By Joseph D. Bruch, B.A.; Alexander Borsa, B.A.; Zirui Song, M.D., Ph.D.; Sarah S. Richardson, Ph.D.
JAMA Internal Medicine, August 24, 2020
An influx of private equity involvement in women’s health care has garnered attention and scrutiny. Over the past decade, private equity firms have increasingly invested in or acquired hospitals, physician practices, laboratories, and biomedical device companies. Private equity firms use capital from corporations or wealthy individuals to invest in and acquire organizations and generally sell their holdings within 3 to 7 years. Proponents argue that they produce economic value by increasing operational efficiency while maintaining or improving the quality of care. Critics fear that the need to quickly achieve high returns on investments may conflict with the quality and safety of care or exacerbate health inequities.
We document formerly non–private equity women’s health care companies, including physician networks, practices, and fertility clinics, that gained a private equity affiliation between 2010 and 2019.
Private Equity, Women’s Health, and the Corporate Transformation of American Medicine
By Lawrence P. Casalino, M.D., Ph.D.
JAMA Internal Medicine, August 24, 2020
In this issue of JAMA Internal Medicine, Bruch and colleagues inform us that during the past decade, private equity firms have acquired or invested in large numbers of obstetrician-gynecologist medical groups. Most of these acquisitions and investments occurred during the past 3 years.
The article by Bruch and colleagues adds another specialty to the list of physician specialty areas—notably dermatology and ophthalmology—for which recent articles have described private equity activity. We can anticipate that additional reports of growing private equity acquisitions in other specialties (eg, gastroenterology) will soon follow. Articles to date are similar in 3 ways. First, they report rapidly increasing private equity acquisitions in a given specialty. Second, they report a similar private equity modus operandi across specialties: acquire a relatively large platform practice (called target companies by Bruch and colleagues) in a given geographic area, then acquire smaller practices in that area and group them into the same organization as the platform practice; use debt to finance the acquisitions and assign that debt to the acquired practices; find ways to increase net revenue from the agglomerated practices; and sell the agglomerated practices within 3 to 5 years for considerably more than the price paid by the private equity company. Third, the articles, with 1 controversial exception, lack data on the performance—in quality and cost of care, or in physician or patient satisfaction, of private equity-owned practices.
In the absence of data, conceptual arguments can be made for and against private equity acquisition of medical practices. Private equity advocates argue that the firms bring much-needed capital that enables practices to invest in better information technology and to grow by adding physicians and/or acquiring practices. They argue that private equity firms bring management expertise to help with this growth, to make the business side of the practice operate more smoothly and relieve physicians of the burden of running the business, and to deal with regulatory demands and standardize patient safety processes. They also claim that private equity firms give physicians more autonomy than other potential purchasers of practices (notably, hospitals and health insurance companies), that they are better at managing practices than other purchasers, and that they make it possible for physicians to diversify their assets (by investing the money they are paid for their practice instead of having all of it tied up in the practice).
Opponents of private equity argue that the intense pressure on firms to generate returns for their investors (private equity firms generally project a return of 20% annually averaged across the 3 to 5 years before a practice is sold) is not compatible with putting patients’ interests first and not compatible with physician professionalism and its commitment to put patients’ interests first. They also argue that it is an intolerable burden for practices to pay off the loans that private equity firms used to acquire them and that private equity claims for skill in managing practices are exaggerated. Opponents do not necessarily see a benefit to practices merging or being acquired and point out that as a private equity firm acquires market share in a community, it may be able to demand higher payment rates from health insurers, which may be good for the physicians but not for their patients.
Attitudes toward private equity are likely shaped by attitudes toward physician professionalism and toward the corporate transformation of American medicine. This transformation has been occurring for decades and has been accelerating in recent years, as Bruch and colleagues point out. For better or for worse, the United States is moving from a system based on small, independent physician practices to physicians being employed by large corporations (including hospital systems, health insurers, and private equity firms), from small, independent community hospitals to multihospital systems (including hospitals owned by private equity firms), and from small, not-for-profit health insurers to a small number of very large national and regional insurers.
Conceptually, the advantages and disadvantages of corporate medical care parallel those described above for private equity. Corporate medical care lacks the human scale and flexibility of small physician practices and may lack the close, ongoing relationships among physicians, patients, and staff sometimes present in these practices.
Physicians in independent practices in the United States face a medical environment that is complex and rapidly changing with a high level of uncertainty about the future. Competition from hospital, private equity, and insurer-employed physicians is rapidly increasing, as are the pressures on practices from increased use of information technologies and increased rewards and penalties by health insurers and Medicare based on measures of physician performance. It is not surprising that many physicians are seeking shelter from the storm by selling their practices to corporate entities.
Comment:
By Don McCanne, M.D.
All around us we see private equity firms moving into health care. A recent Quote of the Day discussed private equity acquisition of hospitals. Today’s message discusses private equity acquisition of women’s health care practices as an example of the trend to cluster specific specialties into new corporate entities.
These equity firms may profess to infuse quality and efficiency into the systems they create, but their true objective is not altruism. Their interest is found in their label: equity, the more the better.
Their modus operandi: 1) acquire a relatively large platform practice in a given specialty, 2) then acquire smaller practices in the same geographic area and merge them into the platform practice, 3) use debt to finance the acquisitions and assign that debt to the acquired practices, 4) find ways to increase net revenue from the agglomerated practices, and 5) sell the agglomerated practices within 3 to 5 years for considerably more than the price paid by the private equity company. Conveniently, the debt is left with the practices they purchased, and the equity investors walk away with the money.
How does this benefit the patients? How does this benefit the health care professionals? We know how it benefits the equity firm investors, but does anyone seriously contend that this is what health care should be about? But that’s what it has become.
We just had an election that shut down any further discussion of a health care financing system that would provide freedom to patients and their health care professionals to ensure that everyone would have the health care that they need in a system that would be affordable for each of us: single payer, improved Medicare for All. Instead, we are moving forward with a system that puts the squeeze on the people of our nation and the productive segment of society as we move most of the wealth to the top. For those who think that they are going to move to the top, they must realize that the people already there are not going to make room up there for the rest of us.
Maybe Medicare for All really is a better idea after all.
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