Industrial Organization Physician Compensation Supply of Medical Services

The growing influence of private equity in medicine

Physicians are increasingly becoming parts of larger and larger practice. Further, many physicians are shifting from firm owners to employees. In recent years, private equity investments have helped to accelerate this trend.

A paper by Brusch et al. (2020) reviews this trend among women’s health practices (i.e., o
bstetrics/gynecology (OB/GYN) or fertility services). They look at trends in women’s health acquisition by private equity between 2010 and 2019 and find that:

We found 24 target companies that gained private equity affiliation between 2010 and 2019…Acquisitions accelerated over the period studied, with 17 occurring between 2017 and 2019…
we found that the average median (SE) household income was $76 107 ($1470) and the rural-urban commuting area score was 1.19 (0.04), which corresponds to a highly metropolitan area. Overall, 520 (97.6%) of these offices accepted Medicare and 453 (85.0%) accepted at least 1 form of Medicaid. Private insurance was accepted at all of these offices.

Another paper by Brusch and colleagues (2020) found that hospitals acquired by private equity firms saw

“…larger increases in net income, charges, charge to cost ratios, and case mix index as well as with improvement in some quality measures saw net income rise.”

Casolino et al. (2020) notes that this finding is not confined to women’s health. He reviews three articles that all document the growing influence of private equity in health care across various specialties and notes similarities between them.

First…[the articles]…report rapidly increasing private equity acquisitions in a given specialty. Second, they report a similar private equity modus operandi across specialties: acquire a relatively large platform practice (called target companies by Bruch and colleagues1) in a given geographic area, then acquire smaller practices in that area and group them into the same organization as the platform practice; use debt to finance the acquisitions and assign that debt to the acquired practices; find ways to increase net revenue from the agglomerated practices; and sell the agglomerated practices within 3 to 5 years for considerably more than the price paid by the private equity company. Third, the articles, with 1 controversial exception,5 lack data on the performance—in quality and cost of care, or in physician or patient satisfaction, of private equity-owned practices.

The transformation of American medicine continues into the 21st century. Whether or not the increased influence of private equity leads to lower cost and better patient outcomes, that is yet to be determined.

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