Private Equity Takeovers of Physician Practices Soared Over a Decade

Private equity acquisitions of U.S. physician practices have risen dramatically over the last decade, driving up consumer prices in the process, according to a new report.

In 2012, there were 75 private equity deals for physician practices across a range of specialties; in 2021, there were 484, marking a more than six-fold increase, Richard Scheffler, PhD, of the University of California Berkeley, and colleagues found.

Over the entire period, the largest number of deals occurred in dermatology (376), ophthalmology (276), gastroenterology (120), and primary care (118), collectively accounting for 81% of the activity, Scheffler and colleagues wrote in the report, a joint effort by the American Antitrust Institute, the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare at the University of California Berkeley, and the Washington Center for Equitable Growth.

“PE [private equity] funds value companies in terms of multiples of EBITDA (earnings before interest, taxes, depreciation, and amortization) because this measure reflects earnings from operations, separate from how the companies are capitalized,” the authors noted. “To profitably divest an acquired company, the PE fund must find a way to increase the company’s multiple, its EBITDA, or both. To increase EBITDA, the PE fund will look for quick ways to cut costs and increase revenue.”

In healthcare, that may include cutting workers or replacing highly paid workers with lower paid ones, switching to cheaper supplies, putting pressure on physicians to perform more profitable procedures, and engaging in aggressive billing and collection practice, the authors said.

Further measures to boost EBITDA may include acquisitions aimed at becoming a dominant player in a market as well as becoming larger and thereby having access to more and cheaper debt.

“Physicians need to be aware of loss of autonomy when they sell their practice to a PE firm,” Scheffler added in an email to MedPage Today. “The risk to patient care is real and troubling.”

Scheffler and colleagues found that the share of metropolitan statistical areas (MSAs) — a proxy for the local physician specialty market — where a single firm had a market share of greater than 30% rose over the last decade. A total of 108 MSAs hit that threshold in 2021, compared with only a handful in 2012.

Overall, private equity acquired practices for 8 of 10 specialties analyzed had statistically significant price increases relative to matched control practices, including gastroenterology (14%), dermatology (4%), ob/gyn (8.8%), ophthalmology (8.7%), radiology (8.2%), orthopedics (7.1%), oncology (16.4%), and primary care (4.1%).

In addition, private equity acquired practices had statistically significant relative increases in expenditures per patient in 6 of 10 specialties: gastroenterology (16.4%), dermatology (4.1%), ob/gyn (10.5%), ophthalmology (15.4%), urology (8.5%), and primary care (6.2%).

“The price increases that we found will eventually be paid by consumers in the form of higher health insurance premiums, which are already a significant share of an employee’s income, particularly when cost sharing is incorporated,” the authors wrote.

The report listed the top 10 private equity firms by the number of physician practice deals (2012-2021):

1. Shore Capital Partners: 134

2. Audax Group: 113

3. Webster Equity Partners: 84

4. Waud Capital Partners: 63

5. Chicago Pacific Founders: 60

6. AEG Vision: 58

6. Riata Capital Group: 58

8. Advanced Dermatology and Cosmetic Surgery: 43

10. Harvest Partners: 38

10. LLR Partners: 38

The report also listed the top 10 private equity deals by value of physician practices (2012-2021):

1. Envision Healthcare: KKR, 2018; $9.9B

2. Team Health Holdings: Blackstone, 2017; $6.1B

3. LifePoint Health: Apollo Global Management, 2018; $5.6B

4. LifePoint Health: Apollo Global Management, 2021; $2.6B

5. Cincinnati Eye Institute: Eyecare Partners, 2021; $600M

6. Ardent Health Services: Equity Group Investments, 2015; $475M

7. Forefront Dermatology: OMERS Private Equity, 2016; $450M

8. U.S. Dermatology Partners: ABRY Partners, 2016; $323M

9. U.S. Anesthesia Partners: Berkshire Partners Heritage Group/USAP/Welsh, Carson, Anderson & Stowe, 2017; $61M

10. Dermatology and Skin Surgery Center: Sheridan Capital Partners/Dermatologists of Central States, 2017; $51M

Recommended policy steps outlined in the report included increased reporting and scrutiny of small physician practice acquisitions, especially those by private equity firms. These also included boosting antitrust-related authority for state and federal entities, mandating increased ownership transparency when it comes to physician practices, lowering barriers to entry like non-competes in concentrated healthcare markets, and expanding liability to private equity funds for portfolio company misconduct.

The report comes as experts continue to pay close attention to the impacts of private equity investment in healthcare. MedPage Today has previously reported on increased health spending as well as more clinician replacement when private equity firms acquire physician practices.

As more physicians become employees rather than owners, some in the field have questioned whether boosting revenues and cutting costs in the wake of private equity acquisitions could have a deleterious impact on how they provide patient care.

The authors of the new report utilized Pitchbook to identify acquisitions of physician practices by private equity firms as well as IQVIA physician databases that provide information about the location, size, and specialty of the practice. They further analyzed healthcare claims data from the Healthcare Cost Institute Commercial Claims Research Dataset.

Funding for the report was provided by a grant from Arnold Ventures.

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