CEPR

For Immediate Release: September 4, 2019
Contact: Karen Conner, (202) 293-5380 x117, This email address is being protected from spambots. You need JavaScript enabled to view it.

Major news networks are featuring stories about surprise medical bills as insured patients treated at in-network hospitals face unexpected doctor’s bills of hundreds or even thousands of dollars from doctors not in their insurance network. But the rampant explosion of these bills, the desperate stories, and the futility of fighting bureaucracy begs the question: what is causing this relatively new and alarming problem?

To answer that question the Institute for New Economic Thinking (INET), today released the paper, Private Equity and Surprise Medical Billing, by Eileen Appelbaum, co-director of the Center for Economic and Policy Research (CEPR), and Rosemary Batt, the Alice Hanson Cook Professor of Women and Work at the ILR School, Cornell University. This short paper explains what many consumer news reports do not: the role of private equity in surprise medical billing.

Their paper sums up private equity’s role in surprise billing:

“Over the past decade, private equity firms have become major players -- buying out doctors’ practices and rolling them up into large corporate physician staffing firms that provide services to outsourced emergency rooms, anesthesiology and radiology departments, and other specialty units. By 2013, physician staffing firms owned by Blackstone Group and Kohlberg, Kravis Roberts & Co. (KKR) – among the largest PE firms in the country – had already cornered 30 percent of this market. Since then, private equity ownership of these services has continued to grow. Private equity firms also own two of the three largest emergency ambulance and air transport services – another major source of surprise medical billing.”

What started in the 1980s with hospitals outsourcing food services and facilities management has expanded into today’s perfect storm. Outside companies now staff 65 percent of US hospital emergency rooms resulting in over 4-in-10 trips to the emergency room ending with a patient getting a surprise medical bill.

Private equity ownership matters. PE firms use a lot of debt when they buyout companies and then extract as much cash as possible to pay down the debt and reward their investors with “supersized” returns. Buying up specialty practices is financially attractive because out-of-network doctors can command a substantial premium for their services. Emergency rooms are not really part of a competitive marketplace because patients in emergency medical situations rarely have a choice: they need immediate medical care and cannot shop around for an in-network trauma doctor or radiologist. High ER doctors’ fees do not reduce demand for their services.

This paper details how physician staffing companies like KKR-owned Envision Healthcare and Blackstone-owned TeamHealth – which between them employ nearly 90,000 people who work in hospitals and health facilities across the US – drive up health care costs and insurance premiums.

Congress has taken note of constituents’ complaints about unexpected and unaffordable surprise bills, and is considering measures to protect insured patients. Benchmarking payments to out-of-network doctors to rates negotiated by in-network physicians would not only protect patients, it would hold down health costs. Private equity and the doctor practices they own object to this. “Their preferred solution is to protect patients but make it possible for out-of-network doctors to collect inflated fees from insurance companies,” explains Appelbaum. “That’s a ‘solution’ that will continue to drive up health costs.”