Private Equity: The Perps Behind Destructive Hospital Surprise Billing

I have to confess to having missed how private equity is a central bad actor in the “surprise billing” scam that is being targeted by Federal and state legislation. This abuse takes place when hospital patients, even when using a hospital that is in their insurer’s network, are hit with charges for “out of network” services that are billed at inflated rack rates. Even patients who have done everything they can to avoid being snared, like insisting their hospital use only in-network doctors for a surgery and even getting their identities in advance to assure compliance, get caught. The hospital is in charge of scheduling and can and will swap in out-of-network practitioners at the last minute.

Private equity maven and co-director of the Center for Economic and Policy Research Eileen Appelbaum explained in an editorial in The Hill in May how private equity firms have bought specialist physicians’ practices to exploit the opportunity to hit vulnerable patients with egregious charges:

Physicians’ groups, it turns out, can opt out of a contract with insurers even if the hospital has such a contract. The doctors are then free to charge patients, who desperately need care, however much they want.

This has made physicians’ practices in specialties such as emergency care, neonatal intensive care and anesthesiology attractive takeover targets for private equity firms….

Emergency rooms, neonatal intensive care units and anesthesiologists’ practices do not operate like an ordinary marketplace. Physicians’ practices in these specialties do not need to worry that they will lose patients because their prices are too high.

Patients can go to a hospital in their network, but if they have an emergency, have a baby in the neonatal intensive care unit or have surgery scheduled with an in-network surgeon, they are stuck with the out-of-network doctors the hospital has outsourced these services to….

It’s not only patients that are victimized by unscrupulous physicians’ groups. These doctors’ groups are able to coerce health insurance companies into agreeing to pay them very high fees in order to have them in their networks.

They do this by threatening to charge high out-of-network bills to the insurers’ covered patients if they don’t go along with these demands. High payments to these unethical doctors raise hospitals’ costs and everyone’s insurance premiums.

As an example, Appelbaum cites the work of Yale economists who examined what happened when hospitals outsourced their emergency room staffing to the two biggest players, EmCare, which has been traded among several private equity firms and is now owned by KKR and TeamHealth, held by Blackstone:

….after EmCare took over the management of emergency services at hospitals with previously low out-of-network rates, they raised out-of-network rates by over 81 percentage points. In addition, the firm raised its charges by 96 percent relative to the charges billed by the physician groups they succeeded.

The study also described how TeamHealth extorted insurers by threatening them with high out-of-network charges for “must have” services:

…in most instances, several months after going out-of-network, TeamHealth physicians rejoined the network and received in-network payment rates that were 68 percent higher than previous in-network rates.

We’d wondered why California legislation to combat surprise billing got yanked so quickly, with the opponents not even bothering to offer excuses. The official story was that hospitals objected, but the speed of the climbdown looks to have much more to do with the political clout of private equity donors.

The Financial Times yesterday made explicit how proposed Federal legislation would hit KKR’s EmCare and other private equity health care predators:

A push on Capitol Hill to stop US patients from being caught unaware by medical bills is weighing on the debt of KKR-backed Envision Healthcare, the target of one of the biggest leveraged buyouts last year…

Investors are concerned that a new so-called “surprise billing” law could crimp revenues at companies such as Envision, which employs emergency-room doctors and anaesthetists through its subsidiary EmCare….

“It is like a ransom negotiation: ‘I’ll hit your enrollees with giant bills unless you pay me enough money not to do that’,” said Loren Adler, associate director at USC-Brookings Schaeffer Initiative for Health Policy.

The debt that has gone wobbly. Recall that so-called credit funds, also managed by private equity firms, are big buyers of the leveraged loans that private equity firms use to finance their acquisitions. And public pension funds like CalPERS invest in these credit funds:

Envision’s $5.4bn loan due in 2025, sold in September when investor demand for leveraged loans was very strong, slid from almost 97 cents on the dollar at the start of May to just 87.8 cents on the dollar on Thursday, as more detail surrounding possible legislation has been released.

Leveraged loans for Blackstone’s TeamHealth and private-equity-owned air ambulance companies Air Methods and Air Medical have also taken hits.

The normally cool-headed, pro-business Financial Times readers were almost without exception appalled: “..highway robbers….smacks of fraud…sheer criminality….ambushing patients….criminals.” Welcome to health care, USA style.

Sadly, the article says that while both parties are eager to be seen to be Doing Something about health care costs, neither wants to give the other side a win, making new Federal legislation unlikely in the current session. But exposing private equity as the hidden hand behind this extortion may lead to more inquisitiveness about the degree to which private equity finding and exploiting economic choke-points has contributed to the suffering.

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  1. Tom Stone

    The Hospital that both my Primary Care Physician and my Cardiologist are affiliated with has outsourced their Emergency Room.
    If you show up needing care RIGHT NOW, your choice is to scrawl an assent on their little I Pad or die.
    I landed there twice this year, and the bills are just starting to show up from the first trip.
    If I live long enough to bother I’ll fight them on the basis that I signed under duress and if that doesn’t fly there’s Bankruptcy.

    1. beth

      I have run into this problem twice now even though I have done my best to avoid doctors who do not accept Medicare assignment. It is not clear to me even now as to what the reason for Medicare not accepting my claim the first time this happened. But the second time this happened I went in my ambulance I don’t feel I had a choice I couldn’t even go to my hospital of choice ten-twelve miles away since I have two hospitals that are closer.

      I know they will ignore this, but I do it anyway. One has to try. Is there no law that says you cannot be charged without agreeing, especially if you have no choice. Emergencies seem to me be that situation.

    2. ewmayer

      “If I live long enough to bother…” — Sorry to hear about your health woes, Tom! I always enjoy your posts re. NorCal housing-market trends over on Wolf Street, especially since I moved to Marin last year (I’m sharing a rental, as rents here are only slightly less nuts than my old digs in Silicon Valley).

  2. Christopher Herbert

    One of the peculiarities of our wildly inefficient medical care industry is that there are so many ‘pens’ in the ink bottle that overhead costs eat up money that should be used to improve services.

    I describe our medical care system as a ‘100 silos’ system. The jumble is enormously expensive. We generously fund this industry, but we do not get anywhere near the benefit.

  3. Mark

    “Consent is for in-network services only and excludes out-of-network services”

    Elisabeth Rosenthal in “An American Sickness” suggested that one add this statement to the consent forms one is required to sign as a strategy to inoculate oneself against this practice. I’ve not had an opportunity to try it and was wondering if anyone has done it and if there was a reaction or objection from the provider.

    1. Also Mark

      For years, I have written words to the effect of “All charges not covered by insurance will be paid at a rate to be negotiated” on health care providers’ financial responsibility forms, and initialed the addition. I’ve never had a doctor’s office or hospital challenge it. I think most don’t even notice that I’ve done it.

      I’ve also never had to invoke it, so I don’t know how effective it is, but thinking I am at least somewhat protected from surprise bills gives me some comfort in the face of our crazy health care system.

      By the way, I routinely cite “An American Sickness” when making the point to people that it’s not just the pharmaceutical companies and the insurance companies. It’s pretty much every part of the health care industry.

      1. Mark

        Thanks for the input. I do the same with “An American Sickness” but get the impression that few believe me or then read the book. Many erroneously believe that the yearly out-of-pocket maximum protects them and that the stories they hear about these surprise bills only happen to people with insurance that’s isn’t as good as theirs. Don’t think anyone has taken my advice to read their policy more carefully. Oh well.

      1. Mark

        Lol, thanks. Have a colonoscopy coming up soon. I’ll do my best to put a smile on my face.

    2. Bob Hertz

      I tried to add to the consent forms several years ago when my wife was admitted for childbirth.

      All i got was dirty looks from the staff. My wife is convinced that the staff was mean to her also.

      Not a good solution

  4. Jim A.

    …Which brings up what I was thinking about during last night’s debate: Insurance companies are only SOME of the profit seeking pigs chowing down at the healthcare trough. Even if we eliminate them in a “medicare for all” plan the rest of of them will gladly eat their share. It would take something more like a VA for all plan with hospitals run by the government to deal with some of the others.

    1. rd

      A primary way that other countries hold down overall medical costs is by setting the rate schedules for both insured and uninsured services. That is both in the single payer and multi-payer systems. But those countries have the flawed socialist model of think their citizens are people and not just revenue sources for corporations.

      1. Knot Galt

        “We the People” seems to have become a twisted tale. We are consumers. Makes me wonder if the true hero of today is someone who decides to become ‘homeless’ by choice.

  5. jfleni

    What a surprise the medical OFFAL will #### you to the max when you need help;
    YAHOO, up ###, Medicare for ALL,RIGHT NOW!!! SCREAM it to your congress-critter!

  6. Mark

    Who ‘yanked’ the California legislation?

    Their names would help voters to hold them accountable.

  7. TBone

    If this does not change in 2020 I’m moving to a civilized nation like Canada even if I have to walk there. Grrrrrr this is SO WRONG. How do retirees apply to move to Canada? Are they letting us in anymore???

    1. jrkrideau

      Just walk across the border and ask for refugee status. You get arrested ( really nasty, you can be handcuffed for several minutes in some cases), get taken to a refugee centre and then told to bugger off and show up for a hearing whenever.

      I could not find the clip I wanted but you can see that it can be stressful.

      Those RCMP officers look nasty. I bet they do not have a single tootsie roll! Maybe not even a Mars Bar.

      More seriously, as someone from the USA, just ask for temporary residency and keep extending it. Hell, just arrive, rent or buy some place ( I think buying is better) and start doing things like getting a Canadian driver’s licence. Not a perfect approach but it should work.

      If you have a reasonably stable retirement income, probably no serious problems.

      Might take a little while longer to get health care if you cannot prove to be an official immigrant but you can still likely buy US travel health insurance for peanuts compared to the normal US system until a provincial system will kick in. Remember we just do not charge the same amounts.

      Just remember, never, never, ever, show up with an unauthorized firearm especially a handgun. The police, customs, the courts, and the general public go crazy.

  8. TBone

    I’m just gonna avoid the medical system forever and die at home of natural causes or go to New Jersey for assisted suicide if necessary. Thanks USA medical crapification you filthy greedy (family blog)

    1. ambrit

      Don’t just crawl off to an obscure corner and expire passively. Take some Medical Industry execs with you when you go. /s?

        1. ambrit

          /s = ending sarcasm tag. So that s/ = beginning sarcasm tag.
          /s? = ending sarcasm tag indicates real sarcasm?

    1. Bob Hertz

      Some similar suits have been successful. Sutter in California had to refund millions of dollars gained in price gouging.

      Of course a single patient does not have the resources to hire expensive lawyers. The class action angle is the only way to go.

  9. softie

    In 2012, a neighbor’s kid stayed three days in the hospital when his motorcycle got him into an accident. The bill is almost half million dollars.

  10. Off The Street

    My plumber showed me a type of client rights form that he is required to present during various repairs. That form is essentially a mitigant against being extorted, given the potential for such behaviors during exigent circumstances. Drip, drip, drip turns into flooding, or no hot water turns into challenges with dishes and washing clothes. Now envision your elderly relative in that situation.

    An unscrupulous repairman could make some extra money by exploiting such circumstances, turning a seemingly innocent service call into triple golden time toward that new Mercedes. Disclosure: phrase inspiration from an old Frasier episode.

    1. ambrit

      I once worked for such a dishonest plumbing service company, for a very short time. I was fired after I refused to do unnecessary work at a customers house so as to jack up the bill. That outfit, and another I briefly worked for later were both cases where investor syndicates had ‘bought’ the companies, with predictable implementation of maladaptive behaviours.
      “For the love of money is the root of all evil.” 1 Timothy 6:10

  11. Susan the other`

    Thank you. This is astonishing info. Because medicine is changing quicker than lumbering, conniving private equity can kludge together new extortion rackets. It almost feels like PE is running in place. And everybody is on to them thanks to info like this. Just FYI, our new hospital that claims it is a non-profit health care corporation has just built a new wing for “specialty clinics” housed on site. And of course it has been their billing practice from day one to inform you that you might receive additional bills from any of these physicians. So far this seems to be under control. We’ve had 4 same-day surgeries there and no big surprises. But there is obviously a reason to establish this loophole. The takeover of emergency rooms by KKR/EM Care and Blackstone Team Health is pure extortion. Extortion lurking in the wings. I hope PE rots in hell sooner than later.

  12. Anon

    The intro to the post could have been an instant replay of my hospital experience. Reading the many comments about medical billing shenanigans is somewhat “comforting” in that my experience wasn’t singular. However, it is important that more people recognize the hospital billing scam and that some doctors have never memorized the Hippocratic Oath. If today’s modern medicine saves you, the medical billing will likely “kill” you.

  13. sleepy

    Speak of the devil. Right now, I’m sitting in a clinic waiting room while my wife has minor surgery for a basal cell carcinoma. She went to a medicare advantage plan awhile back due to the high premiums of her medicare supplemental plan. She was assured everything was in her network. We’ll see, I guess.

    1. JBird4049

      Because they say it is not fraud. That and lawyers working with compliant judges.

      Think of the police’s use of civil asset forfeitures. To most people, common sense, common law, and the plain reading of the American Constitution, taking someones stuff because the stuff may have been acquired, or used, illegally without a conviction, or even being charged of a crime, is just crazy talk. Yet loopholes were found or created to make this “legal.”

      In this case, the hospital can and does swap out doctors not only without the patient’s consent, but often when they are unconscious, and their “voluntary” contract allows this. Whether they want that or not.

    2. Inode_buddha

      In the same way that VietNam was a “police action”. The United States is a peaceful nation, and has not been in any wars since 1945….

  14. John

    We need a “Canary Mission” type website to name and shame them. These guys are literally sociopaths. They would be selling rocks at a stoning.

  15. stan6565

    Another thing is, none of the participants in this session has mentioned the quality of service delivered at the point of medical need. Okay okay, USA Medicare and UK NHS are fat targets, ripe for theft, sorry “privatising”, but, has anybody evaluated the QUALITY OF MEDICAL SERVICE delivered to those in need. With or without privatisation.

    Over the last three months, my wife went through a succession of negligent actions perpetrated upon her by our “free at point of need” NHS. An injury during investigation led to abdominal infection, an operation to fix infection led to damage to internal organs, the operation to fix infection was done half cock which then led to a pelvic sepsis which now cannot be intervened on her weakened body directly, thus leaving her life in balance.

    During all this period she was seen by a consultant TWICE (in 90 days!), but instead she had daily visits from totally clueless junior doctors, each one of which with his/her own improvised opinion as to which part of body or organ could be cut out next. As she was brought to the hospital as a volunteer for target practice!

    I wonder if any other commenters had similar experiences?

  16. Ansen

    If it is an actual Emergency the insurance must cover the costs preferred or not. If it is Elective then preferred provider networks come in to play.

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