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Will private equity firm Cerberus do for Caritas Christi Health Care what it did for Chrysler?

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That is, turn the company into a smoking crater, and jetting off with big salaries and bonuses for the insiders? I'm guessing yes. Health Care Renewal:

  • [Cerberus's] Chrysler debacle, however, suggests there should be concerns about private equity firms buying out hospitals and other health care providers, for example:
  • - Will making a not-for-profit health care organization into a for-profit corporation really lead to more efficiency and lower costs? For-profit leaders tend to expect even larger compensation that not for-profit CEOs. Their decisions tend to driven by their short-term compensation, rather than the good of the organization.  For-profit corporations are supposed to generate profits for investors which may reduce re-investment in the corporation. 
  • The thirst for more executive compensation may be a driving factor in the deal, as hinted in the Boston Globe coverage of the Caritas Christi/ Cerberus deal:
    While [current Caritas Christi CEO Ralph] de la Torre and other senior executives will retain their current salaries and benefits, they would be eligible for additional compensation from Cerberus based on the financial performance of the hospitals, Caritas officials said. They said the details of those financial incentives have yet to be worked out.
  • - Can private equity cost-cutting techniques and other turn-around techniques really work in the health care environment? The Chrysler/ Cerberus case reveals how private equity leaders may get out of their depth in complex business contexts. Health care is even more complex than the automobile industry.
  • - Finally, and more important, are for-profit hospitals and health care providers run by private equity really likely to be better at fulfilling their health care missions than they were when they were not-for-profit?

Now that the Obama adminisration, the FKDP, and career "progressives" have reinforced the role of profit via HCR (Higher Corporate Returns), we can expect more private equity firms to move in, loot their companies, kill a bunch of people, and leave a whole lot of people in Versailles shocked, shocked. Yay!

Of course, they have no reason to shocked, since Hipparchia found the controlled experiment that shows why non-profit is better than profit for fulfilling health care missions. Katrina:

[T]he staff of Charity Hospital, true to its 250-year heritage of helping everybody who needs it no matter their station in life, decided to try to save everybody [and they very nearly succeeded], while the staff at Memorial, true to its heritage, decided to save only some of their patients, and apparently made these life and death decisions without any formal training.

And what would Memorial's heritage be? I don't know anything about its previous life as Southern Baptist, but Memorial was purchased in 1995 by the for-profit hospital chain Tenet. Yes, that Tenet, the one that paid $900 million in settlement after defrauding Medicare, Medicaid, and TRICARE, which seems to have been a tradition of Tenet's former incarnation, National Medical Enterprises, as well.

Moving away from the sensational to the dry, austere environment of academic literature, yes, it's true that not only does for-profit hospital care cost more, but it's more likely to kill you too.

Why?

The excess payments for care in private for-profit institutions were substantial: 19%. This figure implies that the US$37 billion that Americans paid for care at investor-owned acute care hospitals in 20013would have cost only US$31 billion at not-for-profit hospitals — a waste of US$6 billion. But higher acute care (and rehabilitation) hospital payments are not the whole story on investor-owned care. For-profit hospitals and dialysis clinics have high death rates. Investor-owned nursing homes are more frequently cited for quality deficiencies and provide less nursing care, and investor-owned hospices provide less care to the dying, than non-for-profit facilities.

Why does investor ownership increase costs? Investor-owned hospitals are profit maximizers, not cost minimizers. Strategies that bolster profitability often worsen efficiency and drive up costs.

Not to mention the possibility of competition causing not lowered prices and better quality, but that of non-profits having to act more like for-profits or die.

Getting back to Katrina and lessons learned, it would appear that a culture of maximizing profits does not lend itself to maximizing lives saved in times of emergency.

Well, look. I'm totally certain that whatever online system that the Obama administration sets up for HCR will, like, totally distinguish between profit and non-profit institutions, and also link us to the investors so we can look at their records. Not.

NOTE Caritas is Massachusetts' second biggest hospital system. This really is a big deal.

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sisterkenney's picture
Submitted by sisterkenney on

As covered in the article, the DMC (Detroit Medical Center) is a major 8-hospital inner-city, non-profit group that is a teaching center, and tends to the needs of the poorest and sickest in Detroit. As soon as the handwriting appeared on the wall that HIPPA-2(Health Insurers Profitability Act) was going to pass, Vanguard Health systems, a subsidiary of the Blackstone group, has offered to purchase this jewel. What I found interesting is that although Vanguard has a shaky financial status, it's debts and line of credit WERE REFINANCED IN JANUARY (2010). I'd like to know how many other cash-bleeding corporations got THAT deal, (let alone struggling home-owners!!) You're correct, Lambert, this IS a really big deal..we need to watch for the avalanche of acquisitions about to occur.Local takes:

http://www.freep.com/article/20100318/BU...

http://www.freep.com/apps/pbcs.dll/artic...

Submitted by Lex on

Their decisions tend to driven by their short-term compensation, rather than the good of the organization. For-profit corporations are supposed to generate profits for investors which may reduce re-investment in the corporation.

Does the market serve industry as a means for raising capital, or does industry serve the market as a means to extract capital?