Why does the USA spend the largest percentage of its GDP on healthcare than any other country?
Why not? Say the private equity LBO specialists!
Over the course of the preceding nine months, the media has speculated and propagandized on their various reasons for the rising costs of American healthcare.
While several things are for certain: the existence of the price-fixing cartel of the pharmaceutical industry and the greed-driven rise in health insurance costs which has occurred in lieu of expectant legislation, many are left to still wonder about this muddled situation.
When the author, Josh Kosman, wrote The Buyout of America, he included an excellent chapter on leveraged buyouts of a small number of hospitals and their overall negative financial outcomes (not that the others could necessarily be typified as positive). (Reviewed previously at this Economic Populist site.)
Mr. Kosman was writing from the viewpoint of private equity and their overall leveraged buyouts, not the full spectrum of the health sector. His chapter on those hospitals, although outstanding, wasn't even the very tip of the iceberg.
From an article on healthcare leveraged buyouts by Tony Chen, dated April 13, 2007:
Is it me or has there been a tidal wave of healthcare-related private equity and investment deals recently?
Here are the highlights of recent healthcare private equity & privatization activities:
- HCA went private for $21B - the biggest LBO in history at the time.
- USPI went private for $1.8B - by far, they are the largest surgery center operator in the country
- Texas Pacific Group, a private equity firm, bought HealthSouth's surgery division for $945M
- Many speculate that we aren't done yet. I'm betting on LifePoint as the next big deal to break - this would be ~$2.5B deal
While Josh Kosman covered hospitals, the wide spread of leveraged buyouts across the health sector includes pharmaceutical companies, healthcare firms, medical services, medical equipment, diagnostic services and equipment, medical personnel agencies, biotechnology firms and many more hospitals.
These leveraged buyouts, although not always, routinely follow a similar pattern: the private equity firms first do a leveraged buyout, then proceed to leverage that into several more health sector purchases, borrow against the company's assets to pay themselves handsome management fees and dividends or interest to their investors, then, in the classic "pump-and-dump" sense, exit the firm (dump them, i.e., sell them off).
Overall, this leaves those companies with considerably greater debt, at no constructive value to those firms by these private equity (PE) leveraged buyouts (LBO). Also, routinely jobs and companies are destroyed in this self-serving process, and frequently many jobs have been offshored while still in the ownership of the private equity firms (using labor arbitrage to make the balance sheet appear more acceptable to future buyers).
Several graphs below, from the Buyout News web site, may prove interesting.
A brief survey of a small slice of the private equity firms can be made from the list at the end of this blog post.
Many, if not the vast majority of these LBOs, were made utilizing a special purpose acquisition vehicle or company (SPAV, SPAC); an offshore finance center paper construction used for tax avoidance purposes.
While the FASB recently changed its ruling on the QSPE, it will be interesting to see what future effect, if any, occurs in this manner. Most likely, it is already too late for the prevailing effect upon the health sector costs and the future of the American economy.
Together with the destructive costs of all those leveraged buyout "pump-and-dumps" across the spectrum of the healthcare sector, one must also consider the effects of speculation by those healthcare hedge funds along with the other costs and how much they add to the equation.
Given the private and offshore nature of those hedge funds, that is another aspect which is extraordinarily difficult to ascertain.
The end result: as one would expect from any financial engineering event, more money for the debt-financed billionaires, and higher healthcare costs and unemployment for the rest of us.
I will posit that the private equity leveraged buyouts, along with any and all speculation by those hedge funds, are the primary cost drivers in the unnecessarily rising costs of healthcare in America.
And I will openly challenge anyone to empirically prove differently.
For an excellent overview of healthcare costs in the USA in comparison to other countries, I would recommend the world-class graphs created by a gifted visual artist in the Puget Sound region (Washington state, USA), Francis Luu.
One appears below.
Short List of Private Equity firms involved in healthcare LBOs:
Alchemy Partners
Avista Capital Holdings LP
Baird Private Equity
Blackstone Group
Carlyle Group
Crestview Partners
EGL Holding Co. (Thoma Cressey Equity Partners et al.)
Goldman Sachs Capital Partners
Investor AB
JPMorgan Partners LLC
Linden LLC
Madison Dearborn Partners
Nordic Capital
Peninsula Capital Partners
Riverside Co
RoundTable Healthcare Partners
Thoma Bravo LLC
Water Street Healthcare Partners
Comments
more premium outrage
While Blue Cross Anaheim is getting all of the press, Blue Cross Blue Shield in Oregon is doing the same screw job. Individual policies are being cut in benefits even further (it's a joke it's so bad) and premiums increased 18%, when just last year it was about 34%.
two FMN to watch
First, I did an overview post on other health care systems and it includes Frontline's Sick around the world documentary.
More films:
Sick Around America.
SiCKO
U.S. system so FUBAR
I recently had to deal with really some minor stuff with health in comparison to what most people deal with but frankly my conclusion was:
what a waste of money and time
Firstly every single drug was expensive, didn't work and the side effects were beyond annoying, I researched them out and the side effects could kill you.
While they rail on smoking, I discovered just side effects from drugs (not deaths from mistakes, infections and all the rest), kill 110,000 people in the U.S. each year.
(smoking is est. about 450,000 per year)
Then, about 785,000 people die each year from Medical mistakes (this includes drug side effects), that's more than smoking.
about 25% give or take smoke whereas from all Americans, 50% take at least 1 prescription drug (which is amazing in and of itself and show that advertising works!)
Back to me, basically I had side effects and frankly I don't know how anyone manages to go through 13 years of Medical school and training to be so clueless. The side effects are listed with each drug, I had 'em, yet magically none could put it together that was the cause, nope they were hell bent on claiming I had something else I didn't AND prescribe a drug proven not to be effective but costs about $4 a pill.
It was me, I had to research all of this out and as I did...
I discovered their "effectiveness" itself was a statistical joke!
So, I spent butt loads of money, my health insurance tried to claim an office visit was surgery, submit to deductible (now they are trying to claim if a MD sticks anything up anywhere that's somehow surgery!)
and I ended up researching it all again and using supplements, nutrition and wala....guess what my condition went back to normal in a couple of weeks, zero side effects.
So, in other words I was better off acting as my own Doctor.
I mean from the health insurance company to the pharmaceutical companies to the doctors it's just sure insanity.
I just pray I don't get anything serious, although at this point I think these people must only be useful for bacterial infections, pain and surgery.
You've exactly nailed it, Mr. Oak!
Waste of time. Exactly! And we constantly hear that phrase to describe virtually every economic aspect of American society and corporate culture today.
Degenerative inefficiency, constant wastage of time.
Some doctor recently came out with a book about checklists, extolling their postive upside and efficiency.
Geez, all this time and they didn't utilize checklists in hospitals, clinics and ERs!!!!
Unfrigging believable, and it had nothing to do with credit derivatives, leveraged buyouts, etc.
Lack of progress comes from disassembling and cannibalizing companies to make all those debt-financed billionaires.
Always, that is the end result, along with higher healthcare costs and unemployment for the rest of us.
truly
Ya have to wonder what exactly they are teaching Doctors these days...how to go on junkets with pharmaceutical reps and write it off on your taxes?
The real thing here is I pray I don't get anything seriously wrong because beyond paying for it, with this level of shear buffoonery, I feel like it's the 1880's and you might enter a hospital perfectly healthy and of course never come out alive...
Cutting bleeding and leeches.
But a very obvious place of absolute utter waste is the pharmaceutical industry....and it appears all about the patent. MDs won't prescribe a plant because you cannot patent a plant. Pharmaceutical companies aren't going to package up a naturally occurring substance because they cannot patent that substance.
Just the entire system and it's very clear pharmaceutical companies by the R&D system itself, plus the "for profit" research (just watch AstraZeneca or Lily or any of their stock prices and financial news) it's clearly all directed at market share, potential profits...
so it's disconnected to what is the safest and best method for treatment and even the research itself is disconnected to what is the best solution for a particular illness or disease.
That's just the drugs. Also an obvious is to regulate their advertising methods. Christ, if I watched TV for awhile I would swear I need blue pills to have sex, purple pills to eat, white pills to digest foods correctly and a yellow pill to help me use the toilet. Unreal, it should be outright banned (each one I list is highly ineffective plus has dangerous side effects and all you have to do is flip on the TV to know what I'm talking about).
Leveraging to Death...
Based on your discussion regarding these leveraged buyouts, I am curious whether you see a difference in health care purchases versus those in other sectors. Are the leveraged buyouts simply creating debt for the companies or is there something to be gained from the consolidation that comes from the purchases? Having seen the effects of consolidation first hand, I know that job loss is the large downside. However are there examples of these purchases improving the efficiency of the overall company?
(by the way, your captcha is very hard to read)
Response to specious question
Of course not, which was why I included the list of PE firms involved in those LBOs -- for anyone with any speck of wherewithal to research.
Just look into Crestview Partners and Symbion, Roundtable Health Partners and the present and past LBOs and acquisitions afterwards.
Their proclamations extol efficiency; their observable results is a platform of chronic anti-efficiency.
It's always about debt-financed billionaires disassembling American society.
Research the list included as well as Ajuba. Nothing further need to said.
Sorry, just in case...
..you are on the up and up, and that was a serious question, ask yourself this:
Is medicine better off when a Peterson, who works to offshore all American jobs while doing away with Social Security and Medicare, and his cohort, Schwartzman, or any of the other PE guys, really concerned with the state of medicine and biotechnology for people everywhere?
You want experts in robbery in the medical field? Or does it make more sense to have biomedical geniuses, and smart cell biologists?
Are endless financial layers necessary for any increases in efficiency? If so, show me the examples, please.
These are really specious arguments ignoring the data at hand.
Question for James Woolley
Too bad your excellent thesis is not talked about more in the national healthcare debate. I have no reason to doubt its validity (that "private equity leveraged buyouts...and...speculation by those hedge funds are the primary cost drivers...of healthcare in America".) But I would be interested to get your take on the validity of the following alleged other causes of our high medical costs vis-à-vis other countries, and the size of the role they may play, if valid at all:
1. Tort law and excessive litigation
2. Reduction of competition by not allowing health insurance to be sold across state lines
3. Prevalence of individual habits and practices such as lack of exercise, obesity and smoking rates, etc.
Ray Joiner
Response
All corporate and neocon memes excusing them from any and all culpability while ignoring illegitimate profits and greed at the expense of health.
Tort reform is such an absolute BS planck I can't be bothered to waste any time addressing it. Another N.A.M. diversion many, many others have already addressed.
Are you with N.A.M., by any chance?
James on the responses
Some people really are that economically disabled and they honestly believe the policies, rhetoric and crap coming from the corporate GOP and FAUX news, they cannot add two numbers together and they seriously just believe what is every pounded into the table as "the cure".
I'm not kidding. So, it would help to just run some numbers in a reply and state succinctly and clearly why this is incorrect.
Seriously, they believe discovery of online government websites and some pieces of information you would think everyone knows, is "breaking news".
Bear in mind in this country a lot of people cannot balance a check book and many cannot even write a check. (Check cashing services pray off of this fact, how hard is it to open a free checking and thus cash your paychecks for free...yet a huge percentage of people do not do it because they cannot add two numbers together or understand how to write a check, I'm not kidding!)
For example, "TORT reform", i.e. you cannot sue your Doctor when he kills you by his incompetence, is estimated to reduce medical costs by 0.001% overall. A better way would be to have a regulatory body to actually screen their own MDs and we do not have that currently.
Agreed
I do agree, just wonder about.....
Tort Reform
As to Tort Reform, Texas has it from what I understand. The Republicans there pushed it through and it hasn't helped at all. Texas still has one of the highest uninsured rates in the country with poor outcomes. I think its similar to the Administrations proposal that taxing "Cadillac" medical plans will drive up wages. Supposedly, forcing companies to choose lower cost medical plans will mean they'll then decide to pay their workers more...
Once they convince people they have a "fix" they know they can extend their looting for a few more years while the "savings" works its way through the system. Worst case scenario they have to come up with some new "fix" to appease the masses. Trickle down economics and all that...
Thanks for your reply
Those who have studied the American jurisprudence system over the past thirty years will realize that tort reform is simply yet another ploy to extend the power and greed of corporations, removing the last bastion of legal rights afforded to American citizens and workers.
Over the preceding thirty years, laws have been changed and nullified, allowing that which was once illegal to now be legitimate, thus allowing the highest financial echelon to plunder and pillage the rest of us to their heart's content.
By the same token, that which was once legal, has now been made illegitimate, thus many American have yet to realize they can be arrested for virtually any reason; that habeas corpus is now ancient history, and that the corporation now enjoys rights of absolute supremecy.
An interesting, and crucial, item which is little understood (for obvious stealth reasons) about companies when they offer lower and lower costing medical health plans to their employees (meaning more money paid, and on medical payouts, at the individual employee level), is that those companies and corporations enjoy a sizable tax break for offering such plans.
Thus, they play the "spread" --- enjoying a given tax break, even though they've offered worse and worse medical plans to their employees.
Also, many citizens are still unaware of the Supreme Court (SCOTUS) having privatized "eminent domain" with their decision (was it 2004 or 2005) to allow developers to force them to sell their land for commercial development purposes (ostensibly operating through the good graces of the local corrupt politicians). This was decided on the people of Connecticut vs. a developer, who was building for Pfizer -- which had promised jobs from said development -- but eventually pulled out of that neighborhood -- hence ZERO jobs produced -- but the privatization of eminent domain now set in law.
Either way they profit, while screwing the rest of us.
on the other side of TORT reform
May I just note the ones making out are the attorneys. Most financial wrongs attorneys will not take on because there is no payout for them. They charge $300/hr and so all of these situations of financial screw jobs, below at least $100k but more like $500k, they won't even touch.
There needs to be some sort of cheaper way to get financial justice beyond just requiring some long, dragged out lawsuit involving attorneys that goes on for years and is all one big legal game.
Small claims court, many increased their maximum amounts but it needs to be higher still.
I mean frankly you must be able to sue for many gross negligent things but there needs to be much more in place to plain stop these errors and negligence in the first place.
For example, MDs rarely lose their license and practices, hospitals vary widely in terms of errors, conditions, costs (this is huge!) and efficiency.
So, I agree with you the attack on civil lawsuits is all about denying even more rights to consumers and patients...
but on the other hand, the system is grossly unfair and the ones pocketing the dough really are the trial lawyers.
But we never heard of any other structures and changes to make it easier for your average Joe to get some justice, or to reduce the insurance costs of Hospitals, Physicians, some sort of system which reigns in insurance companies as well as does something to improve the quality of care, reduce errors and mistakes.
It's clear to me the entire medical and drug system in this country is FUBAR, it's way beyond blaming just one part of the chain and it's also clear the ones getting screwed are the American people, the patients.
But we need to detail out why exactly these medical liability costs are so absurdly high, and what really could be done that doesn't strip away patients rights to get it all back into alignment. Also, I think the entire occupation sector of Trial attorneys needs to be shrunk and I do they these attorneys are in the business.
Just like immigration attorneys, they are in the business and get millions of dollars processing and really trading people, hence they lobby for more guest worker Visas, more immigration, more crap from which they can generate revenues and the labor economic realities or even what's in the best in interest of the foreign guest worker/immigrant....
be damned. They are like modern day slave traders, profiting off of each body they "peddle".
Tort Reform: agreed, but with major reservations....
While I don't disagree with you per se, it is important to consider the entire package.
With fewer and fewer legal rights remaining to us, when President Obama mentioned tort reform in his State of the Union Address, taken with his reframed "public option" at that time, one had to perform a careful analysis on everything he said in that regard.
Firstly, he mentions that the citizenry will be legally mandated to purchase private health insurance, while lauding the achievement of forbidding those same private health insurance companies from denial of coverage (please note I said coverage, nothing was ever mentioned about denial of treatment).
Legally, they can't mandate the universal purchase of private insurance while at the same time allowing for prejudicial denial of coverage. The first legally cancels out the second, so the second should never be able to stand up in court.
Next, President Obama mentioned tort reform. Why indeed in that context and sequence. Because after the citizenry are legally mandated to purchase private health care insurance, they will wish to sue after they are denied treatment under that mandated medical coverage (insurers love those premiums, and even love denial of treatment -- claiming noncoverage of said medical processes -- even better).
But tort reform would alter that equation considerably, thus removing that legal right as the defrauded insured would have to sue for the right of sueing, a most egregious and ever expensive process and undertaking.
And President Obama has his very own insurance policy: Justice Sotomayor, whose record, regardless of all those useless talking heads who falsely proclaim themselves "dems" and "progressive" -- historically has favored the insurance companies over the insured.
The one or two exceptions: when she was on a panel of judges, and the senior or chief judge found in favor of the insured (so, in a good career move, she followed the lead of the chief panel judge). Mighty big exception, that!
No, I am not with N.A.M.
(In response to Mr. Woolley): Rather, I was genuinely interested in your take on those three items. A request for further information does not equate to a position of support. I would think this site and its principal contributors should welcome its use by people who have an open mind and wish to educate themselves. Therefore, I don't quite understand all the viciousness towards people who have less knowledge than yourself. I had to laugh about being with N.A.M., as I am a retired high school teacher of French and German. I am learning much about economics from this site. (In response to Mr. Oak): Not everyone who disagrees with you is so dense they cannot balance a checkbook. Just for the record, in case you were implying that in relation to my question, my admittedly modest math skills are not even beginning to be challenged by balancing my checkbook.
Ray Joiner
My apologies, sir
I admit I have become used to N.A.M. trolls; witness that one a little while back who quoted a former National Association of Manufacturing president!
They have numerous call centers throughout North America, where they troll call-in radio shows as well as web sites with inane and trivial questions.
I admit to my frustration, just as I admit to a thirty-some year buildup of fatigue at having individuals still want to argue with me about the detrimental economic aspects of offshoring jobs - regardless of what country or society we are discussing.
Your three points are common talking points at faux organizations, which come into existence simply to confuse, bewilder and divert.
My suggestion to enhance one's knowledge of economics is to pay attention to those with an actual track record in economics. Those Nobel prize winners in economics (Exception: Ms. Ostrom) in the past have usually been more politicians than economists, who frequently reposition themselves continuously politically as those winds change.
Therefore, while lately I find Krugman (generally speaking), Stiglitz and Robert Reich in agreement with me, it isn't because I have changed my way of thinking on economics; they have simply repositioned themselves again, or removed their heads from their collective posteriors, finally.
I WOULD recommend Michael Hudson, Steve Keen, James K. Galbraith, Ravi Batra in the realm of econ, as they have been consistently brilliant in various aspects of it.
I would likewise recommend the writing of finance types-turned-journalists like Nomi Prins, Pam Martens, etc.
My previous posts at this blog are specifically structured to clue one in to the socioeconomic/political operations allowing for economic meltdowns and massive wealth transferral upwards. (Please see below.)
Again, my humble apologies, but you have to understand, the disassembling of the American economy has been going on for a period of thirty to forty years now. Many Americans appear to those of us who have been paying attention; who have been politically active, as rather a pathetic lot with negligent to nonexistent citizenship responsibility.
When people over the age of 40 don't realize that the minimum wage should be $22 to $25 dollars per hour, but that the connection between productivity and the minimum wage was discontinued during the Bush I administation, that individual is both economically and citizen-wise negligent.
When people in the 40s and 50s wonder why employment is so difficult to find in this country, where a recent and long-overdue BLS report reported that effectively the private sector has created zero new jobs over the past ten years; one has to wonder on what planet these people have been existing. Your very own comments with regard to social security were highly suspect.
But I take you at your word for the time being, sir.
The sites which explain everything!
And yes, I am actually a humble fellow.
Libertarian mumbo-jumbo.
FWIW, I thought Ray was perhaps a troll too. In any event, no harm, no foul. I would like to add one name to your list of economic realists. And that would be the late, great (and vastly overlooked) economist E.F. "Fritz" Schumacher. His humanitarianism is self evident in the title of his collected essays, Small Is Beautiful: Economics As If People Mattered. It is truly sad that proponents of his ideas in the early 70s were just shrugged off as DFH. Hmmm, not that much has changed in 40 years, has it?
And my 2nd apology of the day goes to commongood..
...for the memory lapse of forgetting The Schumacher.
Truly an unforgivable breach, and I agree with your sentiment.
Where would you place L. Randall Wray?
Is he up there close to Hudson, Keen, Galbraith, Batra and Schumacher in your view? (Question for Mr. Woolley)
Ray Joiner
Healthcare
Very insightful, especially including "one must also consider the effects of speculation by those healthcare hedge funds along with the other costs and how much they add to the equation."
To that I would also add the general administrative costs of the predatory layer of interposition between doctor and patient (which offsets some skilled job loss with unskilled job additions) as well as the outrageous salaries of top Health Care Prevention for Profit Executives, and their enormous "political influence" budget outlays.
I think you've hit upon the general cost factor of 3rd party predation which has become the hallmark of the American economy. Aside from the ubiquitus speculation layer of predation, you have the general theme of predatory interposers.
Lawyers get in between the doctors and the patients on the TORT side. HMO's get in between the doctors and the patients on the payment side. Credit counselors get in between the patient and the lender on the credit side. Now we've even got former IRS agents getting in between the patient and his tax refund on the "maybe I can fund this with my tax refund" side.
And nothing of any great value get's built, produced, invented, cured or discovered--just predatory layers of paper-pusher-profit.
This post is from last summer, but there's a link in there from the AHA about the legislative "shoehorn" for these LBO's.
http://letthemfail.us/archives/900
-WM
http://letthemfail.us
-WM
http://letthemfail.us
Thank you, Let_Them_Fail
Great site, BTW.
And today, we have Citi with their crisis derivatives.
Will wonders (and absolute corruption) never cease!