Vulture Capitalists Want To Flood the Health Care System With Cheap Medical Labor
A private equity–owned emergency room staffing firm cofounded by a wealthy Republican congressman has been openly hailing a coming “oversupply” of doctors, promising prospective investors that a surplus of emergency physicians — soon projected to reach nearly ten thousand — will drive doctors’ wages low enough to offset the haircut that health care reforms have imposed upon its profit margins.
The physician glut was highlighted in a recent pitch deck prepared by the cash-strapped Nashville ER staffing firm American Physician Partners (APP). The company, which operates ERs in 155 hospitals, has been trying — and failing — for months to raise $580 million to pay off creditors, including Representative Mark Green (R-TN), who holds somewhere between $5 million and $25 million of the company’s debt.
Like most of its competitors, APP has watched its profit margins and credit ratings sink since various laws banning surprise billing were enacted last year. While APP claims it never sent surprise bills to patients, it has also told its doctors in email exchanges reviewed by us that various laws banning the practice had resulted in a 50 percent drop in the company’s revenues from certain large insurers.
But in its November 2021 pitch deck to investors, APP tells a different story, promising the company will more than make up for the expected $5.8 million to $11.6 million hit to its $122 million in annual gross earnings, by slashing some $19.6 million from its payroll costs. APP can do this in the midst of a once-in-a-generation health care labor shortage, according to the presentation, thanks to a coming glut of ER doctors.
This ER doctor glut was primarily caused by a recent explosion in the number of emergency medicine residency programs founded to train medical school graduates in the specialty — and was part of a deliberate scheme by vulture capitalists to flood the health care system with cheap medical labor.
“It is remarkable to me that in the midst of a global pandemic where health care workers have sacrificed so much, APP brazenly shares its plans to further exploit physicians,” said Philip Sossenheimer, a Stanford Health Care physician who helped organize a recent landmark union victory at the Palo Alto, California–based hospital system.
While this physician glut is currently a phenomenon specific to emergency medicine, Sossenheimer suspects more specialties will soon face similar problems. As he put it, “I hope all physicians see this as the harbinger of what corporate health care will bring.”
The Doctor Glut Has Arrived
This “oversupply” of emergency physicians will likely never be apparent to the average patient sitting in an ER waiting room, where skeleton staffing has been thoroughly baked into the business model.
As the APP presentation points out, 70 percent of hospital ERs are outsourced, and most contracts are awarded to the lowest bidder. Nearly all of the biggest bidders on ER contracts — Envision Healthcare, TeamHealth, SCP Partners, ApolloMD, and APP — are owned by private equity firms that have accumulated nine- or ten-figure sums of debt buying out smaller competitors. Making the interest payments required by that debt leaves no room for extravagances like higher doctor-patient ratios.
Indeed, as the media will often remind us, we are by most standards a nation in the throes of an acute physician shortage. Most countries have far higher numbers of doctors per capita than the United States, partly because we force doctors to endure three or four times as many years of postgraduate education as most European countries, pay an average of $300,000 for the privilege to save lives, and partake in a cutthroat competition for a fixed number of residency positions.
Each year more than a thousand new medical school graduates, most of them deeply in debt, fail to “match” into residency programs and fall into a kind of professional limbo. This is in part because Congress, in 1997, froze the number of residency slots it would allow Medicare to subsidize — a Republican policy the conservative Wall Street Journal editorial board last year shamed congressional Democrats for failing to reverse, in light of what it characterized as a rampant “shortage” of doctors, particularly emergency physicians.
Assessing the physician labor market in February, the Atlantic argued that the barriers to achieving a medical license in America amount to “a conspiracy to limit the amount of doctors practicing in America.”
And yet, younger ER doctors will tell you a starkly different story — one in which ER specialists toil four years in med school and another three or four in residencies, only to spend another six months looking for a job, during which they find that employers are delegating an increasing number of their former duties to nurse practitioners.
A surging rate of doctor resignations in response to the pressures of the pandemic has done little to improve the remaining physicians’ lot. While nurses who are willing and able to quit their jobs and become travel nurses have had little problem quadrupling their short-term pay, doctors who become travel physicians are regularly hit with more pay cuts.
In August 2021, a statistical analysis published in the Annals of Emergency Medicine put hard numbers to the sense of disposability doctors had been experiencing: a near doubling in the number of emergency room visits being handled by nurse practitioners and physician assistants had conspired with a boom in the number of med school students specializing in emergency medicine (EM) to produce an ER doctor glut that was growing bigger every year. The study projected the ER physician oversupply will reach 7,485 doctors by 2030.
By all accounts, the glut has already arrived. A recent thread on a popular ER physician forum dissected two emergency room job listings offering $125 an hour — one a day-shift travel nurse on the West Coast, and the other a midwestern emergency physician gig with unspecified teaching responsibilities involved. Other discussions have focused on how doctors are increasingly getting paid the same amount as registered nurses. More recently, a labor lawyer posted an employment contract with Apollo-controlled ER staffing firm US Acute Care Solutions, specifying an hourly base physician pay of $21 an hour.
“This should be a wake-up call to the speciality that emergency medicine is becoming a less desirable specialty due to its reputation for increasing corporatization, loss of autonomy, and exploitation,” said Mitch Li, a traveling emergency room physician who also runs Take Back Medicine, a grassroots support network for doctors grappling with private equity buyouts.
The Residency Gravy Train
There’s an obvious reason for the doctors’ unique lack of labor market leverage: the emergency medicine specialty is bringing in nearly twice as many med school grads as it did a decade ago, and almost triple the number it attracted in 1998.
That is thanks to a near doubling of residency programs designed to train doctors in emergency medicine since 2008; no other medical specialty has experienced such a boom. The residency surge became particularly overheated in the years before the pandemic, when the Accreditation Council for Graduate Medical Education accredited seventy-seven new emergency residencies in three years alone — only nineteen of which claimed any affiliation with a university medical school.
And while most of those programs would be profitable solely on the basis of the deeply discounted medical labor and physician recruitment costs associated with hosting a residency, the government subsidies associated with most residencies, most of which are subsidized by Medicare, make them bona fide gravy trains. When Philadelphia’s Hahnemann University Hospital auctioned off its 550 residency slots in 2019 in the aftermath of a complex private equity acquisition and looting of the facilities, the residencies fetched $55 million. And according to its pitch deck, APP calculates that the expansion of a Medicaid-subsidized residency program it manages in a chain of Michigan hospitals will add an extra $3 million to its annual earnings.
Residency programs’ financial rewards likely would have caused a physician glut much sooner, had Congress not frozen the number of Medicare-funded medical residency spots as part of its 1997 Balanced Budget Amendment. In the years that followed, hospital lobbies began complaining that the caps were causing a “doctor shortage.”
The scare tactics worked. In 2013, after local newspapers eagerly reported on the coming dearth of doctors, Florida hospitals convinced then governor Rick Scott (R) to earmark an extra $80 million a year in Medicaid funds to subsidize new medical residencies.
The most prominent driver of the ER doc glut, doctors say, is the hospital giant HCA Healthcare, which has emerged as the nation’s largest single sponsor of post–med school residency programs.
This is a recent development: until 2015, HCA’s annual report contained a boilerplate sentence about how its hospitals “do not typically engage in extensive medical research and education programs.” Last year, the company issued a press release welcoming an incoming class of two thousand medical residents and boasting of being the “largest provider of graduate medical education” in the country.
Physicians with experience in various outposts of the hospital chain’s burgeoning educational empire say that HCA is exploiting residents at the expense of their educations and future patients. Doctors familiar with HCA residencies in Florida, for example, say the programs are often run by physicians with flimsy-to-nonexistent academic credentials, and many say they are mystified as to how the programs first gained accreditation.
“These hospitals have so few nurses left that the residents are stuck doing all the IV bags, changing the sheets, while any patient with a moderately complex case is going elsewhere,” said one physician familiar with HCA residency programs, who asked to remain anonymous because they live in a state where the company has substantial market power:
Now, there’s nothing wrong with doing a few IV bags or doing what needs to be done in a crunch, but a residency is where you’re supposed to learn how to handle the big complex cases. HCA is just destroying the educational experience of a lot of these young docs.
HCA’s entrance into the residency business opened the floodgates, paving the way for dozens of smaller health systems to launch residency programs and lobby their state Medicaid agencies to subsidize them. Unsurprisingly, many of these efforts also offer subpar training opportunities.
And one APP physician shared details of a side gig supervising a new EM residency program launched by a struggling nonprofit hospital in what they called an “apocalyptically poor” Rust Belt town.
“[It has] no business running a residency program,” said the physician, adding that the hospital hadn’t even employed a board-certified ER doctor prior to launching the program. “But they’re desperate to bring in money and they’re desperate to bring in doctors.”
Stuck On The Corporate Medicine Hamster Wheel
While APP might be expecting the growing ER doctor glut to pad its bottom line, that hasn’t stopped it from resorting to questionable tactics to slash services and pay in the meantime.
For years, contract management groups like APP have used their ability to bill affluent patients at “out of network” rates as a calling card to squeeze extra revenue out of patients and insurance companies, and their private equity overlords exploited this calling card by financing the vast majority of their small practice buyout sprees with junk debt. But since various laws began to chip away at surprise billing in late 2020, these staffing firms have been left deeply indebted, and bordering on insolvent.
APP is probably among the least overleveraged companies in the private equity ER business right now — and still the company has struggled to refinance its half-billion dollar debt load. In response, several employees say APP is taking its financial woes out on doctors and using surprise billing legislation as an excuse to enact deep cuts.
A doctor whose practice was acquired by APP in 2019 says the company has repeatedly made contradictory statements about revenue in what the doctor perceived as an attempt to force through gratuitous wage and staffing cuts. “They’re using the legislation to mask their own looting,” the doctor says, who asked to remain anonymous for fear of retaliation.
Like most doctors working full-time for private equity–backed ER contractors, APP’s physician pay is calculated using a complex formula that theoretically compensates doctors based on the revenues their ERs generate during their shifts. But even though ER volumes have now fully recovered to pre-pandemic levels, the APP doctor said their pay is still roughly 30 percent lower than it was before 2020.
Similarly, a Texas lawsuit filed against APP by nine physicians in March accuses the company of using its wage formulas as a smokescreen for arbitrarily slashing pay. The lawsuit claimed APP was funneling wages from physicians in a bid “to artificially inflate its books to appeal to investors and avoid insolvency by maintaining cash flow at the direct expense of the doctors.”
While their wages are falling, doctors say these private equity–backed compensation schemes and staffing cuts are leading them to see more patients than they can handle.
Li of the anti–private equity group TMB said the proliferation of such private equity–imposed pay formulas is another factor pushing doctors in his specialty to consider labor unionization. “Basically, these pay structures create a really toxic workplace culture even when they don’t jeopardize patient safety, where doctors are fighting one another for [high revenue] patients,” said Li, whose popular Facebook group has attracted nearly four thousand members, mostly physicians. “And I think doctors are sick of being pitted against one another.”
In early May, Li’s Take Medicine Back group hosted a forum with physician union organizer Joe Crane. Nursing unions, Crane pointed out, had not simply achieved higher wages and work-life balance for the profession, but safer staffing ratios in the hospitals in which they organized and even whole states like California. The message had a special resonance, said Li, for ER doctors stuck on the “corporate medicine hamster wheel of doing more work for less pay.”
As Li added, “There are probably regional exceptions to this, but the basic fact is that we wouldn’t have an ‘oversupply’ of ER doctors if ERs were staffed appropriately.”
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ABOUT THE AUTHOR
Maureen Tkacik is a writer for the Lever.
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