The phenomenon of private equity (PE) companies purchasing medical practices is receiving greater scrutiny from academicians, journalists, and government regulators. Many recent stories do not portray the private equity model in a favorable light.
As I discussed in an earlier Forbes piece, under the private equity model an investment fund purchases a medical practice. The current physician owners receive some combination of cash and/or stock in the larger entity (often with a vesting period and other restrictions such as a non-disparagement clause if they leave the practice). In exchange, they work as employees for the new owners, who set business policy. The new owners typically take a percentage of revenue off the top. Consequently, the physicians make less going forward, in addition to relinquishing control of their practice to the new owners.
Defenders of the private equity model argue that these purchases can help medical practices improve efficiency through economies of scale, secure better contracts through increased bargaining power with insurance companies, and gain capital for purchasing new technology that enables them to practice more efficient medicine.
Critics of private equity argue that the new owners often prioritize maximizing revenue over providing quality patient care. They may cut corners or try to pressure physicians to squeeze more patients into an already busy workday to maintain the income stream.
How has this played out in the US health system?
A recent Washington Post article looked into the effects in the state of Colorado after a large private equity firm purchased numerous anesthesiology practices in the state. The PE firm told the physicians that the purchase would give them, “Better contracts … Lower overhead.” After the PE firm acquired the contracts for 10 of the 15 largest hospitals in the region, they were able to raise rates by “20 percent over the five-year period” which was “twice as fast as median prices measured by a national survey by the American Society of Anesthesiologists.” However, many physicians found they “were overworked and paid below market rate.” One in three physicians eventually left over a three-year period.
The Washington Post story did not report any clear decrease in the quality of care, but one anesthesiologist interviewed did state, “The prices are not connected at all to quality.”
(The private equity company in question did dispute some of the reporting, stating that “information provided to The Washington Post by competitors during the reporting of this story is both misleading and untrue.”)
Private equity investor purchasing a medical practice.
A recent analysis in the BMJ reviewed the effect of private equity in hospitals and multiple medical specialties. They noted that, “PE ownership was most consistently associated with increases in costs to patients or payers. Additionally, PE ownership was associated with mixed to harmful impacts on quality.” Furthermore, “No consistently beneficial impacts of PE ownership were identified.”
A 2021 study in JAMA Health Forum looked at this with respect to nursing home care and concluded, “PE firm–owned nursing homes provided somewhat lower-quality long-term care than other for-profit homes based on 2 widely used quality measures and were associated with higher total per-beneficiary Medicare costs.”
In my own field of radiology, the issue of private equity takeover of practices is a hotly debated topic. Dr. Arvind Vijayasarathi and Dr. Noriko Salamon covered some of the pros and cons in a presentation to the American College of Radiology. Again, some of the purported benefits of selling to a PE firm included “negotiating more favorable payer contracts” and “cost savings related to economy of scale.” One key risk was, “Central emphasis of ownership will be to make money either via cost-cutting or increased work output.” For additional insightful discussion of the effects of PE within radiology, I highly recommend these articles by radiologist Dr. Ben White here and here.
A business deal which results in higher costs to patients, “mixed to harmful impacts” on patient care, and decreased pay to physicians/health providers sounds unappealing to everyone—except the private equity investors.
Government regulators are aware of these concerns. The FTC has been taking a closer look at private equity health care deals, including a probe of the anesthesia company covered by the Washington Post article. Congress is also considering a bill to require physician-owned practices with more than 25 doctors to “report information about their business structure, mergers, and acquisitions to HHS on an annual basis.”
As a physician who believes in free market principles, I am glad to be part of an independent physician-owned private practice with no private equity involvement. Although I do not believe that PE ownership of medical practices should be outlawed, the track record of such deals makes me concerned that they are too often bad for patients and physicians alike. Based on the latest research findings, I recommend that patients inquire if their care is coming from a private equity owned health entity, and I strongly urge physicians to think carefully before selling their practices to a PE firm.