Baby, That Bill Is High: Private Equity ‘Gambit’ Squeezes Excessive ER Charges From Routine Births

Rae Ellen Bichell

Elizabeth Huffner thinks it is obvious: A full-term, healthy pregnancy results in a birth.

“When your due date has come and gone, you’re expecting a baby any minute,” Huffner said. So she was surprised to discover she was an “unknown accident” — at least from a billing standpoint — when she went to the hospital during labor. Her bill included a charge for something she said she didn’t know she’d ever entered: an obstetrics emergency department.

That’s where a doctor briefly checked her cervix, timed her contractions, and monitored the fetal heartbeat before telling her to go home and come back later. The area is separated from the rest of the labor-and-delivery department by a curtain. The hospital got about $1,300 for that visit — $530 of it from Huffner’s pocket.

In recent years, hospitals of every stripe have opened obstetrics emergency departments, or OBEDs. They come with a requirement that patients with pregnancy or postpartum medical concerns be seen quickly by a qualified provider, which can be important in a real emergency. But it also means healthy patients like Huffner get bills for emergency care they didn’t know they got.

“It should be a cautionary tale to every woman,” said Huffner, of Rockford, Illinois.

Three of the four major companies that set up and staff OBEDs are affiliated with private equity firms, which are known for making a profit on quick-turnaround investments. Private equity has been around for a long time in other medical specialties, and researchers are now tracking its move into women’s health care, including obstetrics. These private equity-associated practices come with a promise of increased patient satisfaction and better care, which can help the hospital avoid malpractice costs from bad outcomes.

But private equity also is trying to boost revenue. Dr. Robert Wachter, chair of the Department of Medicine at the University of California-San Francisco, calls the private equity encroachment into medicine “worrisome.”

“Hospitals will do what they can do to maximize income as long as they’re not breaking the rules,” Wachter said. “And it sounds like that’s sort of what they’re doing with this ER gambit.”

Surprising Bills

KHN reviewed the bills of a dozen patients in five states who said they were hit with surprise emergency charges for being triaged in an OBED while in labor. That included a woman in Grand Junction, Colorado, who said she felt “gaslit” when she had to pay $300 in emergency charges for the care she received in the small room where they confirmed she was in full-term labor. And in Kansas, a family said they were paying $400 for the same services, also rendered in a “very tiny” room — even though HCA Healthcare, the national for-profit chain that runs the hospital, told KHN that emergency charges are supposed to be waived if the patient is admitted for delivery.

Few of the patients KHN interviewed could recall being told that they were accessing emergency services, nor did they recall entering a space that looked like an emergency room or was marked as one. Insurance denied the charges in some cases. But in others families were left to pay hundreds of dollars for their share of the tab — adding to already large hospital bills. Several patients reported noticing big jumps in cost for their most recent births compared with those of previous children even though they did not notice any changes to the facilities where they delivered.

Three physicians in Colorado told KHN that the hospitals where they work made minimal changes when the institutions opened OBEDs: The facilities were the same triage rooms as before, just with a different sign outside — and different billing practices.

“When I see somebody for a really minor thing, like, someone who comes in at 38 weeks, thinks she’s in labor, but she’s not in labor, gets discharged home — I feel really bad,” said Dr. Vanessa Gilliland, who until recently worked as a hospitalist in OBEDs at two hospitals near Denver. “I hope she doesn’t get some $500 bill for just coming in for that.”

The bills generated by encounters with OBEDs can be baffling to patients.

Clara Love and Dr. Jonathan Guerra-Rodríguez, an intensive care unit nurse and an internist, respectively, found a charge for the highest level of emergency care in the bill for their son’s birth. It took months of back-and-forth — and the looming threat of collections — before the hospital explained that the charge was for treatment in an obstetrics emergency department, the triage area where a nurse examined Love before she was admitted in full-term labor. “I don’t like using hyperbole, but as a provider I have never seen anything like this,” Guerra-Rodríguez said.

Patients with medical backgrounds may be more likely than other people to notice these unusual charges, which can be hidden in long or opaque billing documents. A physician assistant in North Carolina and an ICU nurse in Texas also were shocked by the OBED charges they faced.

Figuring out where OBEDs even are can be difficult.

Health departments in California, Colorado, Massachusetts, and New York said they do not track hospitals that open OBEDs because they are considered an extension of a hospital’s main emergency department. Neither do professional groups like the American Hospital Association, the American College of Obstetricians and Gynecologists, and the Joint Commission, which accredits health care programs across the country.

Some hospitals state clearly on their websites that they have an OBED. A few hospitals state that visiting their OBED will incur emergency room charges. Other hospitals with OBEDs don’t mention their existence at all.

Origins of the OBED Concept

Three of the main companies that set up and staff OBEDs — the OB Hospitalist Group, or OBHG; TeamHealth; and Envision Healthcare — are affiliated with private equity firms. The fourth, Pediatrix Medical Group, formerly known as Mednax, is publicly traded. All are for-profit companies.

Several are clear about the revenue benefits of opening OBEDs. TeamHealth — one of the country’s dominant ER staffing companies — is owned by private equity firm Blackstone and has faced criticism from lawmakers for high ER bills. In a document aimed at hospital administrators, TeamHealth says OBEDs are good for “boosting hospital revenues” with “little to no structural investment for the hospital.” It markets OBED success stories to potential customers, highlighting hospitals in California and South Florida where OBEDs reportedly improved patient care — and “produced additional revenue through OB-ED services.” OBHG, which staffs close to 200 OBEDs in 33 states, markets a scoring tool designed to help hospitals maximize charges from OBEDs and has marketed its services to about 3,000 hospitals.

Staffing companies and hospitals, contacted by KHN, said that OBEDs help deliver better care and that private equity involvement doesn’t impede that care.

Data from Colorado offers a window into how hospitals may be shifting the way they bill for triaging healthy labor. In an analysis for KHN, the Center for Improving Value in Health Care found that the share of uncomplicated vaginal deliveries that had an emergency department charge embedded in their bills more than doubled in Colorado from 2016 to 2020. It is still a small segment of births, however, rising from 1.4% to 3.3%.

Major staffing companies are set up to charge for every single little thing, said Dr. Wayne Farley. He would know: He used to have a leadership role in one of those major staffing companies, the private equity-backed Envision, after it bought his previous employer. Now he’s a practicing OB-GYN hospitalist at four OBEDs and a consultant who helps hospitals start OBEDs.

“I’ve actually thought about creating a business where I review billings for these patients and help them fight claims,” said Farley, who thinks a high-level emergency charge makes sense only if the patient had serious complications or required a high level of care.

Proponents of OBEDs say converting a triage room into an obstetrics emergency department can help pay for a hospital to hire 24/7 hospitalists. In labor and delivery, that means obstetric specialists are available purely to respond to patients who come to the hospital, rather than juggling those cases with clinic visits. Supporters of OBEDs say there’s evidence that having hospitalists on hand is safer for patients and can reduce unnecessary cesarean sections.

“That’s no excuse,” said Dr. Lawrence Casalino, a physician and health policy researcher at Weill Cornell Medicine. “To have people get an emergency room charge when they don’t even know they’re in an emergency room — I mean, that doesn’t meet the laugh test.”

But Dr. Christopher Swain, who founded the OB Hospitalist Group and is credited with inventing the OBED concept, said that having round-the-clock hospitalists on staff is essential for giving pregnant patients good care and that starting an OBED can help pay for those hospitalists.

Swain said he started the nation’s first OBED in 2006 in Kissimmee, Florida. He said that at early adopter hospitals, OBEDs helped pay to have a doctor available on the labor-and-delivery floor 24/7 and that hospitals subsequently saw better outcomes and lower malpractice rates.

“We feel like we fixed something,” Swain said. “I feel like we really helped to move the bar to improve the quality of care and to provide better outcomes.”

Swain is no longer affiliated with OBHG, which has been in private equity hands since at least 2013. The company has recently gone so far as to present OBEDs as part of the solution to the country’s maternal mortality problem. Hospitals such as an Ascension St. Joseph’s hospital in Milwaukee have echoed that statement in their reasons for opening an OBED.

But UCSF’s Wachter — who coined the term “hospitalist” and who generally believes the presence of hospitalists leads to better care — thinks that reasoning is questionable, especially because hospitals find ways to pay for hospitalists in other specialties without engineering new facility fees.

“I’m always a little skeptical of the justification,” Wachter said. “They will always have a rationale for why income maximization is a reasonable and moral strategy.”

Private Equity’s Footprint in Women’s Health Care

Farley estimates that he has helped set up OBEDs — including Colorado’s first in 2013 — in at least 30 hospitals. He’s aware of hospitals that claim they have OBEDs when the only change they’ve made is to have an OB-GYN on site round-the-clock.

“You can’t just hang out a shingle and say, ‘We have an OBED.’ It’s an investment on the part of the hospital,” he said. That means having, among other things, a separate entrance from the rest of the labor-and-delivery department, clear signage inside and outside the hospital, and a separate waiting room. Some hospitals he has worked with have invested millions of dollars in upgrading facilities for their OBED, he said.

Private equity firms often promise more efficient management, plus investment in technology and facilities that could improve patient care or satisfaction. In some parts of health care, that could really help, said Ambar La Forgia, who researches health care management at the University of California-Berkeley and is studying private equity investment in fertility care. But La Forgia said that in much of health care, gauging whether such firms are truly maintaining or improving the quality of care is difficult.

“Private equity is about being able to extract some sort of value very quickly,” La Forgia said. “And in health care, when prices are so opaque and there’s so much lack of transparency, a lot of those impacts on the prices are eventually going to fall on the patient.”

It’s changing circumstances for doctors, too. Dr. Michelle Barhaghi, a Colorado obstetrician, said OBEDs may make sense in busy, urban hospitals with lots of patients who did not get prenatal care. But now they’re cropping up everywhere. “From a doctor standpoint, none of us want these jobs because now we’re like a resident again, where we have to see every single patient that walks through that door,” said Barhaghi, rather than triaging many cases on the phone with a nurse.

Still, private equity is continuing its advance into women’s health care.

Indeed, Barhaghi said private equity came knocking on her door earlier this year: Women’s Care Enterprises, backed by private equity company BC Partners, wanted to know whether she would consider selling her practice. She said “no.”

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.