On this episode, the focus is on private equity investment in health care facilities, which has grown substantially in the past decade. We’re joined by an expert in health care policy from Harvard and two legislators to discuss how these investments are affecting the health care industry.
Private equity investment in health care facilities has grown substantially in the past decade. There have been hundreds of such acquisitions of health care facilities in the past decade, including physician practices, nursing home facilities, and hospitals involving hundreds of billions of dollars.
At its most basic, private equity investors take over a health care company with the intention of increasing its value and reselling it for a profit. Advantages of such a strategy can be more capital investment and management expertise. Downsides include the use of leveraged buyouts that could saddle the acquired company with high levels of debt.
On this episode, we’re joined by Dr. Zuri Song, an associate professor of health care policy and medicine at Harvard Medical School, and an expert on the financial incentives, public policies, and private sector investment in the health care system. Dr. Song explained what research has found in studying private equity acquisitions in health care. On average, he said, these investments raise real concerns about both patient outcomes and access to care.
State legislatures are at the forefront of regulation in this area with much of the regulation focusing on increased transparency into these transactions. I talked with two state legislators to get their perspective: Senator Tyler Johnson, a Republican from Indiana who is also a physician, and Senator Cindy Friedman, a Democrat from Massachusetts. They each discussed the legislative action in their states and how they view private equity investment.
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Speaker 1 (00:12):
Hello and welcome to our American States, a podcast from the National Conference of State Legislatures. I'm your host, ed Smith.
Speaker 2 (00:20):
There is a potential good of private investment into health care facilities counterbalanced by, I would say, an abundance of evidence nowadays that on average there are concerns for patient outcomes and access to care because of these financial strategies and staffing cuts and the sale of assets and land of real estate.
Speaker 1 (00:40):
That was Dr. Zirui Song, an associate professor of health care policy and medicine at Harvard Medical School, and an expert on the financial incentives, public policies, and private sector investment in the health care system. He joined the podcast to discuss how private equity investment affects the health care system.
At its most basic, private equity investors take over a health care company with the intention of increasing its value and reselling it for a profit. Advantages of such a strategy can be more capital investment and management expertise. Downsides include the use of leveraged buyouts that could saddle the acquired company with high levels of debt. There have been hundreds of such acquisitions of health care facilities in the past decade, including physician practices, nursing home facilities, and hospitals involving hundreds of billions of dollars.
Dr Song explained what research is found in studying private equity acquisitions in health care. On average, he said, these investments raise real concerns about both patient outcomes and access to care.
State legislatures are at the forefront of regulation in this area with much of the regulation focusing on increased transparency into these transactions. I talked with two state legislators to get their perspective: Senator Tyler Johnson, a Republican from Indiana who is also a physician, and Senator Cindy Friedman, a Democrat from Massachusetts. They each discussed the legislative action in their states and how they view private equity investment.
Here's our discussion starting with Dr. Song.
Dr. Song, welcome to the podcast.
Speaker 2 (02:20):
Thank you, Ed. I appreciate you having me. It's great to be here.
Speaker 1 (02:23):
As I understand it, your research is focused broadly on how health care is affected by public policy, financial incentives, and private investment. And with that in mind, I wanted to ask you to just generally explain to the listeners about the effects of private equity investment in health care. It sounds like it's gone up an astonishing 250% between 2010 and 2020, and I wonder what's driving that and what the effect is, broadly speaking, on the health care industry,
Speaker 2 (02:53):
What's driving this investment is a need for capital among many health care facilities all across the country, hospitals, physician practices, nursing homes, and other facilities are looking for sources of capital and private equity provides once such source. Private equity also finds the health care system to be appealing or attractive because of the fragmented nature of the delivery system where there are many opportunities for consolidation and consolidation garners greater market power. It allows the owners to achieve or obtain higher prices per unit of service. There's also the aging of the population, which increases the demand for health care quite naturally. And private equity firms also see opportunities to improve the efficiency in the delivery of health care. And indeed, many parts of the health care system have inefficiencies where one could potentially cut costs and still be able to deliver a good product or service. With all that said, the evidence to date on private equity in the health care system writ large is that when you compare health care providers, whether it's physician practices or hospitals or nursing homes that got acquired by private equity firms to peer institutions or facilities that look similar but did not get acquired, we're seeing that on average among physician practices, the effects tend to be increased prices, often increased volume of services, a substitution of higher priced types of labor, specifically physician labor, for lower cost forms of labor such as nurse practitioners and physician's assistants that decrease the cost structure of the private equity owner, allowing them to garner higher returns or profits within hospitals.
Speaker 2 (04:46):
We see similarly, on average increased charges, increased transfers of patients, specifically sicker patients to other acute care hospitals, and among the healthier subset of patients remaining in the private equity hospitals, we see an increase in preventable adverse events including infections and falls again, relative to hospitals that were not acquired among nursing homes. On average, we see a reduced staffing of patient assistance or nursing staff, a reduction in patient ratings as well as an increase in ED visits and hospitalizations alongside a roughly 10% increase in mortality. These are some examples of the average effects measured across many, many acquisitions, hundreds of acquisitions typically across the country, typically against a matched control group of nonacquired peers.
Speaker 1 (05:42):
So, as you suggest, the health care system is extremely complex and I assume private equity did not go into every sector from the start. So, give us some context about when private equity started getting into health care and which sectors have had the most private equity investment.
Speaker 2 (06:04):
Well, if we rolled the clock back about two to three decades, private equity first entered the health care system in roughly the mid-2000s. In fact, for about two to three decades before that, private equity had been an acquisition model refined and perfected across many other industries in America before it really went into health care. But the health care journey for private equity started with hospitals and nursing homes, specifically a large set of hospitals being acquired in the mid-2000s, which sort of gave a proof of concept that financial returns and profits could be achieved on a large scale within the health care system. That led to a number of subsequent acquisitions of hospitals. Now we are up to roughly 400 or 500 hospitals across the country having been acquired by private equity firms around the same time, nursing homes began to be acquired as well. Similarities between nursing homes and hospitals include typically a physical structure, a big building or many big buildings, usually a campus or real estate.
Speaker 2 (07:08):
And private equity firms often saw the real estate opportunities as part of the appeal of acquiring a brick and mortar type of place. But then as time moved on, physician practices, which often also have brick and mortar establishments but often are smaller or part of office buildings or part of independent part practices out in the community, those began to be acquired as well. And that's probably one of the areas of fastest growth today in terms of private equity acquisitions. And in parallel with this journey, you've also seen hospices, opioid treatment programs, physician management companies, fertility clinics, autism treatment centers for kids, many other types of health care providers and clinic settings have also undergone quite large increases in acquisition activity by private equity firms, which again, is only one type of private acquisitions in our health care system.
Speaker 1 (08:10):
Well, it sounds like private equity was looking for someplace to put a lot of money as well then after they'd sort of dealt with these other industries. And I wonder if you can talk about why, and a little bit about why private equity is different from other kinds of investments and what kinds of concerns might be raised by that.
Speaker 2 (08:29):
A key difference is the so-called leveraged buyout model. In other words, using borrowed money or debt to finance an acquisition, the acquisitions of hospitals tend to go along with this type of model. The acquisitions of many nursing homes have also been debt financed, and what this type of model does is it places the responsibility for repaying the borrowed money onto the acquired entity, meaning that the acquired hospital or the acquired nursing home, or sometimes the physician practice now has been loaded with the new debt and the responsibility to pay back that debt plus interest. In a critical piece of this, the belongings of the acquired institution itself serve as the collateral for that new loan or that new debt. So the parent private equity firm does not have the responsibility to pay back this new debt, but rather the acquired entity does. And so the acquired entity, whether it's a hospital or nursing home, feels this additional financial pressure to pay back the loan in addition to continuing operations and generating revenue.
Speaker 2 (09:39):
In addition, private equity firms in large brick-and-mortar acquisitions have often also found the selling of land and buildings, the real estate, to another firm, often another private equity backed firm to be an appealing strategy. And this is often referred to as a sale leaseback maneuver where the real estate is sold off that generates liquid capital that can be used to buy other hospitals or other facilities or be returned to the investors and the parent private equity firm as short-term profits. That forces the acquired entity now to rent back its own buildings and land that it used to own. Physician groups working in a hospital, for example, would now be required to pay rent in addition to generating that revenue and paying back that loan to work in the same physical places it used to work. Private equity firms have also engaged, as has been told by many scholars in many settings, in staffing cuts in hospitals and nursing homes.
Speaker 2 (10:42):
These staffing cuts have led to reductions in the clinical nursing labor force, often imposing undesirable risks onto quality of care and patient access. And probably the final piece of this that's been written about to date in a consistent fashion is what's called financial engineering, which represents a set of financial strategies, one of them being a dividend recapitalization, where part of the value of the remaining health care facility is sold off to another firm to generate liquid capital in the short term that can be returned for investors six, nine, 12 months after an acquisition. For example, this kind of financial engineering places additional debt onto the acquired entity because part of the value of its own facility that it owned, now is owned by somebody else. So, it transitions owned equity into new debt, and this additional debt obligation also increases the risk of bankruptcy or closure, which obviously has implications for access to care.
Speaker 1 (11:47):
Well, this is certainly the story we've heard over the decades about private equity in other settings. As you suggest, you end up putting a lot of debt on the entity that's acquired, and that certainly changes the dynamic for them. What are the upsides of the equity investment? Obviously, health care has looked for more investment. Are there upsides here?
Speaker 2 (12:10):
Absolutely. Many private equity firms and scholars who have studied this field have noted that in addition to needing the source of capital that we mentioned earlier, many hospitals or nursing homes or health care facilities could also benefit from management expertise that a private equity firm offers. Now, in the old days, perhaps two to three decades ago, the familiarity with the health care system on the part of private equity may have been in its infancy. Nowadays, expertise in health care is likely more far reaching within the industry, and so both a source of capital and a source of management expertise are important additions that could benefit the operations of a health care facility. There are private equity firms engaged in distressed investing, which is the effort to turn around a struggling facility, a hospital, for example, in a rural or suburban setting that may not be able to fill its beds on a daily basis or may have low revenue flow because of a higher share of its patients being covered by public insurers like Medicare and Medicaid.
Speaker 2 (13:18):
And distressed investing is this philosophy of putting money into an institution, helping to turn it around, and then being able to sell it both at a profit, but also giving that facility, putting it on a better footing for future operations. That does exist in private equity acquisitions of health care facilities. With that said, if you look at the overall pie of private equity acquisitions in health care, the share that is of the truly distressed investing type is quite small. Estimates would suggest to us in the research field that is probably less than 10%, maybe less than 5%, but just overall in a broad sense, it's a small share of the total pie of acquisitions. Most of the acquisitions, the vast majority of them are acquisitions of financially more stable or healthier institutions or facilities because you'd have to have these facilities be able to take on new debt while still operating and generating revenue, and often still be able to do so with staffing cuts. So it makes sense that most of the time private equity firms would be looking to acquire a financially more stable place to do those things in as opposed to a facility on the brink or struggling, although that does happen.
Speaker 1 (14:40):
Very interesting. So really the money's flowing to places where it's already stable and has the potential to give those investors a better return without really having to turn around the organization
Speaker 2 (14:52):
On average. Yes.
Speaker 1 (14:54):
How about the role of regulation? And I'm thinking here, state versus federal. Of course, our audience is state legislators and legislative staff. And I wonder first, what's the role of federal agencies, the Federal Trade Commission or the Department of Justice, what role do they play here in terms of regulating private equity, particularly as it invests in health care?
Speaker 2 (15:15):
Well, one key aspect of their role is an antitrust type of enforcement or market oversight. The Federal Trade Commission has for many years, many decades, played an important role in this area across many industries in the country, examining mergers and acquisitions, especially the large ones, to make sure that they don't impede competition or that they don't diminish competition in a significant way. Sometimes in health care, in the hospital field, for example, somewhere about 8 to 10%, maybe 12% of hospital acquisitions and mergers over the years have been reviewed, challenged or struck down by this type of federal activity from the Federal Trade Commission. That also suggests, of course, that most of the mergers and acquisitions go through. They're not challenged or stopped, which remains a fact. But this antitrust activity is really meant to protect competition. It's a basic tenet of economics that competition among sellers or producers, benefits patients or consumers through lower prices and hopefully higher quality. Many states have a similar function through the state AGs office or market oversight activity by state regulatory agencies that perform this kind of market oversight or review function. An example would be California. Another example would be here in Massachusetts. These serve important functions in tandem with the staff at the attorney general's office or other health care agencies in the state meant to also serve a watchdog or oversight role.
Speaker 1 (16:49):
So,cas we wrap up here, we're of course, as I mentioned, talking with state lawmakers, other people interested in state policy, and I wonder from your perspective, what do you think they should think about in terms of policy option? You mentioned California and Massachusetts have a fairly robust approach here. What do you think state lawmakers might look at as they think about regulation in this space?
Speaker 2 (17:13):
Well, I think taking a step back, one of the things to glean from the evidence space is that there is a potential good of private investment into health care facilities counterbalanced by, I would say an abundance of evidence nowadays that on average there are concerns for patient outcomes and access to care because of these financial strategies and staffing cuts and the sale of assets and land and real estate. So there should be this sense of how do we protect the potential good of such investments while avoiding the potential or now known harms? Within that? The evidence also increasingly demonstrates that there is variation in the management strategies across private equity firms. So within a state, when lawmakers or policymakers look at this, they will likely find that not all private equity firms do the same thing. Even if they acquire similar facilities, they may not all have the same financial strategies.
Speaker 2 (18:13):
My colleagues and I have found, for example, that some firms are more likely to cut staffing while others could retain staffing, but then raise prices more aggressively. So that variation I think would be helpful for policymakers in the sense that if you can modify strategies from a hatchet to a scalpel, so to speak, to be more precise and more fine-tuned, that could be helpful. Many states, I think, have offered really instructive examples just in recent years outside of Massachusetts, Indiana, New Mexico, Washington, or other states that have just in this year passed some kind of state level legislation meant to increase disclosure of information, financial oversight or market review activities of acquisitions. So, for example, in Massachusetts in a law signed this January, the state required additional disclosure of financial information to several state agencies, increased to financial penalties for noncompliance, and it specifically aims to prevent sale leaseback arrangements of the main campus of hospitals.
Speaker 2 (19:21):
Oregon in a law also signed this year aims to prevent nonphysician investors or firms from owning physician practices as a reflection of a way to enforce the corporate practice of medicine statute or making more concrete the spirit of those laws that exist in many states, these laws across many states are meant to prevent the control of clinical decision making or medical practice by corporate owners, but they've been easily sidestepped in recent years because of various management agreements that can be signed between the investor owners and a willing physician, co-owner or participant. So Oregon takes a shot at making that more concrete and enforceable. Indiana, for example, also reported or required increased reporting requirements and attorney general oversight of transactions, giving it a three-month window to do a prior notice for any deal that exceeds a quite low amount, $10 million I believe, in total assets. So, these states have been varied in their approach on the specifics, but they've shared commonalities in the spirit of such regulation or policy through disclosure of information making things more public, giving the state some oversight authority around the acquisition itself and aiming to protect patient and clinician wellbeing and access to care.
Speaker 1 (20:55):
It sounds like transparency is sort of the word of the day there in terms of state action to let people have greater knowledge of this. Doctor, thank you so much. I actually understand this much better now, and if you can explain it to me, I think you're on solid footing with explaining it to just about anybody. So thank you very much for your time and take care.
Speaker 2 (21:17):
It's my pleasure. Thank you so much, Ed.
Speaker 1 (21:20):
I'll be right back after this short break with Senator Cindy Friedman of Massachusetts.
Speaker 3 (21:32):
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Speaker 1 (22:25):
Today. Senator, welcome to the podcast.
Speaker 4 (22:31):
Thanks for having me.
Speaker 1 (22:34):
Well, Senator, there's been a great deal of private equity investment in health care and this has drawn some concern from state legislators, state lawmakers, and I wonder what the core issues are that concerns you when it comes to this kind of investment?
Speaker 4 (22:49):
The core issue for me is that the goal of private equities and the goal of delivery of health care are not compatible. One is a for profit model, a quick turnaround, get in, make money, get out, and the other one is the delivery of care to patients, which is a long-term commitment that needs to be sustainable, needs to be accessible, needs to be affordable, needs to be quality. So the two of them just are completely incompatible. I think that's the core issue.
Speaker 1 (23:25):
Given that when you look at these private equity investments, what kind of effects have you observed now, positive, negative, otherwise here in Massachusetts.
Speaker 4 (23:36):
Well, we are the poster child for the harm that private equity does to the health care system. We had seven Steward hospitals. They bought a Catholic church, I'm sorry, Catholic Hospital. They turned it in. They were private equity. They bought other hospitals. They sold their land to a REIT. They took that money and gave it to the shareholders and to the owners, and they saddled all of those hospitals with significant debt, probably sold the properties for more than they were worth. So, the debt coming back was even more egregious. And then instead of giving that money to the hospitals to operate, they gave the debt to the hospital. So, the hospitals were all underwater. They stopped paying their contractors, they cut staff, they didn't bother to buy supplies. I mean, it is as egregious as it can get. The other piece of it is that on the positive side, I have been asking for a number of years now, show me a good, really good model of private equity in health care, where the patient comes first and where the delivery of health care is better and more efficient. And I've yet to have anybody answer that question, so I can't tell you what's positive about it.
Speaker 1 (25:01):
For those who might not know, a REIT is a real estate investment trust, which is a company that pools investor money and owns, operates, or finances income-producing real estate. So, what has Massachusetts done? What do they have in place related to oversight? Is there legislation you'd like to highlight for our listeners.
Speaker 4 (25:11):
I would say that Massachusetts has made a start. Last session, we passed a health care market oversight piece of legislation where it strengthens the oversight of major market groups, including providers, insurers, pharmaceutical manufacturing companies, PBMs for-profit, private equity, all of the major market groups, especially focusing on those that are for profit. We brought the private equity investors, the management service organizations and the REITs into the Health Policy Commission, cost trends, hearing. Health Policy Commission is our oversight bureau for health care, for all of health care that tracks cost. So, they are now part of the cost trends hearing, which is a hearing where we require all the players in our health care market to testify about what's driving up the costs, their costs. We've expanded the types of transaction that require a certain kind of notice. It's called a material change notice, and it allows the Health Policy Commission to request additional information for five years after the material change.
Speaker 4 (26:23):
So we're keeping track for longer on these transactions such as mergers and acquisitions. We are very explicit in what we require a PE-backed provider to submit in terms of their financial health. And we track the tree of investors during the process. So, one of the things that private equity does is it creates many, many branches of a tree and that go very deep. And what we require is now for the private equity firm to submit that tree, that picture of who they are, who their subsidies are, and who's affiliated with them. We prohibit acute care hospitals from selling back their main campuses to a REIT, and we've done some work around requiring that PE firms are held liable for false claims if one of their providers or one of their affiliates makes a false claim. So, those are the things that are in what we filed. So, it's really more of a transparency bill at this point. I can talk about what we've left out and what we're going to pick up as we move forward in this next round of legislation.
Speaker 1 (27:42):
Yeah, please do go ahead and tell us what you're looking for toward the future.
Speaker 4 (27:47):
OK, so now we're really looking at much more specifics in terms of the activities of a private equity firm. So the first big one is the corporate practice of medicine. So, as you probably know, the rules in the federal laws around corporate practice of medicine and state, they've weakened quite a bit. In our bill, what we're doing is establishing a very clear standard for what constitutes a clinical decision, and it prohibits corporations from being involved in those decisions. So it's keeping the clinical practice very clearly separated from the business practice. We prohibit PE firms from engaging in transactions that would likely cause financial distress to providers they own, and this is around how much debt somebody can incur or an entity can incur. And then I think a really big one for us is that we require a PE firm to deposit a bond to the Department of Public Health so that the state can collect if the provider closes or goes bankrupt.
Speaker 4 (28:51):
So, a big issue is PE comes in, they do their business, they leave, and then what they're leaving in the wake is an unsustainable and nonfunctioning hospital or practice or whatever. And what the PE bond would do is would require them to submit to DPHA a year's worth of operating revenue so that if they leave, if go bankrupt, the state has some protection while the market works itself out. Otherwise, the state becomes on the hook for trying to make, like we saw in Steward, the state was on the hook for trying to patch up all of these lost dollars. There's some other things that do we require that the Health Policy Commission, when they're looking at a market conduct review, that they look at whether the private equity, the deal that they're trying to make will lead to a significant negative impact for patients. And then it allows the HBC to modify those transactions so that those negative impacts are mitigated. And then we have a lot of financial patient panel thresholds in which providers and health care entities have to register. And in this case, in this bill, we require that any backed provider, anybody that is oversee by PE, has to register regardless of how big they are or how small they are. Those are the big ones that are in the bill. I think probably the biggest one there is the bond to protect the state.
Speaker 1 (30:36):
Certainly, there are health care institutions that need financial backing. Do you think what you're describing there is a way to balance this and still allow private equity, but make sure that patients and the public are protected?
Speaker 4 (30:50):
I think it goes a long way to doing that. My feeling is, is that this kind of investment just doesn't belong in health care. Private equity is very different from say venture capital, right? Venture capital puts skin in the game. The entity's success is the venture success, right? Grants don't have that kind of problem. Foundation. We have to put the patient at the center of the decision. Right now, profit and returns are making the decision on what gets invested in, and I maintain that if we focus on the patient, what will follow is accountability, quality and patient protection, and our providers need to be protected as well.
Speaker 1 (32:04):
Let me ask you this as we finish up. One of the purposes of our podcast is to try to share advice with other legislators around the country. And I wonder, given your experience, the work you've done on this, what are some of the takeaways you would suggest to your fellow lawmakers around the country if they're looking at this issue in their state?
Speaker 4 (32:25):
I have learned that private equity and the health care system focused on improving patient health are incompatible. And as I said before, I'm still looking for a good example of where PEs worked to sustainably increase access, quality and affordability and not done so on the backs of the providers and patients. I think the legislation we passed last session only had a small fraction of the PE-related policies that we were pushing for. And of course when we did the bill, I was of course very glad, but a small part of me also felt dismayed that we couldn't accomplish more. I will tell you that recently I had participated in a panel on PE and health care, and I learned that at another conference, a big proponent of PE said that he doesn't know how PE can invest in Massachusetts given the bill we passed. I understand that's absolute hyperbole, but it made me hopeful that there are things we can do to get our health care system more focused on health and less focused on money and that we can, whatever we do, can make a difference.
Speaker 4 (33:34):
And our rural hospitals are reeling. Our inner city hospitals are deeply concerned. And so to be focusing constantly on the profit of health care at this point in time is to me so dangerous and so concerning that I just can't see a place for it unless that place is to support hospitals and providers who are delivering care to people who, I will say in Massachusetts, the vast majority of people on Medicaid in Massachusetts work, over 50% are children. So what we all have to be, should be refocusing on is changing those policies, but also supporting the hospitals and providers that deliver care across the board to working families and to the poor. So that's kind of where we are now and what we're focusing on. Just I feel that it's important for us to name that at this moment.
Speaker 1 (35:10):
Well, Senator, thank you so much. This could hardly be a more timely and important topic to talk about, and I really thank you for taking the time to come on and share your thoughts with us.
Speaker 4 (35:20):
Well, thank you.
Speaker 1 (35:22):
I'll be right back after this short break with Senator Tyler Johnson of Indiana,
Speaker 3 (35:29):
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Speaker 1 (36:02):
Senator, great to have you on the podcast.
Speaker 5 (36:06):
Thank you for having me. It's good to be here.
Speaker 1 (36:08):
So, we're going to talk today about private equity investment in health care, and there's been a great deal of that in the last decade or so, and it's certainly drawn the attention of state lawmakers. I wonder if you can talk about what core issues you might have with that investment and any other thoughts you have on it.
Speaker 5 (36:25):
It's a pretty broad topic. Private equity and health care. We've seen some movement in that market in Indiana quite a bit over the last decade, mainly in a few spaces. One is the physician practice space, a lot in the specialty care, those kind of things. Some consolidation and private equity in the market there also in the long-term care space. And so I think nursing homes and those kind of spaces, and so not as much big hospitals or those type of things, but it's definitely been more inroads in those two spaces.
Speaker 1 (36:59):
Looking at those investments in Indiana, what are your thoughts on that? Is this a good thing? Is this not a good thing? Is it sort of a neutral thing?
Speaker 5 (37:08):
In reality, it should be a neutral thing. Health care is a really bizarre marketplace. It's not a free market and it doesn't act like a free market. Other things like go into a supporting goods store, things like that, where competition is definitely in place. There's a lot of government involvement, and that's part of the reason. So I think in reality it should be neutral, but I don't think it's a fair playing ground, nor do I think the incentives are aligned the way they would in other free markets. For health care people, they don't get healthier. Sometimes they're more difficult to take care of. And so private equity isn't a natural partner for health care. In some of those spaces, it can be good, but there has to be some safeguards there for sure.
Speaker 1 (37:49):
What have you done there in Indiana? What kind of legislative actions have been taken to approach this issue?
Speaker 5 (37:57):
Of the things that we've passed, it's mainly transparency. We've had some much more aggressive pieces of legislation introduced, but from my standpoint, I don't know that we understand it really well in Indiana at this point. Who owns what fingers are in what? We have a large nonprofit health care system in Indiana. There's problems with that too, but there's also private equity, don't know where it's at. And so for the last couple of years, we've really looked hard at trying to understand the space more. If it's a physician group, is there a large stake by private equity? Is it a small stake? Is the majority ownership? Those kind of things we really want to know. I have a sense of, I work in health care, I'm a physician, an ER doc, and so trying to understand the space and know it a little bit better from a big picture and where to go is important to me right now.
Speaker 1 (38:46):
Well, I think the approach for more transparency is one that I've heard from almost everyone I've talked to in this area. And I think you're right that trying to understand completely what the effects are, maybe we're still not quite there yet. Certainly, health care, some areas of health care need investment. And I wonder, is there a role for the state to try to strike a balance there between what might be good for some health care operations and might not be so good for some others?
Speaker 5 (39:15):
Yeah, the tone of your question is really good because it is important to draw in investment in health care practices. New practices are expensive, but you have to have the incentives aligned, especially amongst physicians and physician practices. We want the physician to be independent decision makers in the role of health care. You don't want to make financial decisions solely. There is always some question of is it the same effect but cheaper, those kinds of things. But on a big picture, you don't want to make solely financial decisions, and private equity tends to be in that space, and that's the disconnect with health care. And so I think there is a role for some regulation there to make sure we're protecting patients. And you've seen some actions in other states where you've had big problems with private equity, kind of pulling a fast one on patients, and then they're left out to dry, and who's left there to clean up the mess and it becomes a real problem.
Speaker 1 (40:10):
Yeah, certainly the state's interest in ensuring that they're not left with a failed financial or a failed health care institution that leaves a lot of patients in need. That certainly seems to be a state interest. You've been working on this for a while, and one of the things we'd like to do on this podcast as we close up here is offer some advice to your colleagues around the country. Certainly other representatives and senators are dealing with this issue, and if they haven't dealt with it yet, they're going to deal with it most likely. What's your advice in terms of how someone should approach this to better understand it and make sure that they kind of have their ducks lined up before they go to the legislative route?
Speaker 5 (40:52):
Yeah, I think it's a good place to go because it's really hard to understand the space. So I think my medicine background says, collect data first. Understand the problem before you act. And so trying to legislate and meet with people to understand the space. So go meet with the physician groups, the hospitals, the private equity groups themselves, insurance companies to understand where the sticking points are and to try to find that balance there. And sometimes it's just the state needs to step away and not get involved. But if there are points where the balance isn't there, then we maybe need to legislate that. But I think transparency is the first point. I think we've two bills in the last two years to understand and understand the space better. Just asking for more information from our state agencies that already have it, and then asking those big companies to kind of disclose some of their private equity ownership, which we haven't been doing in Indiana before. We're a very conservative state. So those things were difficult asks, and I understand it, but most people understand when the state's, one of the largest payers in health care, whether you like that or not, it's on our own, is to spend those dollars wisely. And so we've also looked to tackle some things that are really more aggressive. Things like ownership structures, vertical integration, those kinds of things.
Speaker 1 (42:14):
Well, Senator, thanks so much for sharing your perspective with us. I think this is a story that's going to be one we revisit in the next few years. Thanks very much and take care.
I've been speaking with Dr. Zirui Song and Senators Cindy Friedman and Tyler Johnson about private equity investment in health care. Thanks for listening.
You can find NCSL podcasts wherever you get your podcasts. This podcast, “Our American States,” dives into some of the most challenging public policy issues facing legislators. Our occasional series, “Across the Aisle,” features stories of bipartisanship. Also, check out our special series, “Building Democracy,” on the history of legislatures.