Tag Archives: private equity

I Call BS -Consolidation in GI is Not a Good Trend

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D Marino et al. Clin Gastroenterol Hepatol 2024: 22: 1770-1773. Trends in Consolidation of Gastroenterology Practices

This article describes trends and rationale for consolidation of gastroenterology practices.

Trends:

  • “From 2012 to 2022, the share of physicians who work in private practices dropped 13 percentage points, from 60.1% to 46.7%.” (In the 1980s, 76% of physicians owned their practice)
  • “Ownership among physicians younger than 45 dropped more than 12 percentage points from 2012 to 2022, from 44.3% to 31.7%.”

My Views (in bold) on the Authors’ Rationales for Consolidation:

  • “The potential advantages of consolidation include achieving economies of scale, increasing choices for patients beyond large hospital-based systems of care, enhancing the infrastructure to support high-quality value-based independent practices…whereas drawbacks …diminished authority.” The driving force for consolidation is money not improvement in “high-quality value-based” care. PE investors are tapping into health care to extract profits from the healthcare sector.
  • “The long-term implications for individual practices, physicians and patient care remain uncertain.” Some of the implications are already evident –increased costs for patients and without improvement in quality. PE consolidation does allow improved negotiation with insurers and hospitals.
  • “Large PE-backed groups provide resources to help independent practices stay independent.” This is quite a paradox. PE acquisition is a not a way to maintain independence.

My take: While consolidation, driven by financial incentives, is affecting all areas of healthcare, it is NOT resulting in improvement in patient care or physician satisfaction. This is true whether consolidation is acquisition by private equity or by hospitals. This article’s attempt to provide a different narrative is BS.

As an aside, in some ways, acquisition by hospitals is harder to justify than acquisition by PE; hospitals state that their main goal is patient care. Yet, when hospitals consolidate physician practices, this often runs counter to that goal by increasing costs for patients without improvement in quality.

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Complications After Private Equity Takeover

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12/26/23 NY Times: Serious Medical Errors Rose After Private Equity Firms Bought Hospitals

An excerpt:

The study, published in JAMA on Tuesday, found that, in the three years after a private equity fund bought a hospital [51 hospitals in study], adverse events including surgical infections and bed sores rose by 25 percent among Medicare patients when compared with similar hospitals that were not bought by such investors. The researchers reported a nearly 38 percent increase in central line infections, a dangerous kind of infection that medical authorities say should never happen, and a 27 percent increase in falls by patients while staying in the hospital…

Although the researchers found a significant rise in medical errors, they also saw a slight decrease (of nearly 5 percent) in the rate of patients who died during their hospital stay. The researchers believe other changes, like a shift toward healthier patients admitted to the hospitals, could explain that decline. And by 30 days after patients were discharged, there was no significant difference in the death rates between hospitals…

The researchers said the most likely explanation for the increased errors was fewer hospital employees, an effect that has been measured in other studies of private equity.

My take: Private equity (PE) investment is likely to result in a lower quality of care in most circumstances. The primary driver of PE is profits not people. In order for PE to achieve their goals, it necessitates either driving up costs (higher profit margin) or reducing costs/staffing.

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Case Study of Private Equity in Physician Practices: Anesthesia in Colorado

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6/29/23 Washington Post: Financiers bought up anesthesia practices, then raised prices

Some excerpts:

The multibillion-dollar private equity firm Welsh, Carson, Anderson & Stowe took less than a year to create, from scratch, Colorado’s biggest and most prominent anesthesiology practice…The company employed 330 anesthesiologists in Colorado at one point…

Typically following the same approach it took in Denver: acquiring the largest anesthesiology firm in a city and growing its reach from there, company officials said. It has issued more than $1.3 billion in dividends to its shareholders…

12 former USAP anesthesiologists cited an array of reasons for leaving.

For starters, their pay declined more than they expected, they said. The company more often required them to work shifts of more than 24 hours, physicians said. Some said they were asked to take on more than 80 hours in a week. Several said that under USAP management, they felt like interchangeable “widgets” with less control over the practice than they previously had…“Their doctors were overworked and paid below market rate for what they do,” Manchon said. “That’s why their doctors were leaving.”

My take: Private equity involvement in medicine is focused on profits not patients. That being said, most other parts of the U.S. healthcare system (hospitals, physicians, insurance companies and pharmaceutical companies) do not provide great value either.

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Private Equity in Gastroenterology & More Broadly

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JA Busam, EC Shah. Gastroenterology & Hepatology 2023; 19: 264-271. Open Access! The Rise of Private Equity in Gastroenterology Practices

This article provides a good review of the investment of private equity in gastroenterology practices. Key points:

  • “In addition to finding that many gastroenterologists were willing to join a PE-backed practice, PE firms found such an investment attractive because of the returns they could earn through consolidating the market.6,33…Dermatology,39 eye care,40,41 fertility,42  orthopedics,43  urology,44,45  and oncology46 are also showing increased PE activity.”
  • “The effects of PE ownership in gastroenterology are only recently being studied. Notable conclusions include increased costs of services, more visits by new patients, and increased esophagogastroduodenoscopy utilization absent any increase in total number of polyps or tumors removed.50…To increase revenue, one needs to increase either prices or volume of services provided, and it appears as if PE-backed practices are effectively doing both.”
  • “Increased volume could reflect overutilization of profitable services, unnecessary/low-value care, and/or more effective marketing, among other tactics. Higher prices could relate to more efficient charge capture, higher intensity coding, higher negotiated prices, patients being offered higher-priced services, or other causes.”

Related article: NY Times 7/10/23 Who Employs Your Doctor? Increasingly, a Private Equity Firm.

Some excerpts:

A new study finds that private equity firms own more than half of all specialists in certain U.S. markets…The medical groups were associated with higher prices in their respective markets, particularly when they controlled a dominant share, according to a paper by researchers at the Petris Center at the University of California, Berkeley, and the Washington Center for Equitable Growth, a progressive think tank in Washington, D.C. When a firm controlled more than 30 percent of the market, the cost of care in three specialties — gastroenterology, dermatology, and obstetrics and gynecology — increased by double digits...

Nearly 70 percent of all doctors were employed by either a hospital or a corporation in 2021, according to a recent analysis from the Physicians Advocacy Institute...If they could, given their rising costs and how squeezed they feel by insurers, “every independent group would want to increase its fees”…

 “This builds the case for strong antitrust tools for these incrementally small but collectively larger consolidation trends,” said Erin Fuse Brown, the director of the Center for Law, Health and Society at Georgia State University.

My take: Private equity’s acquisition of medical practices is likely to drive up healthcare costs without significant improvement in patient outcomes. However, few if any other stakeholders in medical care are incentivized to provide high value care.

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Changing Business of Medicine: Private Equity

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A recent commentary (JM Zhu et al. NEJM 2021; 384: 11: 981-983. Private Equity and Physician Medical Practices — Navigating a Changing Ecosystem) describes the restructuring of medical practices with a major decline in independent practices due to the growth of hospital-affiliated employees and private-equity investment in medical specialties.

Key points:

  • Between July 2016-January 2018, “hospitals and health systems acquired more than 8000 practices…Roughly 14,000 physicians left private practice”
  • Private-equity investment in medical practices has emerged as an alternative source of investment “that allows physicians to continue to hold equity and benefit financially from future transactions.”

Potential consequences of private-equity investment in medical practice:

  • Reduction in competition
  • Leverage market power with insurers & possible higher costs
  • Possible additional pressures on physicians to improve profits and reduction of physician autonomy
  • Possible improvements in value with operational improvements including sharing industry knowledge with smaller practices, adopting technology infrastructure, and helping practices assume risk with value-based payments
  • Possible prioritization of patients with better payer mix and lower complexity

My take: Mergers and acquisitions whether through hospitals or private equity make me worried that physicians will be squeezed between delivering profits and providing the best service for our patients.

Related audio interview with Dr. Jane Zhu on the growth of private equity investment in medical practices