Over the last few years, more and more orthopedic practices have been sold to private equity firms—leading some critics to express concerns about a potential increase in costs and a lower quality of care, Harris Meyer writes for Kaiser Health News.

Your biggest questions about private equity investment in physician practices, answered

More orthopedic surgeons are selling their practices to private equity firms

According to Meyer, orthopedic surgeons have long been viewed as "fiercely independent" compared to other specialist physicians, largely retaining control of their own practices rather than joining with large hospital systems or insurers.

However, this has begun to change over the last few years, with more orthopedic surgeons choosing to sell control of their practices to private equity investment firms. Through these deals, physician shareholders generally receive a multimillion dollar cash payout and may earn other large payments if the practice is sold to other investors in the future.

Since 2017, dozens of orthopedic practices have been sold to private equity. In 2022 alone, at least 15 practices were sold to private equity-owned management companies. So far, private equity investors have purchased orthopedic practices in at least 12 states, with many of them being located in Georgia, Texas, Florida, and Colorado.

How will these sales affect patients?

According to Sean Traynor, a general partner at Welsh, Carson, Anderson & Stowe, a large private equity firm that has acquired several orthopedic practices, the investment capital orthopedic practices receive from private equity will allow physicians to negotiate better contracts with insurers, get better deals on supplies, build more surgery centers, and improve the quality of care for their patients.

Traynor also noted that physicians at the practices retain all responsibility for clinical governance, and this provision is protected through a permanent contract binding all future owners.

"Other physicians ask what's changed [since the practice was sold to private equity, and I say nothing, which is great," said Irfan Ansari, an orthopedist at Resurgens, a practice that was sold to Welsh Carson.

Proponents of private equity investments say that it could potentially reduce the cost of musculoskeletal care and improve the quality of care for patients by allowing physicians to move more procedures to outpatient surgery centers, which are cheaper and have less overhead.

However, critics have argued that these benefits are not guaranteed, and private equity ownership could actually lead to higher prices for both patients and insurers, as well as less access to care for patients who are on Medicaid, are underinsured, or uninsured.

According to a recent study published in JAMA Health Forum, practices in three medical specialties that were owned by private equity firms had average charges per claim that were 20% higher than practices not owned by private equity in the two years after a sale.

There is also concern that private equity investors will pressure doctors to see more patients and use more non-physician providers.

According to Jack Bert, former chair of the practice management committee at the American Academy of Orthopedic Surgeons, some physicians he's spoken to have said private equity investors "come in and tell the doctors, 'You're not working hard enough, you've got to increase production by 20%.'"

"Private equity has no interest in reducing the cost of medicine,” said Louis Levitt, CMO of MedVanta, an orthopedic management company that so far has avoided partnering with private equity firms. "Their goal is to increase profitability in three to five years and sell to the next group that comes along. They can only do it by making the doctors work longer and reduce service delivery."

Some large employers are also concerned that private equity owners will push doctors into providing more surgical procedures, which are more expensive, rather than promoting less costly but effective services, such as physical therapy.

"The worry we have is we're not seeing private equity fulfilling the promise of value-based care," said Alan Gilbert, VP for policy at the Purchaser Business Group on Health. "We're seeing the same short-term financial goals you see with other private equity investments, including pressure to perform non-indicated procedures."

However, some private equity-owned orthopedic groups, such as U.S. Orthopaedic Partners and HOPCo, say they are working with insurers on value-based care programs. Under these partnerships, the groups say they have been able to provide entire episodes of care at lower costs through fixed-payment models.

According to David Jacofsky, chair of HOPCo, private equity owners should be moving their orthopedic groups toward value-based care, but only a few have done so at this point. Instead, many private equity firms are trying to grow bigger and negotiate higher payments from insurers.

"Private equity has lofty goals of wanting to build these things, but the time frame it takes is much longer than private equity wants to stay in these deals," Jacofsky said. (Meyer, Kaiser Health News, 1/6)