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Our Take: Private equity firms continue to scoop up physician practices, but at what cost?

Feb 24, 2020

A research letter published last Tuesday in the Journal of the American Medical Association confirms reports that private equity firms have been buying physician practices at an increasing rate for several years.


The letter also notes that the implications for care delivery and patient outcomes are “unknown” because of a “dearth of evidence and the use of nondisclosure agreements at early stages of negotiation.”



The authors looked at acquisitions from 2013 through 2016. They found that 355 physician practices (out of approximately 18,000 total group practices in the U.S.) were acquired by private equity firms during that time.



Anesthesiology and multi-specialty practices were the most common types acquired, at 19.4% each, followed by emergency medicine (12.1%), family practice (11.1%), and dermatology (9.9%) practices.



The acquired practices had an average of 16.3 physicians and four locations. The lead author, Dr. Jane Zhu, an adjunct Senior Fellow at the University of Pennsylvania’s Leonard Davis Institute of Health Economics, said in a blog post that this finding is consistent with the usual investment strategy of private equity firms: They target practices that have a “substantial community footprint in terms of office locations, market reach, and reputation.” Then they increase the size — and, at least in theory, the value — of the practice by recruiting more physicians, buying smaller practices to merge with the larger one, expanding the reach of the practice, and decreasing costs, Dr. Zhu said.



After the practice has been expanded, the private equity firm may opt to sell it to another investor, with the expectation that annual returns will exceed 20%, she added.



Because so little is known about how these acquisitions affect patient care and health, Dr. Zhu and her colleagues called for longitudinal research to be conducted.


Our Take:
For better or for worse, hospitals have been buying up private physician practices at an ever-increasing rate for well over a decade. In fact, a February 2019 report by the Physicians Advocacy Institute and Avalere Health showed that hospital acquisitions of physician practices jumped 128.7% from 2012 to 2018 — from 35,700 practices to 80,000.


Hospitals (or integrated health systems) buying physician practices makes sense for many reasons, both for the hospitals and the physicians. From the hospital’s perspective, they’re seeking to improve the quality of care, increase efficiency, add another revenue stream, and more easily implement performance- and value-based initiatives.



From the physician’s perspective, perhaps they’re able to work shorter and more predictable hours. They also might have earned themselves a healthy payday when the acquisition closes.


On the other hand, there may be some less-than-desirable consequences associated with consolidation, such as increased costs and spending, in some cases.



And the data are mixed when it comes to physician satisfaction and ownership status.



“For some physicians, having a leadership or management role within the practice was a key way of achieving autonomy,” researchers wrote in a 2014 RAND Health physician satisfaction study. “However, practice ownership was not for everyone: Some physicians reported little taste for the ‘business side’ of medicine, deriving satisfaction from employed positions that allowed them to focus more exclusively on clinical care.”


But private equity firms buying physician practices? The endgame is nothing other than profit — which isn’t inherently bad, but we don’t yet know what the trade-offs might be.


As Dr. Zhu pointed out in her post, private equity ownership can bring greater efficiency to administrative and billing tasks, facilitate the adoption of technologies, streamline the structure of group practices, and even make it possible for practices to negotiate better reimbursement rates. But, as she cautioned, having a private equity firm calling the shots could also interfere with the stability of a group practice and negatively affect patient care and safety if the sole focus is on enhancing the bottom line. (Think, for example, of the potential for docs to feel pressured to recommend elective procedures in order to increase the revenue stream.)



A study published Jan. 15 in the Annals of Internal Medicine, which looked at private equity acquisitions of physician practices beyond the years Dr. Zhu and her colleagues evaluated, suggests that the trend is increasing “dramatically.”


Lawmakers have begun to scrutinize these acquisitions, though, in part because of recent criticisms pertaining to surprise billing.



“Some equity practices have employed network strategies that inflate costs for patients,” said Rep. Richard Neal, D-Mass., who chairs the House Ways and Means Committee.


In tandem with an investigation it began last year, the committee just advanced a transparency bill that would require private equity firms that own physician practices to disclose certain types of information.



It’s a start.


What else you need to know
Amazon has launched Amazon Care, a pilot program for roughly 54,000 employees and their families in the Seattle area. The program, touted as a virtual health clinic, features an app that allows users to consult with medical professionals by chat and video. Users can also schedule appointments for in-person visits at their home or office. The Seattle Times reported that Amazon Care is restricted to employees and family members enrolled in an Amazon health plan, which excludes part-time employees. Clinicians participating in the program are employed by Oasis Medical Group.


Oscar Health is capping the cost of 100 commonly used drugs at $3 per month for about half of its members. The startup insurance company’s new program is similar to those that other insurers have begun to offer in an effort to help members adhere to their medication regimen. Oscar’s list includes insulin and other diabetes treatments, as well as drugs for migraine, allergies, high blood pressure, high cholesterol, and other common conditions. The program is not available to members living in New York, New Jersey, or California, nor is it available to Medicare beneficiaries or members of small group or catastrophic plans.


A former senior executive at Novartis pleaded guilty to federal conspiracy charges stemming from an ongoing investigation into a generics price-fixing scheme, the Department of Justice (DOJ) said in a press release. Hector Armando Kellum faces a prison sentence of up to 10 years, along with a $1 million fine, after pleading guilty to helping fix the prices of drugs manufactured by Novartis’ generic drug division, Sandoz. Kellum is the fourth executive to be charged in the investigation and the third to plead guilty, the DOJ said, adding that he has agreed to cooperate with investigators.


NYC Health + Hospitals is partnering with startup NowPow on two programs to address the lack of food and stable housing experienced by patients in the city’s public health system. Through NYC Health + Hospitals’ performing provider system, OneCity Health, three community-based organizations have been awarded a total of $4.3 million. They will organize a network of 26 smaller organizations that will assist in connecting patients to available community services. Chicago-based NowPow said in a press statement that it would provide the referral platform for the programs; hospital-based housing and food navigators will use the platform to check patients’ eligibility for services and then match patients with community resources.


New York’s Northwell Health is using black box technology, similar to that used in airplanes, in two of its operating rooms. For now, the OR Black Box is being used only by laparoscopic urologic and colon surgical teams at Long Island Jewish Medical Center. The technology developed by Surgical Safety Technologies captures video and audio of the procedures, as well as patients’ physiological data and the anesthesia monitor — but no personal health information or identifiable patient images. Northwell said the information is being used to review and improve the quality of care and will not be used for punitive purposes. According to a news release, the health system is the first in the country to use this type of technology.


What we’re reading
How to Better Support Small Physician-led Accountable Care Organizations. Duke Margolis Center for Health Policy, February 2020
The Value-Based Geography Model of Care. NEJM Catalyst, March-April 2020 (subscription required)



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