Where There is Smoke: Emergency Medicine's Disaster Match Previews Private Equity Funded Chaos in Healthcare
The 2023 emergency medicine match is a canary in the coal mine.
This article asks a provocative question: does private equity create unnecessary systemic risk in health care? A cautionary tale in 4 acts.
Act I: The Canary in the Algorithm
This year, the medical discipline of emergency medicine has 555 unfilled spots in the match. This is despite there being vastly more applicants than residency programs positions.
The 2023 Match led to this statement by The American College of Emergency Physicians:
The 2022 EM Match saw an unprecedented initial 219 unmatched positions affecting one in four residency programs. The 2023 Match will see 555 initially unmatched positions, affecting a larger number of residency programs. Although these are challenging results, EM remains a vibrant and appealing specialty for many with almost 2500 new trainees already joining the EM family.
There is little more unsettling than unprecedented unmatched numbers doubling in a year. The vibrancy and appeal have the flavor of an FDIC press release before an old-fashioned bank runs.
Residency spots are fixed due to their cost being largely assumed by Medicare. That green applicant line? It’s all doctors who graduated from medical school. The problem was bad in 2022 (third line down):
The National Residency Match Program is both the way all doctors get a training spot in the US and is powered by an algorithm that won a Nobel Prize in Economics.1
Applicants are choosing how to place their bet in an uncertain future. Entering the match is contractual. If you match, you go train where the algorithm places you. No take-backs are allowed. So applicants are choosing two things at once:
How much do I want to practice the kind of medicine I care about?
How much do I want to risk not getting to be a doctor if faced with a bad outcome?
And overwhelmingly, doctors to be are choosing not even to rank emergency medicine programs spots.
Medical school is long, hard, and expensive. What these numbers tell us is that despite the chance that after spending all of college trying to get into med school, investing an average of $201,000 in interest accumulating debt in the process of becoming a physician, they might rather just not.
Let that sink in.
The choice to leave hundreds of unfilled spots? Many educated people are choosing to say “F- this” to a decade of their life over a future they’d despise.
As recently as 2020, academics were predicting there would be no problems with the staffing of emergency medicine:
we conservatively estimate the supply of board-certified or eligible EPs should exceed demand by at least 2.2% per year. In the intermediate term, it is possible that the supply of board-certified or eligible EPs could exceed demand by 3% or more per year. Using 2.2% growth, we estimate that the number of board-certified or board-eligible EPs should meet the anticipated demand for EPs as early as the start of 2021. Furthermore, extrapolating current trends, we anticipate the EP workforce could be 20-30% oversupplied by 2030.
Rarely do we read more damning words than “conservative estimate”— it is the academic version of Jim Cramer’s telling you Silicon Valley Bank is a top 10-pick in February 2023.
Act II: The Vampires Latch On
The naming conventions of these Private Equity (PE) staffing plays are great— American Physician Partners (APP) is one.2
APP has awesome ideas to make health care great. Did I say great? I meant profitable for them:
"APP has numerous cost saving initiatives underway as part of the Company's continual focus on cost optimization," the document says, including a "shift of staffing" between M.D.s and mid-level practitioners.
From a balance sheet perspective, it makes all the sense to replace residency-trained doctors with adorable kittens. That is a great staffing model!
Adorable kittens pouncing on keyboards that could generate CPT codes for submission to a payer = business model that outperforms paying humans. Human doctors have demands for salary, benefits, and, most problematically, appropriate medical care for patients that might not be the most profitable.
What is Capital, and Where Does It Come From?
The innovations coming in Healthcare will require capital. It’s money, by the way.3
There have been complaints about the role of private equity and venture investors in healthcare. This is a focus on private equity.
There were more than 1,400 private equity deals in health care last year totaling $208.7 billion, more than double the 664 transactions, valued at a total of $58.5 billion, in 2016, according to PitchBook Data, inc.
How is private equity different from other kinds of investments?
It is about the timeline:
Private equity firms are companies focused on generating quick and substantial profits through acquisition and sales of businesses. They typically sell the acquired businesses within three to seven years for a higher price. This short-time commitment is one of the defining characteristics of private equity firms, according to the industry’s trade association, the American Investment Council.
It’s important to understand that private equity is a higher-risk investment for institutional investors. It is not an index fund or even fiddling with public company stocks.
They are promising to beat the market.
If they’re not beating the market, there’s no reason to hire all those B-School Grads to put on expensive suits and take over Healthcare.
That money could just be invested in Google or Berkshire Hathaway like the rest of us. Running companies that aren’t on the public markets to make more money than you can make in public markets is difficult and risky. It’s a gamble. They promise outsized returns. But they get paid tremendous fees even if they do not deliver. They are not risking their own money—it’s “leveraged”— which means other people’s money is at risk.
The crucial point to understand about private equity investment, specifically in healthcare: is that it is a scam for the rest of us, and maybe for their investors too.
It can’t generate value. The timeline is too short.
Do you believe B school grads can do such a better job by submitting more expertly coded emergency medical bills and hiring adorable kittens instead of expensive humans…in 3-4 years, and also provide better health outcomes?
We have already seen some of these companies crumble:
We see the promises of “market insights!”
Translation:
We are politely exploiting a vulnerability in a system other people don’t see! Better health outcomes take time.4 PE timescale strategies include:
Out-of-network bills from otherwise in-network hospitals.
Up-coding
“Enhanced collections”
Firing all the physicians.
Destroying a field of medicine to the degree that hundreds would rather not bother.
Private Equity investors are looking for flaws in accounting that can exploit, adjust, and sell back to somebody for a hell of a lot more money than they paid for it. They know an arbitrage opportunity when they see one. By definition, arbitrage is about making more money by selling the same thing. It is not innovating to get better health outcomes. It is just not what they do. They're selling outrageous gambling but in reassuring business attire.
What Will Become of Us?
However, given all that investment, I think it’s pretty fair to ask what the outcomes are. The outcome I began with is an exodus of physicians from the specialty. Good doctors. Doctors you’d want to care for you, you know if it was an emergency.
It’s worth noting that from one level of financials up (above the level of ER staffing company profits), there more failures, according to a study of 1.1m ER visits:
Researchers found that treatment by a nurse practitioner resulted on average in a 7% increase in cost of care and an 11% increase in length of stay, extending patients' time in the ER by minutes for minor visits and hours for longer ones. These gaps widened among patients with more severe diagnoses, the study said, but could be somewhat mitigated by nurse practitioners with more experience.
The study also found that ER patients treated by a nurse practitioner were 20% more likely to be readmitted to the hospital for a preventable reason within 30 days, although the overall risk of readmission remained very small.
This is not intended to disparage the work of NPs and PAs in Emergency Settings.
It does point out there are problems with the care happening in Emergency Rooms where physician leadership isn’t running the show. Who would want an ER absent from the ER docs?
Balance sheet enthusiasts, not medical professionals.
Act III: The Passion of My Kidney Stone
In order to avoid descending into the abyss of a fight between nurses and doctors, I’m going to shift focus to one I can reliably count on to be absurd.
I had horrible pain strike me on one morning last year. It was in my low back. It hurt really, really badly. I couldn’t move too well. My wife had to call an ambulance. By the time I was taken to the ER, I was screaming—literally—in pain. I was taken to NYU Langone’s ER. I trained at NYU Langone Medical Center for a fellowship as a child psychiatrist. My children have received neurosurgery there. It has saved lives I care about.
What I wanted when I hit the ER was simply for them to make it stop hurting. If I was dying, I wanted them to solve that problem too. Simple, right?
I had a kidney stone; it turns out. This is among the more painful problems humans experience.
What didn’t happen? My pain’s prompt treatment. I didn’t see a doctor for a few hours. I was chastised by security and nursing for screaming out a swear word while writhing in agony on the floor. In a darkly comic mood, having a sneaking suspicion I wasn’t going to die because I ran the differential diagnosis on the likely non-fatal etiology of my problem when rolled up next to the nursing station, I had to resort to screaming, at the top of my lungs, the following:
“I’m afraid my pain might be sub-optimally managed.”
Blood-curdlingly polite. For over an hour. Over and over.
This is a nightmare. I understood what was happening to me and that my suffering would end because I was lucky enough to be a doctor.
What if we flip the script?
The staff in the ER hear screaming like mine, albeit less tragic-comic, all day long. No one wants to go to work and listen to someone scream in pain. The best outcome would have been enough health professionals to handle the problem promptly. I’m not an EM-trained doctor, but I am a physician, so at least part of the problem (what is wrong and do I need to be afraid of it) was solved.
I know what a kidney stone is, that it’s common, and that my symptoms were most likely that problem. It took me thousands of hours to get to day one of residency and 30,000 hours to graduate.
For each of us as patients, in an emergency, we want things that are inherently not evenly distributed. We would like to be seen immediately. We would like the most expert person on earth. We would like that healer to be caring and compassionate and bring both expertise and the right medical decision-making to our care.
I, for one, would like:
that care now
for as close to free as possible
with no errors
the right diagnosis
the right treatment
the right explanation
that we can understand
Delivered by someone who is awesome.
We want to say, “please help me,” and be helped.
With little argument, I imagine, dear readers, you will accept this as both:
an ideal
not what happens.
Healers want things too. We want to be paid the most money for our work, be perfectly respected, and save lives all day long. We want to be the most helpful humans ever imagined. We want to figure it out. We want to help and have a satisfying time doing it. Emergency Medicine doctors like a little bit of excitement too. The things we don’t like are myriad. We hate nonsense that gets in the way of helping, and we hate being powerless to help.
The compromises along the road that physicians are willing to put up are hard limits—not just for them, but for all of us when we try to get Healthcare. Most of the time, we need care that is the cheapest. But sometimes we need the care of that is the best. Those are not always delivered by people in the same places with the same methodology.
For physicians, nurses, and other healers, too much hassle, too little help possible, too much frustration in the process, financial ruin, feeling unappreciated and powerless?
These things have an endpoint, both for humans and for the system of medical care. These limits are human and hard to capture when we look at dollars on a balance sheet.
The balance sheet doesn’t offer us guidance for what the optimal human balance is, the point at which healers and patients are in balance—the healing has happened to the satisfaction of both.
The issue, at the heart of this problem in emergency settings is the level of autonomy of both parties has real limits. I was in a situation that is common: not enough professionals available to help in the timeframe that would make sense for me—to be clear, this is because it did not make financial sense to staff the emergency room with enough people to care for me properly.
The 2023 Match should terrify us all.
No doctors in the role of healers are bad. It is not good for those who need healing, and it is not good for those doing it. Mid-level providers have less experience and training. That is why they are paid less because it costs less to train them. The very existence of nurses and doctors working together is because compromises are needed to care for human health. It is not practical to have an all-doctor hospital. We need teams to do complex care, and doctors are awesome when it comes to edge cases. Nurses are awesome at protocol. The training to do those jobs is different, and if we don’t work together, patients suffer and die—expensively. And there needs to be enough of us, all told, to take care of patients. This will not always be a profitable endeavor in every setting and in every situation. But not dying is pretty sweet when you might otherwise die?5
Act IV: Death and Rebirth in Post-Pandemic America
Private capital professionals need more accountability, especially regarding the corporate practice of medicine, a line often blurred in many states. Violations rarely lead to significant penalties, encouraging a cycle of profiteering. Private Equity's aim for profits isn't the issue. The problem is the unaccounted externalities from their decisions.
A solution to this is stricter enforcement. If the corporate practice of medicine is violated, executives making healthcare decisions should face personal liability, just like doctors risk losing their medical licenses. We need to apply similar regulations to investors making medical decisions as we do to any unlicensed practitioners.
Profiting from recklessness harms us all. The risks that keep doctors accountable can also limit private equity investors, possibly deterring them from meddling in medicine.
There are other parts of the solution, like making sure the incentives align when it comes to what we paid for and what we want to see. But that would take a writer who is interested in both healthcare economics and actual healing, and I don't know where we're going to find somebody like that. I do have an adorable kitten who is pretty good at running across keyboards.
Oops! I dropped my microphone; if anyone sees it, please let me know. It's an emergency!
—Owen Scott Muir, M.D.
It’s a contract: applicants submit a list of programs at which they would train, and programs submit applicants they want in their program. The supply of doctors wanting a US residency spot and the number of spots are mismatched—there are far fewer spots than applicants, with an overall ratio of about 0.8 spots per applicant. Remember, this is AFTER medical school, so all the sacrifices to get into medical school have already happened.
Given half the chance, I’ll build “American Apple Pie Wholesome Health Partners” to compete in the 2023 Machiavellian Naming Awards. APP employs a lot of people, and hospitals outsource the staffing of emergency rooms to APP.
Physician innovators don’t have access to endless capital—we’re paying off massive loans that we, as a society, decided made sense for doctors.
Is there a world in which a healthcare company can be bought and made so much more valuable in 2 to 4 years that it’s worth greater than ten times your initial investment? This isn’t enough time to build the corporate infrastructure necessary actually to improve health. Health changes happen over a longer time frame. This is enough time to monkey with balance sheets, head counts, reimbursement models, and other things that can change fast. It’s fast enough for sleight of hand, not for change and innovation.
If only there were some product that allowed actuarial science to take into account the risk of this happening in a spread that risks out across the whole population…
This is scary.
Bravo.