Eileen Applebaum and Rosemary Batt wrote a paper titled  Financialization in Health Care: The Transformation of US Hospital Systems for the Center for Economic and Policy Research (CEPR) (September 09, 2021).

Click here to download the 105-page PDF.

« nonprofit hospital systems faced uncertainty in government reimbursement rules as well as rates that did not keep up with cost inflation and sought non-operating income, as detailed in Part II. The government facilitated financial strategies by allowing nonprofits to establish for-profit tax- exempt subsidiaries. They also pursued merger and acquisition (M&A) activities, sometimes designed to create anti-competitive conditions. In some cases, for-profit goals appear to dominate healthcare decision-making – calling into question the distinction between nonprofit and for-profit entities. »

« from 2010 on, investors and private equity firms have been instrumental in dismantling local healthcare systems by acquiring the most lucrative or high ‘value-added’ services, such as radiology, anesthesiology, and other specialties. At a time when healthcare providers argue that local coordination and integration are more important than ever, financial actors are cherry-picking pieces of local systems and rolling them up into national corporations with little local accountability. »

« In the 1990s, a financial logic began to emerge in the sector that went beyond a market logic. Whereas the market logic still valued productive enterprises as the source of profits, the financial logic views productive enterprises only in terms of the value of their assets and how they can be monetized. The financial logic for business activities in the economy more generally grew as a result of several forces: The deregulation of the banking system, the growth of shareholder primacy as a value, the expansion of private pools of unregulated capital, and the development of financial tools and innovative tactics. »

« In this study, we document how the for-profit healthcare enterprises have shaped the context in which nonprofits operate and also provided the platforms for new financial actors, particularly private equity firms, which introduced a financial logic into healthcare operations especially from the 2000s on. PE firms make money and extract value from healthcare organizations almost entirely through financial activities, regardless of their impact on healthcare organizations or patient care. They use third party reimbursements that their portfolio healthcare companies receive as a vehicle to extract cash for themselves and their investors. In this sense, they represent the most advanced form of financialization in the healthcare sector. In the evolution of financialization in this sector, the logic of healthcare organizations as long-term care-giving entities is giving way to a financial logic that views any organization as a set of assets to be bought, reconfigured, and sold in the short run to extract wealth for investors. Financial analysis is applied to each healthcare activity to establish a risk-reward profile used to determine whether to invest in a given activity, and if so, how much to pay. Patient care becomes a secondary – not a primary – mission of the organization. »

« Financialization, however, is an ongoing process with many dimensions. The evidence in this research points to a range of variation in financial strategies – from some that are used to support the operations of hospital providers to those that detract from them. For-profit and private equity owned systems also use a range of different financial strategies and tactics – some more detrimental to long-term stability and patient care than others. In the meantime, the healthcare field attracts people who want to dedicate themselves to providing high quality care and saving lives. They are often caught in the middle of organizations in which the financial logic is putting pressure on, or marginalizng, the caregiving logic of healthcare. The evidence in this paper provides a cautionary note. It suggests that as the process of financialization continues to expand in this sector, the costs of healthcare will continue to grow even as the financial stability of hospitals and the dedication to patient care declines. »

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