Private Equity in Action

The New York Times has an interesting article that illustrates how private equity firms are driving up costs in the United States health care system. Private equity firms, like Mitt Romney's Bain Capital, often enter business sectors where they see an opportunity to milk huge profits in a short time, regardless of the consequences for the country overall. At issue is "physician dispensing" of drugs.

Supposedly a tremendous convenience to patients, this involves doctors selling drugs to patients in their offices, instead of sending patients to a pharmacy. The problem is that the docs charge up to ten times what drug stores do. Since this is often billed to workers comp insurance, patients never even realize it's happening. From the article:

Most common among physicians who treat injured workers, it is a twist on a typical doctor’s visit. Instead of sending patients to drugstores to get prescriptions filled, doctors sell the drugs in their offices to patients who walk out the door with them. Doctors can make tens of thousands of dollars a year operating their own in-office pharmacies. The practice has become so profitable that private equity firms are buying stakes in the businesses (emphasis added) and political lobbying over the issue is fierce. 

Doctor dispensing can be convenient for patients. But rules in many states governing workers’ compensation insurance contain loopholes that allow doctors to sell the drugs at huge markups. Profits from the sales are shared by doctors, middlemen who help physicians start in-office pharmacies and drug distributors who repackage medications for office sale. 

Alarmed by the costs, some states, including California and Oklahoma, have clamped down on the practice. But legislative and regulatory battles over it are playing out in other states like Florida, Hawaii and Maryland. 

In Florida, a company called Automated HealthCare Solutions, a leader in physician dispensing, has defeated repeated efforts to change what doctors can charge. The company, which is partly owned by Abry Partners, a private equity fund, has given more than $3.3 million in political contributions either directly or through entities its principals control, public records show.

This trend is extremely troubling. Such physicians have a direct economic interest in prescribing medications. There have been accusations that practices with in-house imaging and diagnostic equipment are doing unnecessary tests to pad their bottom lines, driving up the cost of health care. Now practices that dispense drugs will have an incentive to overprescribe them.

Considering that many workers comp injuries involve painful back injuries that sometimes require narcotic painkillers, you have to wonder whether private equity firms hounding physicians to increase profits might turn the docs into drug pushers.

Physician dispensing isn't necessarily bad, but wildly varying costs between states indicate there's a problem. In Maryland a physician charged $7304 for 360 lidocaine patches, while the same number only cost $4068 in California (one provider of the patches charges physicians $2863). The difference is that California enacted regulations to prevent such rip-offs.


In Florida a bill was introduced to prevent this kind of abuse, but was prevented from coming to a vote by the Senate president, who was heavily lobbied by the company that supplies physicians with the system for selling drugs. This, despite the state insurance commissioner's estimate that the law would have saved $62 million.

Private equity firms like Abry Partners are exploiting injured workers and ripping off the small businesses that pay the majority of workers comp taxes. This is exactly the kind of crony capitalism that Mitt Romney's money-money-money ethos engenders, and is another example of how money is being redistributed from average Americans to the very wealthiest.