ESOP CEO Authors White Paper Encouraging EO in Healthcare Industry

Increasingly, private equity (PE) is becoming a bigger part of American life through its unceasing ability to acquire businesses across all sectors of American life. Operating on the principle of aggressive growth, PE firms often seek to maximize their investment by ruthlessly cutting costs wherever possible while trying to, at a minimum, sustain their revenue, meaning that companies often end up charging the same or more for their goods or services while their quality declines. The inevitable outcomes in these situations are concerning enough in the publishing and entertainment industries, but what happens when the service that's replaced is essential and life-saving healthcare?

A July 2023 study (PDF) found that PE acquisitions of healthcare practices are associated with price increases, while a December 2023 study published in the Journal of the American Medical Association (JAMA) found that "Private equity acquisition of hospitals, on average, was associated with increased hospital-acquired adverse events despite a likely lower-risk pool of admitted Medicare beneficiaries, suggesting poorer quality of inpatient care."

Needless to say, the prospect of replacing "First do no harm" with "First maximize shareholder profits" is distasteful at a minimum and downright catastrophic at its logical conclusion. But what if, instead of prioritizing an outside investor's bottom line, healthcare companies achieved sustainable ownership options without sacrificing their commitment to their patients, physicians, and the surrounding community?

In Introducing the Quintus Aim in Healthcare: Empowering Employees for Improved Outcomes with an Employee Stock Ownership Plan, Robert Slattery, CEO of ESOP-owned State of Franklin Healthcare Associates, makes the case for just that. Alongside the well-trod best practices in successful healthcare management (patient-centered care, population health management, cost containment, and physician satisfaction), Slattery envisions a fifth principle of "employee engagement and empowerment." The principle focuses on aligning the interests of all employees with those of the business through an ESOP to enable employee-owners to drive change.