n his 1984 Pulitzer Prize-winning book, The Social Transformation of American Medicine, Princeton sociology professor Paul Starr predicted a national shift from a physician-dominated health system to one controlled by corporate interests—where profit motives would increasingly clash with patient care. Four decades later, his predictions have largely come to pass. The expansion of private health insurance, the corporate infiltration of every aspect of medicine, and the decline of independent medical practice have reshaped U.S. health care, for better or worse.

What those corporatization trends mean for patients was the focus of a March 7 virtual seminar hosted by the University of Pennsylvania’s Leonard Davis Institute of Health Economics (LDI), featuring four leading experts in the field.

As she opened the session, moderator and Executive Director of LDI Rachel M. Werner, MD, PhD, noted, “We have increasing private investment in health care, a growing role of corporations leveraging market power through things like mergers and acquisitions to maximize profit. On one hand, some of these investments may improve the efficiency and the profitability of health care institutions. Yet, research suggests that while investors benefit, patients often do not.”

She was joined by three panelists: Erin Fuse Brown, JD, MPH, a professor at Brown University who also serves as a consultant for the National Academy of State Health Policy (NASHP); David Cutler, PhD, a Harvard University economist who is a member of the Massachusetts Health Policy Commission; and Kwame Raoul, JD, State Attorney General of Illinois.

Patients Subordinated to Profit

Defining the meaning of “corporatization,” Fuse Brown, who is engaged in the drafting of NASHP’s model state legislation to address corporatization in health care, said, “the trend is toward ever higher levels of integrated control by consolidated profit-seeking enterprises and the idea that generating wealth for shareholders and investors is the primary duty of these corporate entities. But that concept also means that the other stakeholders—patients, the community, and workers—are all secondary as their interests are subordinated far below the profit seeking enterprises’ profit motive.”

She also pointed out another trend within corporatization is financialization. “This is the entry of financial firms like private equity, that use extractive tactics to not only invest in health care, but to mine it in a short-term basis for profit and then get out.”

One example of this was the 2024 collapse of the for-profit Steward Health Care. It was organized through a Cerberus Capital Management leveraged buyout of the nonprofit Catholic Caritas Christi Health Care, which had facilities throughout Massachusetts. The new company expanded rapidly to operate 33 hospitals in nine states. According to the Boston Globe, as the chain kept expanding and accumulating debt, “the situation for its patients became increasingly dire” at the same time the managers were “taking huge dividends.” An investigation by Massachusetts’ two U.S. Senators found that Cerberus extracted around $800 million during the time it owned Steward.

Cutler, who was on the state’s front line of the Steward disaster said it was “every bit as bad as the headlines said— the hospitals are going out of business and there are patients with nowhere to go and staff with nothing to do and just terrible, terrible situations for the Commonwealth.”

“Vulture Capital”

However, Cutler pointed out that, as an economist, he has mixed views about corporatization. “On the one hand you have what I call the ‘vulture capital’ version of corporatization— they take the assets and sell the assets,” said Cutler. “One of the companies involved in the Steward situation indicated in annual reports that it liked to invest in distressed hospitals because if they didn’t do well, you could always go to the state and tell them to put up more money. It was an explicit strategy of extracting money from the states.”

“On the other hand,” he continued, “another version of corporatization is that there’s a lot of good stuff that requires deep pockets to do. For instance, there are new non-traditional models for running primary care and they’re all venture capital funded. If we said ‘no’ to venture capital investing, we would cut those out and that would be a shame because they are working so well for a lot of people.”

Pointing out another area of health care that could benefit from benevolent corporatization, he cited the hospital-at-home movement, which is becoming more effective because of the advanced monitoring and remote care technology now available, but which most hospitals aren’t set up to support. He noted that one large health system has been collaborating with Best Buy. When they need a hospital-at-home setup, they call in the Geek Squad to go out and install the equipment in the patient’s home.

“What corporations are really good at is responding to incentives. If those incentives are good, then you can get great things. But if those incentives are terrible, the results are really awful,” Cutler said.

Improving State Oversight

On the regulation side, Illinois State Attorney Raoul has been involved in the implementation of legislation to improve oversight of health care acquisitions and mergers and was also part of a multi-state coalition of attorney general that recommended additional federal enforcement and regulatory actions.

“Because of the complaints coming to the attorney general’s office to do something about the acquisitions that have changed the nature of health care, I went to the legislature a couple years ago and said the best way for us to respond to this is beforehand,” said Raoul. “We requested an amendment to our Illinois Antitrust Act that would require that the state be notified at least 30 days before the closing of a transaction involving a health care merger, acquisition or contracting affiliation. Since the implementation of the Act, our Illinois Health Facilities and Service Review Board has received 27 notifications. This has provided us with an opportunity to investigate and evaluate and decide whether we should take action to stall or prohibit the transaction.”

The NASHP oversight model that Fuse Brown has been working on to address the issue also involves prior notice for both large-scale corporate mergers, acquisitions, as well as smaller ventures where private equity and other financial players are acquiring physician practices and consolidating the market.

“This involves not just the authority to review under antitrust standards but rather to also review according to a public interest standard— to look at the impact on the workforces, on equity, on patient care and access,” said Fuse Brown. “Another part of the ownership model goes a step further, which some states have done, to allow a health care oversight agency or the attorney general to improve conditions or block the transaction without having to seek a court order.”

Ownership Transparency

“The second element is ownership transparency, which is important among the physician practices and smaller clinics,” Fuse Brown continued. “There’s currently not a lot of national data that enables a state to understand how much of its physician practices are being rolled up by private equity, or who are the 90,000 physicians that Optum owns or affiliates with? Some states, including Massachusetts are pioneering the requirement for comprehensive ownership and control information that would enable state overseers as well as patients and communities to know who owns their doctor’s office.”

“A third element is to strengthen the Corporate Practice of Medicine (CPOM) doctrine because these corporate transactions affect clinicians who are licensed to practice and are supposedly able to exercise independent clinical judgement. But some management service organizations or affiliations really take over the practice and start to put financial incentives or huge pressures on the clinicians and the practice,” she said.

CPOM is a legal principle aimed at protecting patients by ensuring that medical practices are owned and controlled by licensed medical professionals rather than nonlicensed individuals or entities. It generally prohibits nonlicensed persons or corporations from employing physicians to practice medicine, thereby preventing external influences on medical decisions that could compromise patient care.

600% Increase in Practice Takeovers

A sense of the scale and potential patient care implications of this issue can be found in a HealthAffairs analysis published this month that found that in 2012 there were 816 physicians’ practices in everything from primary care to oncology owned by private equity firms. By 2021, that number had increased to 5,779 practices— a more than 600% increase.

Raoul pointed to a related problem. “A friend of mine took his son to a private equity-owned dentist because his regular dentist was out of town. His wife reported back that the private equity dentist said the youngster had 15 cavities that needed work. But when the son was taken to his normal dentist after that dentist got back in town, the son had no cavities. When you start shifting the profit incentive, you’ll have providers suggesting costlier or unnecessary procedures. And, in some cases, you have insurance companies trying to reduce referrals for necessary, costly procedures while on the other hand, you have corporatized practices recommending costlier, unnecessary procedures.”

Looking to the Future

As the session closed, Werner asked the three panelists what they thought the future of the health care business looks like.

Raoul: “There have been certain policy decisions made on the fly over the last five or six weeks that could have a devastating impact on health care. We don’t know exactly what that looks like or what we’ll be going through with things like cuts to Medicaid that would exacerbate already existing health care deserts. Or could change the payer mix as well as change the population mix in emergency rooms.”

Fuse Brown: “In the short and medium-term we’re headed for more corporatization and consolidation because of the headwinds that are coming. We’re also going to see the contraction of lots of resources for states. States are really going to have to step up and figure out what they’re going to do and how they can be more innovative in that space.”

Cutler: “I like being an optimist and I do think we’re getting better at public policy for health care. Despite everything that has gone on, the growth of medical spending is much slower in the past decade. But I also think we’re probably headed for more corporatization because of the headwinds that are coming.”