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The corporatization of medicine: A conversation with Dr. Brian Jackson
Dr. Brian Jackson has more than three decades of health care industry experience, specifically in medical software development, commercial laboratory testing, and academic research. He has spoken at dozens of health care and technology conferences and written for major media outlets about the complicated relationship between health care and business. Given the recent emergence and popularity of leading retailers moving into the telehealth and in-home health care space, we sat down with Dr. Jackson to get his take on recent examples of the corporatization of medicine.
The topic of private equity (PE) firms purchasing ambulatory surgical centers and specialty care practices – particularly in the areas of cardiology and orthopedics – has been in the news a lot lately. What makes these practices enticing to PE investors?
The PE model typically involves identifying businesses that are underperforming financially, improving their structure and/or operations, and then selling them 3-5 years later at a large profit. These are not passive investments. To make this model work, PE firms target high rates of return. If a PE firm is acquiring a medical practice, it’s because they believe they can dramatically increase both the revenue per physician and the profit margin.
In procedural specialties such as cardiology and orthopedics, PE firms have plenty of opportunities to increase the number of highly reimbursed procedures per physician. A cardiologist or orthopedist delivering good patient care spends a significant portion of their time in low-reimbursed and non-reimbursed activities, such as talking with patients, performing physical exams, and consulting with colleagues about difficult cases. They will also carefully select which patients are likely to benefit from invasive procedures, which means that many patients they evaluate won’t end up receiving the procedures. It’s not hard for a PE firm to come up with a mix of carrots and sticks that pressure physicians into shortchanging these activities to drive more procedures.
What factors have contributed to this phenomenon of PE money pouring into health care?
There’s over $2 trillion in PE money out there chasing opportunities. On one hand, the local and labor-intensive nature of health care means that it’s very hard to scale up in the same ways that companies in other industries can be scaled. There’s a limited supply of doctors, for example, and there’s only so much revenue-producing activity that can be shifted from doctors to other staff. So, these factors would seem to argue against health care as an attractive PE investment. But clearly this is happening.
One possible explanation is that maybe there just aren’t enough opportunities in other industries. I’m skeptical of this as a primary explanation, though. My guess is that the attractiveness of health care to PE firms comes from a combination of physicians’ willingness to bend their professional standards, health care’s lack of public transparency, and the relative lack of price elasticity. In other words, PE firms are exploiting the fact that neither professionalism nor price-demand feedback is holding the physician services market accountable.
What dangers exist for patients and providers in this health care model?
Based on what I see doctors posting on social media, PE-owned practices have low professional autonomy, high burnout rates, and non-compete clauses that add insult to injury. And one of the worst things you can experience as a patient is to have a rushed, burned-out physician who is under pressure steering you toward expensive procedures.
What is the appeal to physicians in this model? Do they benefit in any way, and if so, how?
In most cases, the only benefit comes in the form of the sale price when the PE firms buy the practices. A possible exception might be physician-entrepreneurs looking to grow innovative care models, where PE might be the only source available for the capital they’re seeking. Only a minority of health care PE deals fall into this category, though, and even in these cases it strikes me as a risky approach for a physician to take.
Let’s move on to Amazon, Walmart, and CVS’s role in the health care space. These corporations and large health insurers have a financial interest in primary care practices, particularly those that care for patients covered by private Medicare plans. What’s the appeal of primary care practice to these companies?
This isn’t surprising, given primary care’s “quarterback” role in referring to other health care services. If a company wants to really be a player in health care delivery, then it makes sense to find a way to control the primary care component. Now, where you go from there depends on what your corporate goals are. My concern about the big health insurers is that they have a strong incentive to keep the overall cost of care going up, because their profits are essentially a percentage of the overall money flowing through the system. And so, when they buy up primary care doctors and practices, it’s going to be to protect their existing business model rather than to disrupt it. I have a similar concern about CVS, who bought Oak Street Health for over $10 billion. As for the motivations of non-health care companies like Amazon and Walmart, I think they see the enormous size of the market for health care services, and they want a piece of that.
How does the growing privatization of Medicare factor in?
In general, landscape change brings business opportunities. Medicare can be exploited for profit, and so can Medicare Advantage. The exploitation just takes different forms.
What are the potential consequences of this consolidation of medical care for providers and patients?
My biggest concern is that the corporatization of primary care neutralizes primary care’s potential to disrupt the system and lower costs. An example of this potential can be seen at ARUP Laboratories, a national nonprofit and academic reference laboratory, where an on-site primary care medical home has been extremely effective at improving the care experience for employees and their dependents while saving money for both employees and the company (since ARUP, like most medium-to-large companies, is self-insured). And the providers love working in a setting where they can focus on the needs of their patients without dealing with prior authorization and other insurance hassles. In contrast, primary care that has been consolidated into for-profit healthcare conglomerates is often positioned to deliver patients to high-cost procedural specialties and facilities, rather than delivering value to patients. Corporatization can also take away the autonomy providers need to do their jobs well, while amping up the “productivity” incentives that lead to burnout.
Karen S. Lynch, chief executive of CVS, said that primary doctors lower medical costs because they “drive patient engagement and positive clinical outcomes.” Is it possible, though, that primary care doctors – and the companies that own their practices – will enforce stricter “gatekeeping” measures to control costs and limit access to specialists?
What does “driving patient engagement” actually mean? It sounds like corporate-speak to me. There are several mechanisms by which primary care can reduce costs. When patients have higher-quality communication with their doctors, they may do a better job self-managing their conditions and preventing expensive complications and the associated emergency department and hospital visits, which in medical literature is referred to as secondary prevention. Gatekeeping can also contribute to cost savings — general practitioners in the UK’s National Health Service do this, for example — but personally, I think you can get many of the cost-saving benefits of primary care without pressing doctors into gatekeeping.
Will transformation in health care delivery – and the push for more value-based care – be led from inside or outside of the health care system?
I don’t think the current mega-corporations are motivated to disrupt themselves and become smaller, which is what would be required in a real transformation. It would also be very difficult for the Centers for Medicare and Medicaid Services (CMS) to transform the system, even if Congress enabled it legislatively. Certainly, CMS’s history doesn’t inspire confidence that they can create the kinds of radical change that’s needed. Keep in mind that Washington’s largest lobbying sector consists of health care companies doing whatever they can to maintain the status quo.
As for outsiders like Amazon, health care is operationally far different from the other sectors in which they operate. Not to mention that these outsiders are required by their shareholders to pursue profits rather than cost savings for the country. So, who’s left? I think the best hope for transformation lies in leadership by health care professionals — doctors, nurses, etc. — who either have the necessary business expertise and vision or are paired with people who do. To fix an industry, you must have a deep understanding of how value is created, and in health care that means practicing medicine.
More from Brian Jackson:
You can learn more about Brian and read some his work at https://www.hippocraticcapitalism.com.