We Deserve Medicare for All, But What We Get Is Medicare for Wall Street

Yves here. Les Leopold gives a layperson-friendly, high-level overview of how health care’s high costs, particularly those draining the cash cow of Medicare, are due to corporate profiteering.

I have a wee quibble about the framing. The rentierism has very deep roots. The privatization of Medicare via Medicare Advantage is a health insurer initiative, turbo charged by ideological appeal. And even though private equity price gouging and service crapification is growing by leaps and bounds, they have been fairly late to the party, as in the big uptick in their participation is in the last ten years or so.

However, the flip side is private equity firms are enormously influential. Not only are the principals in their firms lavish political donors, but they are rumored to pressure the executives at investee companies to donate too. And they generate over half of Wall Street fees and are estimated to generate a similar level of top consulting firm and top law firm billings. So now that they have their tentacles deep into health care, they will be extremely difficult to dislodge.

By Les Leopold, the executive director of the Labor Institute and author of the forthcoming book “Wall Street’s War on Worker s: How Mass Layoffs and Greed Are Destroying the Working Class and What to Do About It.” Originally published at Common Dreams

Creating a sane healthcare system will depend on building a massive common movement to free our economy from Wall Street’s wealth extraction.

The United States health care system—more costly than any on earth—will become ever more so as Wall Street increasingly extracts money from it.

Private equity funds own approximately 9% of all private hospitals and 30% of all proprietary for-profit hospitals, including 34% that serve rural populations. They’ve also bought up nursing homes and doctors’ practices and are investing more year by year. The net impact? Medical costs to the government and to patients have gone up while patients have suffered more adverse medical results, according to two current studies.

The Journal of the American Medical Association (JAMA) recently published a paper which found:

Private equity acquisition was associated with increased hospital-acquired adverse events, including falls and central line–associated bloodstream infections, along with a larger but less statistically precise increase in surgical site infections.

This should not come as a surprise. Private equity firms in general operate as follows: They raise funds from investors to purchase enterprises using as much borrowed money as possible. That debt does not fall on the private equity firm or its investors, however. Instead, all of it is placed on the books of the purchased entity. If a private equity firm borrows money and buys up a nursing home or hospital chain, the debt goes on the books of these healthcare facilities in what is called a leveraged buyout.

To service the debt, the enterprise’s management, directed by their private equity ownership, must reduce costs, and increase its cash flow. The first and easiest way to reduce costs is by reducing the number of staff and by decreasing services. Of course, the quality of care then suffers. Meanwhile, the private equity firm charges the company fees in order to secure its own profits.

An even larger study of private equity and health was completed this summer and published in the British Medical Journal (BMJ). After reviewing 1,778 studies it concluded that after private equity firms purchased healthcare facilities, health outcomes deteriorated, costs to patients or payers increased, and overall quality declined.

One former executive at a private equity firm that owns an assisted-living facility near Boulder, Colorado, candidly described why the firm was refusing to hire and retain high-quality caregivers: “Their position was: We are trying to increase our profitability. Care is an ancillary part of the conversation.”

Medicare Advantage Creates Wall Street Advantages

Congress passed the Medicare Advantage program in 2003. Its proponents claimed it would encourage competition and greater efficiency in the provision of health insurance for seniors. At the time, privatization was all the rage as the Democratic and Republican parties competed to please Wall Street donors. It was argued that Medicare, which was actually much more efficient than private insurance companies, needed the iron fist of profit-making to improve its services. These new private plans were permitted to compete with Medicare Part C (Medigap) supplemental insurance.

In 2007, 19% of Medicare recipients enrolled in Medicare Advantage plans. By 2023 enrollment had risen to 51%. These heavily marketed plans are attractive because many don’t charge additional monthly premiums, and they often include dental, vision, and hearing coverage, which Medicare does not. And in some plans, other perks get thrown in, like gym memberships and preloaded over-the-counter debit cards for use in pharmacies for health items.

How is it possible for Medical Advantage to do all this and still make a profit?

According to a report by the Physicians for a National Health Program, it’s very simple—they overcharge the government, that is we, the taxpayers, “by a minimum of $88 billion per year.” The report says it could be as much as $140 billion.

In addition to inflating their bills to the government, these HMO plans don’t pay doctors outside of their networks, deny or slow needed coverage to patients, and delay legitimate payments. As Dr. Kenneth Williams, CEO of Alliance HealthCare, said of Medicare Advantage plans, “They don’t want to reimburse for anything — deny, deny, deny. They are taking over Medicare and they are taking advantage of elderly patients.”

Enter Hedge Funds

With so much taxpayer money sloshing around in the system, hedge funds also are cashing in. They have bought large quantities of stock in the healthcare companies that are milking the government through their Medicare Advantage programs. They then insist that these healthcare companies initiate stock buybacks, inflating the price of their stock and the financial return to the hedge funds. Stock buybacks are a simple way to transfer corporate money to the largest stock-sellers.

(A stock buyback is when a corporation repurchases its own stock. The stock price invariably goes up because the company’s earnings are spread over a smaller number of shares. Until they were deregulated in 1982, stock buybacks were essentially outlawed because they were considered a form of stock price manipulation.)

United Healthcare, for example, is the largest player in the Medicare Advantage market, accounting for 29% of all enrollments in 2023. It also has handsomely rewarded its hedge fund stock-sellers to the tune of $45 billion in stock buybacks since 2007, with a third of that coming since March 2020. Cigna, another big Medicare Advantage player, just announced a $10 billion stock buyback.

These repurchases are also extremely lucrative for United Healthcare’s top executives, who receive most of their compensation through stock incentives. CEO Andrew Witty, for example, hauled in $20.9 million in 2022 compensation, of which $16.4 million came from stock and stock option awards.

A look at the pharmaceutical industry shows where all this is heading. Between 2012 and 2021, fourteen of the largest publicly traded pharmaceutical companies spent $747 billion on stock buybacks and dividends, more than the $660 billion they spent on research and development, according to a report by economists William Lazonick and Öner Tulum. Little wonder that drug prices are astronomically high in the U.S.

And so, the gravy train is loaded and rolling, delivering our tax dollars via Medicare Advantage reimbursements to companies like United Healthcare and Big Pharma, which pass it on to Wall Street private equity firms and hedge funds.

It’s Not Just Healthcare

In researching my book, Wall Street’s War on Workers, we found that private equity firms and hedge funds are undermining the working class through leveraged buyouts and stock buybacks. When private equity moves in, mass layoffs (just like healthcare staff cuts and shortages) almost always follow so that the companies can service their debt and private equity can extract profits. When hedge funds insist on stock repurchases, mass layoffs are used to free up cash in order to buy back their shares. As a result, between 1996 and today, we estimate that more than 30 million workers have gone through mass layoffs.

Meanwhile, stock buybacks have metastasized throughout the economy. In 1982, before deregulation, only about 2% of all corporate profits went to stock buybacks. Today, it is nearly 70%.

Those of us fighting for Medicare for All, therefore, have much in common with every worker who is losing his or her job as a result of leveraged buyouts and stock buybacks. Every fight to stop a mass layoff is a fight against the same Wall Street forces that are attacking Medicare and trying to privatize it. Creating a sane healthcare system, therefore, will depend on building a massive common movement to free our economy from Wall Street’s wealth extraction.

To take the wind out of Medicare Advantage and Wall Street’s rapacious sail through our healthcare system, we don’t need more studies. It’s time to outlaw leveraged buyouts and stock buybacks.

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  1. Antifaxer

    Look into the proliferation of the 340b program in relation to hospitals owned by PE.

    They are taking advantage of a system designed to provide free/low cost health care to low/no income individuals and extracting a ton of money.

    This is causing some people to call for cuts to the program, which would decimate healthcare for people who really need it.

  2. tegnost

    It’s time to outlaw leveraged buyouts and stock buybacks.

    It will have too be someone other than the republocrats or the demoblicans

    1. Dr. John Carpenter

      It’s way past time and there’s no one who will do it as they’re all in on the take. Observe the Unusual Whales tweet in the morning thread about our congress critters returns vs the market. I wish I could feel any sense of hope about this but I don’t feel things will change until the system crumbles because it’s been striped to the studs for scrap.

  3. Rubicon

    Over a year and a half ago, we went to a “financial advisor” who showed us a plethora of ways to invest our annuities. It was a big show: on the screen and at the top were Private Equities. We sensed there was something wrong, and refused their advice.

    Along the way, we started observing the poor veterinarian & high costs in our area. Being very frustrated in how they cared for our cats, we met a top notch vet and she started talking about vet offices being bought off by Private Equities in our community. Many of her tech people had been in these 3d rate vet offices. They were a much happier crew as a result.

    That then led us to discover Private Equities involved in heating/a/c services. PE’s buy directly from the manufacturers. PE’s then mark up the prices. In the end, it’s the consumer who pays for all that.

    Needless to say, we refused to install a new furnace. We’ve found different methods in keeping the home warm during the winter. Summer heat isn’t an issue because we live in cool region of the US.

    1. ocop

      I noticed this at our veterenarian as well a few months ago. Short-staffed one day they called in reinforcements clad in the roll-up company’s scrubs and not the vet’s.

      They sold out last year. Joined hundreds of practices across the southeast US.

      Apparently the PE venture proudly announced what they were doing all the way back in 2014.

      Literally saying they would roll up practices in the southeast. How is that not definitionally a violation of anti-trust laws?

      1. JBird4049

        >>>Literally saying they would roll up practices in the southeast. How is that not definitionally a violation of anti-trust laws?

        It probably is, but money talks and everything else walks.

  4. NYMutza

    Rather than “We Deserve Medicaid for All” we deserve exactly what we get. If the collective We don’t get off our butts and force change we will get no change. And why should we expect any change. The status quo is very beneficial to those in charge, so they have zero incentive to change much of anything. Change needs to be forced on them. That will require the rest of us to take actions that many of us who want change find uncomfortable. Things like mass protests, getting arrested, perhaps getting bloodied. That will also include giving up some things such as cushy lifestyles and lots of creature comforts. So far, very few Americans wish to join the fight. And so there is no Medicare for All.

    1. zagonostra

      Seems to me that 50% of the population is completely disconnected from the political process and is just scrapping by, they have no bandwidth for anything except survival. Of the remaining 50%, 20% are doing fairly well, they have their abode and Netflix and legal cannabis but are in a precarious state not wanting the boat because they know things could get worse for them and they could slip into the first category. Then you have about 20% who are willing to “join the fight” but haven’t figured out where and how to join the fray. And then, you have about 10% who are profiting one way or another from the current status quo and will fight to head-off any change. Until the pain takes in more of the second category of “fairly well” people, change ain’t coming.

      1. Paul Art

        Unemployment is currently very low by historical standards. It will have to rise to at least 40% before there is a critical mass for revolution. We are a long way off yet.

    2. Rubicon

      We totally agree with NYMutza.

      It was one of those wits: George Bernard Shaw, or Oscar Wilde who famously stated:

      “America started out as barbaric, destroying everything in its path; it skipped the part about Civilization, and simply carried on with its own barbarity.”

  5. Carolinian

    This is all terrible news but doesn’t it track back not so much to Medicare Advantage but rather the half a loaf nature of Medicare itself? After all the hospitals were gouging their customers before Medicare Advantage and the ever increasing money flow brought the sharks into the tank. It might be interesting to see a study of what the prices were for various standard medical procedures pre Medicare and post as well as an account of whether the medical outcomes have improved. I believe the result of such a study would show that medicine back then did face restraint on pricing simply due to patient ability to pay. Whereas bringing a nationwide government insurance plan into the picture vastly increased the available money both for care but also for gaming a system that was about care availability rather than cost.

    All of which is to say it was socialized medicine without the socialism and only limited (by Congress) government management of the system. As always “public/private’ cooperation rather than public management of private became socialism for the rich.

    While I was just a kid I believe people at the time said this would happen even as Lyndon was using the usual excuse that Medicare was the best that he could get through Congress. Eventually Medicare was very helpful for my parents and many others facing medical expenses so that was for the good. But sounds like the chickens are now coming home to roost.

  6. David in Friday Harbor

    The Reagan/Clinton system of Inverted Totalitarianism is all rent-extraction, all the time. Insider trading by congress-critters on stock buy-backs and insurance mandates is part of the scheme. “Private Equity” is simply the Drexel High-Yield Alumni Association; nothing new there. Under the American system “democracy” is all about the Benjamins (baby).

    The BLM and Jan 6 movements of 2020 did exactly nothing to move the needle, other than to justify defunding domestic police (facilitating diversion of more moolah for “Ukraine” and Bibi to kick-back) and to help the Deep State demonize that occasional class-traitor Trump (who might one day impulsively throttle the gravy train for a minute). Nothing will fundamentally change.

    My advice: don’t get sick.

    1. phichibe

      Wow. I could have written your post. I’ve been mulling writing how Milken’s mafia at DBL went on to pollute, corrupt, and rob the American people since DBL was shut down. Do you know Howard Sosin? He went from DBL to AIG w/t proposal to create a derivatives trading subsidiary. Thus was borne AIG FP, the very same that was to destroy AIG in 2008 by writing CDSs that were to require a US Treasury bailout to the tune of $187 billion. So the 2008 GFC was directly related to the DBL waste pit.

  7. Paris

    You can always move to another country and spend your old days/money there. Isn’t it what Yves did? Plan to do the same, don’t want to live in this rip off of a country lol. I made my money here but I’ll spend somewhere else. Yay.

  8. Paul Art

    Always had a strong yearning to throw some hard unyielding object at that particular genius who came up with that totally wonderful gift to the PMC, “Defund the Police”

  9. mrsyk

    Private equity = balkanization in real time. Fortunately for me, I have experience delivering pizza.

  10. spud

    the so-called left just loses support with the deplorable, when they either attempt to cover up what bill clinton did, or are ignorant and blame the country club republicans. the deplorable have done a good job of self education, and know that most of the trouble really started with bill clinton, and of course his country club GOP allies.

    just a friendly reminder.


    President Bill Clinton signed Medicare+Choice into law in 1997.
    The name changed to Medicare Advantage in 2003…

  11. Giordano Bruno

    It seems like the point of this argument is innuendo, which is that since early socialists looked to eugenics at a time when the science was poorly understood that this makes socialism a bad idea. Are we to turn our backs on everything Sigmund Freud wrote because he advocated the use of cocaine in his practice? If you look at all of Bertrand Russell’s writings, you see a broad evolution of thought where earlier ideas are directly contradicted by later ideas. This is the curse of using labels like socialism, labels are distractions that lead to lazy either/or thought processes.

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