How Private Equity Drives Surprise Billing

Prospect |  Surprise medical billing has quickly become a small but critical flashpoint in health care reform. Because doctors and hospitals negotiate separately with insurance companies over reimbursement rates, it's possible for a patient's insurance to cover hospital charges while failing to cover the fees of some doctors in the hospital who are “out of network.” Patients who visit an emergency room (ER) or are admitted to an in-network hospital by an in-network doctor may find that some of the professionals who treat them are not covered by their insurance. That is because hospitals have outsourced ER, anesthesiology, radiology, or other specialized services to outside physician practices or staffing firms. Patients often find themselves on the hook for thousands, or even tens of thousands of dollars in surprise medical bills.

Twenty-five states have passed laws with limited protection for patients from out-of-network bills, usually for emergency room or urgent-care services; 20 more states are considering legislation. But these laws do not cover self-insured employer plans, which can only be regulated by the federal government. These plans cover an estimated 61 percent of workers who have private insurance, up from 44 percent 20 years ago. That means Congress must step in to protect insured patients from unfair and unexpected medical charges.

And that puts lawmakers up against the powerful and influential private equity industry, which plays a major role in supplying hospitals with physicians. They have aggressively bought up large national staffing firms or “physician practice management” (PPM) companies, as well as emergency providers that hospitals and other health organizations have outsourced, such as ground and air ambulance companies. And they are using the typical tools to protect their investments from a legislative onslaught: lobbying cash, dark-money front groups, and allies in Congress pushing loopholes and half measures.

The Role of Private Equity: Driving Market Concentration

Private equity funds use substantial debt to acquire doctors' practices through leveraged buyouts, and to finance mergers of practices into large staffing firms. Emergency medical and specialist practices are a prime buyout target, because patients who need emergency care cannot haggle over price, and third-party payers guarantee payment. This satisfies the private equity business model of promising “outsized returns” to investors.

Private equity firms buy up small specialty physician practices that have begun to consolidate and “roll them up” into umbrella organizations to gain local, regional, and ultimately national market power. Researchers at the Kellogg School of Management found that most individual acquisitions were below the dollar threshold that would have required the transaction to be reported to antitrust regulators.