Private Equity Achieves Extraordinary Numbers in Health and Education

The N.Y. Times has recently profiled a chain of for-profit hospitals known as HCA. The two articles are well worth reading, particularly for insights into the manipulation of medical billing and coding:

At HCA in 2006, slightly more than a quarter of the payments it received from Medicare were for patients classified in the two highest-paying categories, far behind the 58 percent reported at other hospitals, according to an analysis of Medicare payments by The Times, using data provided by the American Hospital Directory. During that time, HCA was still operating under a corporate integrity agreement resulting from its Medicare fraud settlement, and an independent reviewer was scrutinizing its billing.

By late 2008, however, just as the agreement with federal regulators was ending, HCA introduced a new coding system for its emergency rooms. HCA said the system, based on a method developed by the American College of Emergency Physicians, was less complicated and better captured the time and resources used by the hospital. Nearly overnight, HCA’s patients appeared to be much, much sicker. By 2010, HCA had surpassed other hospitals, with 76 percent of its payments coming from the two most expensive classifications, versus 74 percent for other hospitals.

Perhaps some Freakonomist will conclude that independent reviewers are vital to improving public health. But the better explanatory variable appears to be the role of private equity firms in reshaping HCA after buying it in 2006. They are revolutionizing the service sector. Just consider the miraculous work of a private equity group in getting “50 full-time faculty members to teach 90,000 online students” at a university it controls. Truly the business model of the future.

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