Physician Practice Sales to Private Equity Doubled in 3 Years

Alicia Ault

February 18, 2020

Private investor purchases of medical practices more than doubled between 2013 and 2016, a new study shows. When analyzed by specialty, the authors found that anesthesiology has accounted for the most sales to such entities, but acquisitions occurred across a host of specialties.

The study, published online today in the Journal of the American Medical Association, documents an accelerating trend that has been causing consternation in some quarters and celebration among some physicians who have been glad to get a cash infusion to support their practices or to help finance their retirement.

During the 3-year study, 355 physician practices were purchased by private equity groups. Although the acquisitions represent a small percentage of the estimated 18,000 unique group medical practices in the United States, the growth in purchases is remarkable, rising from 59 in 2013 to 72 in 2014, to 88 in 2015, and finally to 136 in 2016.

The practices that were purchased included 5714 physicians at 1426 practice sites. About 44% of the practices acquired were in the South.

The authors, led by Jane M. Zhu, MD, MPP, MSHP, from the Division of General Internal Medicine and Geriatrics, Oregon Health & Science University, Portland, caution that their numbers are likely an underestimate. Their analysis is based on information from the Irving Levin Associates Health Care M&A data set, which may not have included some smaller practice acquisitions. (Medscape's parent company, Internet Brands, is owned by the private equity firm KKR.)

The most-acquired practice specialties were anesthesiology (69 practices, or 19% of the 355 total); emergency medicine (43, 12%); family medicine (39, 11%); dermatology (35, 10%); and pediatrics (20, 6%). In addition, private investors purchased practices in a variety of specialties, including psychiatry, urology, radiology, gastroenterology, orthopedics, and obstetrics.

From 2015 to 2016, acquisitions of cardiology, ophthalmology, radiology, and ob/gyn practices increased.

The authors concede that they did not have a complete picture, in part, because "available data lag behind the rapid pace of private equity acquisitions."

Researchers have been trying to more accurately quantify the spread of private investment in medical practices.

A previously published study of dermatology practice acquisitions by private investors found an even-more rapid increase in purchases. In that analysis, Sally Tan, MD, MPH, of Brigham and Women's Hospital, Boston, Massachusetts, and colleagues at Harvard's medical and business schools reported that private investors bought 184 dermatology practices between May 2012 and May 2018. Those practices accounted for some 381 sites, but the actual number of investor-owned sites is probably larger because of the opening of new clinics post-acquisition, said Tan.

Concern About Impact

Zhu and colleagues raised questions about the potential impact of private investment. Investors' expectations for returns "may conflict with the need for longer-term investments in practice stability, physician recruitment, quality, and safety," they write.

"Research is needed to understand the effect of these acquisitions and to mitigate unintended consequences," they continue.

They are not the first to raise such concerns. In January 2019, Lawrence P. Casalino, MD, and colleagues at Weill Cornell Medicine and NewYork Presbyterian Hospital, New York City, noted in the Annals of Internal Medicine that private investment could hasten the demise of small and independent physician practices. Equity-backed practices won't struggle to afford the investment needed to cope with requirements for value-based healthcare, for instance.

But Casalino also pointed out the potential for equity-supported practices to flame out. The rising valuations of practices — as they are bought and sold repeatedly to realize gains — could reach such heights that no buyers are left.  In addition, the effect of private investment on the quality and cost of patient care, physician professionalism, or the experience of patients, physicians, or staff remains unclear, as there is a lack of research on the subject.

Noting the dearth of evidence about private equity's effects, Joshua Sharfstein, MD, and Jamar Slocum, MD, of the Johns Hopkins Bloomberg School of Public Health in Baltimore, Maryland, called for a moratorium on private investment investment in dermatology practices. "Until meaningful data are available on what happens to the quality of care and affordability for patients and payers, dermatologists should stop selling their practices to private equity firms, and legislators should prohibit such transactions," they write in an editorial published last July in JAMA Dermatology.

Private equity companies that own physician practices — in emergency medicine, anesthesiology, and some other specialties — have also been at the center of public and congressional outrage over surprise medical bills. Several committees in the US House of Representatives have been working on legislation to rein in the bills and to require more transparency from private investors.

JAMA. Published online February 18, 2020. Full text

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