent look at the chaos and fragmentation of health
care that happens when a large safety net hospital closes and how it happens
during a private equity leveraged deal.
4: Yearby R, Alsan M.
Private Equity's Transformation of American Medicine - Implications for Health
Equity. N Engl J Med. 2026 Mar 5;394(10):937-940. doi: 10.1056/NEJMp2415615.
Epub 2026 Feb 28. PMID: 41770029.
5: Figueroa JF, Meara
E. From Equity to Efficiency - Navigating Changes to the AHEAD Model. N Engl J
Med. 2026 Mar 5;394(10):940-943. doi: 10.1056/NEJMp2514355. Epub 2026 Feb 28.
PMID: 41770017.
6: Alvarez A, Sloan
CE, Ubel PA. Debt by Design - Navigating the Hazards of Medical Credit Cards. N
Engl J Med. 2026 Mar 5;394(10):943-945. doi: 10.1056/NEJMp2514612. Epub 2026
Feb 28. PMID: 41770001.
