How private equity is impacting physician practices

In the report, researchers from the University of California, Berkeley's Petris Center and the Washington Center for Equitable Growth found that PE acquisitions of physician practices increased more than six-fold between 2012 and 2021. In 2012, there were 75 acquisitions, compared to 484 acquisitions in 2021.

Several PE firms are also acquiring significant shares of physician practices at a local level. In 28% of metropolitan statistical areas, a single PE firm owns over 30% of practices in a given specialty, and in 13% of these metro areas, a single PE firm owns over 50% of practices.

"It's shocking when you look at it," said Laura Alexander, director of markets and competition policy for the Washington Center. She also noted that "[n]ational rates mask this much more acute problem in local markets."

According to the researchers, PE acquisitions were associated with significant price increases in eight out of the 10 specialties studied. The price increases ranged from 4% in primary care and dermatology to 16% in oncology. These acquisitions were also associated with increases in per-patient expenditure, which also ranged from 4% to 16%, depending on the specialty.

Price increases were also higher in markets where a single PE firm controlled a significant portion of the local market. In markets where one firm controlled more than 30% of the market, researchers found that prices were even further elevated in three specialties: gastroenterology (18%), obstetrics and gynecology (16%), and dermatology (13%).

Commentary

According to Lisa Walkush, a national managing principal for professional services firm Grant Thornton, physicians often view PE as an attractive alternative to being acquired by a hospital. Through PE, doctors are "getting more scale and gaining efficiencies," including technology and office administration assistance, she said.

Similarly, Michael Kroin, founder and CEO of Physician Growth Partners, a firm that advises independent practices, said PE firms "provide scale to allow independent practice groups to survive and maintain their autonomy" and that "every independent group would want to increase its fees" if possible due to rising costs and insurer negotiations.

"It can be a really good thing, but the private equity firms have to keep their promises and be held accountable," Walkush said.

However, policymakers are currently scrutinizing the PE industry and its potential impact on healthcare. In the House, lawmakers are considering legislation that requires more reporting from PE firms when they buy healthcare companies since such deals are currently difficult to track.

Critics of PE have also raised concerns about the medical care delivered by PE-owned healthcare organizations, saying that the focus on profits could lead to patient harm. Previous research on PE ownership of nursing homes found evidence of lower staffing levels and higher rates of prescriptions for antipsychotic medication, but little research has been done on how PE impacts patient care in office-based medical specialties.

How changes in ownership and independence affects physicians, as well as their treatment of patients, "has been very severely understudied," said Barak Richman, a professor of law and business administration at Duke University. But he noted there is evidence showing PE firms have been able to use loopholes in existing regulations to maximize their profits.

"Private equity is like the system on steroids," said Sherry Glied, dean of the Wagner School of Public Service at New York University. "Every time there's an opportunity for making money, P.E. is going to move faster than everyone else. And consolidation is the way to do that."(Abelson/Sanger-Katz, New York Times, 7/10; Scheffler et al., American Antitrust Institute, 7/10)

Read on to learn the five most important distinctions for evaluating  private equity (PE) deals, understand the nuances of PE investments in healthcare, and gain insight into whether these investments are beneficial.