Why is PE so attracted to health care?
PE firms typically buy practices or hospitals, work to make the entities more profitable, and then sell them, with the goal of doubling or tripling their investment over a short period. In general, PE firms aim for annual returns exceeding 20% after 3-7 years.
These firms know that health care is relatively recession-proof, that providers have third-party payers, and that the industry is fragmented and requires more efficiency, Ms. Dooley said.
When PE practice acquisitions started gaining momentum about 12 years ago, traditional hospital-based specialties such as anesthesiology and radiology were prime targets, said Mr. Strode.
At the same time, increasing challenges in private practice, such as declining compensation from payers, pressure to participate in value-based care programs, and rising regional competitors have fueled more physician groups to partner with PE firms, Mr. Herschman noted.
Physicians who partner with PE firms often benefit by having new access to capital to grow their practices, cost savings through group purchasing, and the ability to compete with larger health groups, Mr. Herschman said.
Questions remain, however, about how PE involvement affects health care use and spending. An April 2023 JAMA Viewpoint article called out the lack of oversight and regulation in the health care/PE space, suggesting that a stronger framework for regulation and transparency is needed.
A 2022 study in JAMA Health Forum that examined changes in prices and utilization associated with the PE acquisitions of 578 dermatology, gastroenterology, and ophthalmology physician practices from 2016 to 2020 found that prices increased by an average of 11%, and volume rose by 16%, after acquisition.
“We found that acquisitions were associated with increases in health care spending and utilization, as well as some other patterns of care like potential upcoding,” said Jane M. Zhu, MD, an author of the study and assistant professor at Oregon Health & Science University in Portland.
Another recent study that Dr. Zhu coauthored, published in Health Affairs, found that physician practices acquired by PE firms experience greater staff turnover and rely more heavily on advanced practice professionals than doctors.
“To the extent that that turnover indicates physicians are dissatisfied after private equity comes in, that’s really important to investigate further,” Dr. Zhu said.
PE firms owned 4% of U.S. hospitals in 2021 and 11% of nursing homes, according to a Medicare Payment Advisory Commission (MedPAC) report. The report does not include 2021 data on medical practices but notes that from 2013 to 2016, PE firms acquired at least 2% of physician practices. Estimates of PE deals are probably lower than actual numbers because of the lack of comprehensive information sources, according to the MedPAC report.
A version of this article appeared on Medscape.com.