Thanks to Mitt Romney’s career at Bain Capital, the nation is embroiled in a debate over whether private equity firms are champions of efficiency and economic growth or corporate raiders and job killers. (I’ve made my views on the subject known.) But while private equity may now be a recognizable term in the public lexicon, I’d guess few Americans know that the reach of the industry extends to hospitals.
The New York Times ran an article last week about the rise of for-profit hospital chains and the conflicts they present:
HCA went public in 2011 but the PE firms retain a 40% share of the company. And while the turnaround has been wildly profitable for investors, the model is not without its problems:
As HCA’s profits and influence grew, strains arose with doctors and nurses over whether the chain’s pursuit of profit may have, at times, come at the expense of patient care.
The Debate Over Profit vs. Non-Profit Comes to Boston
Whether non-profit hospitals are preferable to their for-profit competitors has been a subject of debate here in Boston, as the state’s recent healthcare reform prioritized the funding of non-profits specifically. As Boston.com writes:
Steward Health Care System, which includes struggling Carney Hospital, will not qualify for millions of dollars in special payments under the new Massachusetts health care law, because legislators said they did not want to subsidize a for-profit company.
Steward, for its part, gets mention in the Times‘ story as one of the for profit conglomerates following in HCA’s footsteps:
Those returns caught the attention of other buyout firms. In 2010, Steward Health Care System, controlled by Cerberus Capital Management and based in Boston, bought the second-largest hospital group in Massachusetts, converting it to a profit-making system. That same year, Vanguard Health Systems, which is run for profit and still has Blackstone Group as its largest shareholder after going public in 2011, bought eight hospitals in Detroit.
Should Hospitals Be More Like The Cheesecake Factory?
If the idea of a giant for profit hospital conglomerate run by financial sharks leaves a bad taste in your mouth, consider a recent New Yorker piece by surgeon and writer Atul Guwande arguing that healthcare could stand to learn a thing or two from giant chains like The Cheesecake Factory.
Big chains thrive because they provide goods and services of greater variety, better quality, and lower cost than would otherwise be available. Size is the key. It gives them buying power, lets them centralize common functions, and allows them to adopt and diffuse innovations faster than they could if they were a bunch of small, independent operations…Medicine, though, had held out against the trend.
He argues that doctors and healthcare administrators could operate more efficiently if administrators borrowed from the playbook of large chains, particularly the standardization and systematization of routine tasks.
He further notes that the trend toward larger scales isn’t just happening in the for profit world. Non-profit hospital chains are expanding as well, including Partners Healthcare, which owns Mass. General and Brigham and Women’s, among others.
Should Healthcare Be For Profit?
The one thing that’s clear in all of this is that our healthcare needs to become more efficient (see the slideshow primer below). Beyond that, little seems obvious. Is scale the answer to driving better health outcomes? And, if so, are non-profit conglomerates preferable to for profit ones, or vice versa? Whatever the answers, healthcare conglomerates aren’t waiting around to hear them.
UPDATE 8/21: Health policy researcher Ashish Jha posts on his blog about this very issue and brings some evidence to bear. He suggests for profit vs. nonprofit is not the best way to look at quality.