Sunday Digest #11
Financialization of US healthcare
The cost of US healthcare is $4 trillion per year – 20% of GDP – far more than other developed nations and with worse results. The average lifespan in the US is actually declining. The Medicare component of the federal budget – politically untouchable – is projected to balloon to unsustainable levels in the coming decades as the Boomers age. Part of why the cost is so high is the entry of purely financial actors into the healthcare sector, their consolidation of the market, and subsequent price hikes.
A pair of articles this week explores the issue. Matt Stoller, who runs the Substack Big focusing on antitrust issues, summarizes:
America spends at least twice as much on health care per capita as nearly every other wealthy country, and gets much less for it in terms of doctor visits, hospital capacity, and life expectancy. Why? Where is all the money going?
As one medical journal article put it years ago, “it’s the prices, stupid.” In every area of health care - hospitals, pharmaceutical distribution, ambulances, emergency physician services, insurance - there has been massive consolidation, which increases prices and lowers the amount of care delivered. Private equity, [PE] a financial model focused on ruthless extraction, came into health care in a big way after the financial crisis of 2008, and it super-sized this trend. PE funds look specifically for areas where they can acquire pricing power, and then they squeeze.
As the New York Times noted:
A recent study from researchers at the Petris Center at the University of California, Berkeley, and the Washington Center for Equitable Growth, a progressive think tank in Washington, found that private equity-funded consolidation had led to price increases in gastroenterology, dermatology and other medical specialties.
The federal government has also taken notice and antitrust enforcers are investigating the space on monopoly grounds. Lina Khan, the Chairwoman of the FTC, penned an op-ed in the Financial Times:
In 2012 a New York-based private equity firm, from its Park Avenue offices, saw that there was a fragmented market for anaesthesia services in Texas. There were many small anaesthesiology practices in the state that competed against one another and let insurers negotiate prices for themselves, which kept prices lower for Texas businesses and patients.
This private equity firm saw an opportunity to extract higher prices from patients and insurers. They decided to pursue an aggressive “roll-up” strategy to consolidate the market and eliminate competition. Simply put, insurers effectively had no choice but to cover anaesthesiology practices in order to keep serving patients who need these critical services.
Over the next decade, the firm bought out nearly every large anaesthesiology practice in the state. The practices it couldn’t buy out were sidelined through price-setting and market allocation agreements that further eliminated competition. The firm it created to house these practices is now the dominant provider of anaesthesia services in Texas. As of 2021, it was nearly seven times larger than any other group in the state, with rates now double the median rate of other providers in Texas, costing patients tens of millions of dollars each year. As a result, patients, employers, hospitals and insurers have been left with fewer choices and higher costs.
We believe this roll-up scheme violates antitrust laws, and on Thursday we filed a lawsuit to halt this conduct. The complaint names the private equity firm and its related entities as additional defendants. The antitrust laws may apply to parent companies and investors if they directly participate or conspire to participate in anti-competitive conduct.
What happened in Texas is happening across the US. In recent years, private equity firms have made serial acquisitions across markets — from nursing homes and apartment buildings to emergency medicine clinics and opioid treatment centres.
When Congress passed US antitrust laws, lawmakers made them flexible precisely because they knew that they could not predict the constantly new and evolving ways in which firms can undermine free and fair competition. These laws work just as Congress intended and can be squarely applied to a wide range of business practices, including serial acquisitions.
One reason why enforcers may not have scrutinised the impact of roll-ups previously is the relatively small size of each acquisition. Antitrust enforcement has traditionally focused on large deals between large companies. Roll-ups are executed through a series of smaller acquisitions, in which each may fall below the dollar threshold that triggers reporting to federal antitrust agencies. As a result, they have enabled firms to amass significant control over key services in local markets. This has serious consequences for consumers, workers, businesses and communities.
Serial acquisition strategies are not just limited to private equity firms. They have also been used by large technology companies and others to consolidate control over certain markets. As antitrust enforcers, we must update our application of the law to new realities.
Interesting tweet
Media recommendation
This week, I recommend the podcast History Daily, which does a well-produced, 15 minute this day in history show. The subjects chosen are always entertaining, even for non-history buffs (did you know Abe Lincoln once participated in a duel using swords)?
There you have it, the eleventh edition of Sunday Digest featuring healthcare monopolization, an incorrect food pyramid, and a show looking at past calamities. The portrait of a world spinning faster and faster. The good news is you have Netflix, Uber Eats, and running water. Until next time, be a good citizen, quit doomscrolling, and go outside.
Ad Astra Per Aspera!
