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Wall Street Corners Cancer Care on Florida’s Paradise Coast

Wall Street Corners Cancer Care on Florida’s Paradise Coast

The Florida city of Naples is known for its abundance of white-sand beaches, restaurants, and resorts. But when it comes to cancer care, some residents may find themselves with little choice. A single company, GenesisCare, operates all four of the city’s radiation treatment centers.

GenesisCare got its foothold in Naples after buying another chain, 21st Century Oncology, that grew with backing from private equity investors. Throngs of wealthy people hoping to retire on Florida’s Paradise Coast made it plum territory for the business, according to Isaac Vire, a former radiation therapist at 21st Century. “Naples is kind of a cash cow,” he says.

For years now, private equity has been following a similar strategy in a wide range of medical fields—from anesthesiology to hospice care—buying small practices and putting them under a corporate umbrella. With patients shunning in-person visits and postponing elective surgeries amid the Covid-19 pandemic, solo offices are struggling to stay afloat and are under increased pressure to sell to chains.

The private equity buying spree has raised alarms among doctors, researchers, and antitrust regulators. The concern is that mergers and takeovers are diminishing choices for consumers, potentially undermining quality of care and raising costs. Democratic presidential candidate Joe Biden has said he’d scrutinize anti-competitive behavior in medicine.

For its part, GenesisCare says that operating on a larger scale improves care, because it allows the company to operate more efficiently, hire top practitioners, standardize clinical practices, and engage in research. “All of these are advancements that are great for cancer patients,” it said in a statement.

Private equity funds raise money from institutions and wealthy investors to buy large stakes in companies and, typically, overhaul their management. The industry’s favorite strategy in health care is known as the roll-up: buying myriad small players to build a behemoth. Last year the investment companies did 226 roll-up or “add-on” deals in health care, almost quintuple the amount in 2015, according to data provider Irving Levin Associates. After several years, the private equity firms generally sell the company or take it public.

Wall Street Corners Cancer Care on Florida’s Paradise Coast

Many acquisitions are so small that they escape the notice of regulators. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires companies to flag only larger deals to the Federal Trade Commission and the U.S. Department of Justice Antitrust Division—currently, those worth more than $94 million. (GenesisCare submitted its purchase of 21st Century to regulators for review before closing the deal.)

FTC Commissioners Rohit Chopra, a Democrat, and Republican Christine Wilson are calling for a study of health-care roll-ups. “Through these strategies, private equity sponsors can quietly increase market power and reduce competition,” Chopra, a former assistant director at the Consumer Financial Protection Bureau, said in a July statement. A U.S. House panel has recommended scrutiny of similar small purchases by technology giants such as Amazon.com Inc. and Facebook Inc.

States are also intervening. Connecticut and Washington have passed laws requiring notification of even small health-care mergers. A similar bill in California stalled amid pushback by private equity’s main lobbying group, the American Investment Council. Jason Mulvihill, general counsel of the AIC, said in a statement that regulators should avoid imposing unnecessary burdens on investments in smaller businesses. David Dahlquist, an antitrust attorney at Winston & Strawn LLP, says his clients, which include private equity firms, worry such laws could proliferate, creating a chilling effect on deals.

Private equity has played a key role in the radiation-oncology market’s consolidation. For nearly a decade, New York-based private equity firm Vestar Capital Partners owned 21st Century Oncology, building it through acquisitions. (Vestar declined to comment.) The cancer-care chain filed for bankruptcy protection and in 2018 emerged from reorganization with new owners. In May, it changed hands again when it was taken over by Australia’s GenesisCare, which is partly owned by KKR & Co., one of the world's largest private equity companies. 21st Century adopted the GenesisCare name.

Authorities are starting to look more closely at the industry in Florida. In April, the Justice Department announced that Fort Myers-based Florida Cancer Specialists & Research Institute had admitted to conspiring until at least 2016 with another company to carve up the Southwest Florida cancer-care market to curb competition. Prosecutors didn't name the second company, but other court documents indicate it was 21st Century.

Florida Cancer Specialists agreed to pay $100 million, the statutory maximum, to settle the Justice Department’s case in a deferred-prosecution agreement. The government says the investigation is ongoing. 21st Century hasn’t been charged. “GenesisCare and its leadership are not subject to any liability” for that firm’s conduct before the reorganization and their purchase of it, a company spokesperson said.

Many other marquee private equity names are pursuing medical roll-ups. Apollo Global Management Inc., led by billionaire Leon Black, owns LifePoint Health, which has been snapping up rural hospitals. Goldman Sachs Group Inc.’s private equity arm owns Capital Vision Services, which is assembling a chain of optometry practices. Bain Capital, founded by U.S. Senator Mitt Romney, backs Surgery Partners Inc., an acquirer of surgical practices. “The M&A pipeline is as robust as we’ve ever seen it,” said Surgery Partners Executive Chairman Wayne DeVeydt, citing the pandemic’s damage to medical practices, speaking to analysts during an August earnings conference call.

Ravi Parikh, a retina specialist who wrote a paper about consolidation in ophthalmology, says private equity-owned groups are building local monopolies. “This means there are fewer options for patients, fewer options for doctors and less control over delivery of care, all of which may hurt patients,” he says in an interview.

Some researchers cite the dialysis market as a cautionary tale. Dialysis cleans the blood of patients with kidney failure and typically requires three treatments a week. Kidney care is one of the most expensive interventions and is largely covered by the government, costing U.S. taxpayers more than $100 billion a year. Thanks to years of acquisitions—a number of them by private equity firms, including Bain—two publicly traded companies now dominate treatment: Fresenius Medical Care AG, a German company, and Denver-based DaVita Inc., which counts Warren Buffett’s Berkshire Hathaway Inc. as its biggest shareholder.

Wall Street Corners Cancer Care on Florida’s Paradise Coast

A working paper published this year by the National Bureau of Economic Research found that the small-company loophole in the antitrust law made it easier for companies in the dialysis industry to merge, resulting in less pressure to compete on quality and more hospitalizations and deaths than there otherwise might have been. The study examined data from 1996 through 2017. Last year, Duke University researchers, examining data from 1998 to 2010, found the big chains replaced skilled nurses with less-trained technicians, increased patient loads, and raised Medicare costs by prescribing more drugs. Fresenius and DaVita representatives say that patient care has only gotten better as the industry has consolidated and advanced, citing an overall improvement in mortality and hospitalization rates over time.

Before receiving his second kidney transplant several years ago, Dale Rogers, a former auto mechanic, chafed at the few choices he had for dialysis, as well as their quality. Rogers recalled driving 30 miles several times a week for dialysis treatment at Fresenius from his home in Silver Valley, Ida. “It was a herd-animal experience,” says Rogers, 51, a board member of the American Association of Kidney Patients. “It was sit back in your chair, shut up, and do what I tell you.”

Fresenius spokesman Brad Puffer pointed to the experience of patients such as Gloria Stephens, a 71-year-old from Jacksonville, Fla. who praised the company. “They know me, and they know how I am, and every once in a while remind me, ‘Make sure you do this and that,’” Stephens says. “It is very much like sisters and brothers.”

One thing's clear: With the two companies delivering care to 75% of U.S. dialysis patients, some doctors have struggled to remain independent. Raffi Minasian, a nephrologist, sold a dialysis center to DaVita in 2013, saying it was too small to compete. “They were purchasing everything so much cheaper than I was,” Minasian says. “They were beating me by $30 or $40 on treatments just because they were so much bigger.”
 
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