Imagine you are a private practice anaesthesia group providing operating room, obstetrics, and ICU services to a major hospital. It is a busy practice, as there is limited competition in these service lines in the city. Business is helped by the presence of Robins Air Force base, for although there is a VA center in town, it is mainly a low-end clinic for the roughly 4000 military personnel and families. Beyond the military people, the base hosts 23,000 civilian employees who live with their families in the vicinity.
Now, imagine that the senior partners in the doctors' group are approached by a hedge fund with an offer that sounds too good to be true. We'll buy you out and pay you a handsome signing bonus, and we'll manage your practice for you. We'll guarantee your employment and income for the next few years until you choose to retire (and maybe even give you a carried interest), but you're also expected to sign a non-compete agreement in case you leave sooner. Sure, we'll do a little bit for the junior doctors in the group, too, but nothing special.
So the senior partners sell out, having feathered their own nest and having persuaded the junior partners that this is a good way to deal with the coming uncertainties of health care reform and the bother of running a practice. The hedge fund then holds a hammer over the head of the hospital. Among all services in a hospital, anaesthesia is the one with fewest substitutes. By law and hospital regulation and custom, other doctors are not permitted to perform many of the procedures done by anaesthesiologists. And this anaesthesia group has a monopoly position: There is no way the hospital can shop around and find another group of trained and ready anaesthesiologists to take their place. If you are the hospital, you are stuck paying the price and passing it along to those paying the health care bills.
In a few years, the hedge fund flips the investment to another fund or private equity firm or perhaps sells it as part of an IPO that has rolled up several dozen or hundred of such practices around the country. The price reflects a substantial multiple over annual revenues, justified by the monopoly rents the fund has collected. The investors leave with millions of dollars in profits, and the follow-on investors seek to keep the monopoly rents in place to justify the multiple they have paid for the business.
Is anyone in Macon aware of this or paying attention? How about in other medium sized cities with similar circumstances? If it is happening here, it is happening elsewhere. Too small--one by one--to attract the attention of the Federal Trade Commission...until it's too late. Where are the public policy advocates?