Private Equity Firms Increasingly Buying Up US Surgical Practices

By Linda Carroll

August 27, 2021

(Reuters Health) - The number of surgical practices bought by private equity firms grew dramatically over a 10-year period ending in late 2020, a U.S. study finds.

The cross-sectional examination of acquisitions and funding of surgical practices and facilities revealed that the number of investments by private equity firms grew from 4 in 2000 to 19 in 2019, and the largest proportion of investments during most of that period was in the U.S. South, according to the report published in JAMA Surgery.

"Surgical practices are the most lucrative in the health system," said Dr. Jessica Billig, chief resident at the University of Michigan in Ann Arbor. "And private equity firms are starting to acquire more and more of them. What we don't know is what this means from a quality of care standpoint."

It's been clear that some of these private equity firms have been saving money by making cuts, Dr. Billig said. "Sometimes they are cutting things that are unimportant and might actually improve quality but sometimes it can be the opposite," she said. "The next step in this research is determining how this is affecting quality and patient outcomes."

To take a closer look at the number of surgical practices being bought by private equity practices, Dr. Billig and her team turned to three financial databases that contain public and private business transaction data: Zephyr, S&P Global, and Privco. The used 14 search terms to collect data for all surgical specialties.

The researchers collected data on different types of investments (acquisition versus funding), the industry acquired (health care facility versus services), and the location of the target company (by West, Midwest, South, and Northeast census regions), and the amount of funding.

Dr. Billig and her team found a total of 193 investments made by 101 private equity firms to acquire or fund surgical practices and facilities. Of these investments, 100 (52%) involved operative facilities including ambulatory surgery centers and 93 (48%) involved surgical services including physician practices. Most investments, 117 (61%), led to acquisition of the surgical practice or facility.

The growth in investments accelerated during the later portion of the study period, with 26 taking place between 2000 and 2005, 30 in 2006-2010, 61 in 2011-2015, and 76 between 2016 and 2019.

The mean price of the acquisitions was $143 million. Nearly half (88, 46%) of practices and facilities acquired and funded by private equity firms were in the South; however, after 2016, the number of investments was similar among the regions.

"It's really hard to get this kind of data," Dr. Billig said, adding that this might mean their numbers were an underestimate.

Without more information, you can't tell whether the trends will be good or bad for patients in the long run, said Dr. Brian Miller, an assistant professor of medicine and business at the Johns Hopkins School of Medicine in Baltimore.

"This is one of many business models," Dr. Miller said. "They all have advantages and disadvantages for patients. The one silver lining here could be an increase in competition and disruption of markets that are in desperate need of disruption."

SOURCE: JAMA Surgery, online August 25, 2021.