In recent years, private equity firms have gobbled up doctors to form powerful medical groups across the country, according to new report released on Monday.
In more than a quarter of local markets – in places like Tucson, Arizona; Columbus, Ohio; and Providence, RI – a single private equity firm owned more than 30 percent of practices in a given specialty in 2021. In 13 percent of the markets, the firms owned groups employing more than half of the local specialists.
The medical groups were associated with higher prices in their respective markets, especially when they controlled a dominant share, according to a paper by researchers at the Petris Center at the University of California, Berkeley, and the Washington Center for Equitable Growthprogressive think tank in washington when a company controlled more than 30 percent of the market, the cost of care in three specialties – gastroenterology, dermatology, and obstetrics and gynecology – increased by double digits.
The paper, published by the American Antitrust Institute, documented large private equity buyouts across several medical specialties over the last decade. Urology, ophthalmology, cardiology, oncology, radiology and orthopedics were also important targets for such agreements.
“It’s shocking when you look at it,” said Laura Alexander, director of markets and competition policy at the Washington Center, who said private equity firms dominated just a few markets a decade ago. By looking at individual markets, the researchers were able to document the local impact. “National rates mask this much more acute problem in local markets,” she said.
The higher prices paid by private insurers contribute to high insurance premiums, and can increase out-of-pocket costs for patients.
Private equity firms, which pool funds from institutional investors and individuals to form mutual funds, tend to buy companies using debt, with an eye to reselling them in a few years. The industry has turned to health care fairly recently, but it has begun buying doctors at a steady clip, combining smaller practices to form larger companies.
When the private equity arm of a Canadian pension fund, OMERS Private Equity, bought Gastro Health, a large gastroenterology medical group, in 2021, it acquired nearly a dozen smaller practices, according to the researchers, who say the group now dominates in markets including the Miami area. The company now operates in seven states, employing more than 390 physicians. The researchers saw similar patterns in other markets, where a company would buy one large practice, then increase its market share by adding nearby smaller practices in the same medical specialty.
Historically, doctors’ practices were relatively small, and owned by doctors themselves. But that model quickly declined as the business of medicine became more complex and the insurance companies that negotiate with doctors on prices grew larger. Nearly 70 percent of all physicians were employed by a hospital or corporation in 2021, according to recent analysis of the Physicians Advocacy Institute.
“We are seeing a fundamental shift in how medicine is practiced in the United States,” said Richard Scheffler, a professor of health economics and public policy at Berkeley and director of the Petris Center.
Hospitals and insurance companies also bought many independent doctors. Optum, an arm of the publicly traded UnitedHealth Group, which also owns one of the nation’s largest insurers, employs about 70,000 doctors. Studies have shown that these types of concentrated ownership of physicians in a given market are also associated higher prices.
Private equity is often viewed by physicians as an attractive alternative to their practice being purchased by a hospital. In part, the doctors are “getting more scale and gaining efficiency,” including help with office management and technology, said Lisa Walkush, national managing director for professional services firm Grant Thornton. “It can be a really good thing, but the private equity firms have to keep their promises and be held accountable,” she said.
Michael Kroin, the founder and chief executive of Physician Growth Partners, a Chicago firm that advises independent practices, said the private equity firms “provide scale to allow independent practice groups to survive and maintain their autonomy.” If they could, given their rising costs and how they feel pressured by insurers, “every independent group would want to increase their fees,” he said.
The private equity industry has begun to attract particular scrutiny from researchers and policy makers. Lawmakers in the House are considering legislation require more reporting when the companies buy health care companies. Currently, the acquisitions can be difficult to track. The authors of the new paper relied on data on deals from a company called PitchBook, which they then matched with doctors in a health claims database to measure payments from private health insurers.
The researchers couldn’t be sure whether the payment increases they measured occurred because doctors performed more complex procedures or just negotiated higher prices, but they suspected that prices explained most of the effect.
Previous studies of private equity-acquired hospitals and doctors practice by Zirui Song, associate professor of health policy and medicine at Harvard Medical School, also documented rising incomes associated with the purchases. In an interview, Dr. Song said he expected the industry to continue to buy doctors in the coming years. “We still have a lot of small physician-owned specialty practices,” he said. “This is an opportunity for consolidation. It’s an easy opportunity.”
Critics of the industry, including Professor Scheffler, have also raised concerns about the medical care delivered by private equity-owned health care companies, arguing that the industry’s emphasis on profits could cause patient harm. Research on private equity ownership of nursing homes showed evidence of lower staffing levels and higher rates of prescriptions for antipsychotic medications.
But little rigorous research has been published on patient care in the office-based medical specialties that the new article focuses on.
How the change in ownership and independence affects doctors and how they treat patients “has been very severely understudied,” said Barak Richman, a professor of law and business administration at Duke University, who reviewed the paper. But he said there is evidence that these firms are able to exploit loopholes in existing regulations to maximize their profits.
“Private equity is like the system on steroids,” said Sherry Glied, the dean of the Wagner School of Public Service at New York University. “Any time there is an opportunity to make money, PE will move faster than everyone else. And consolidation is the way to do that.”
As federal regulators consider changes to how they monitor these deals, researchers say the report underscores the need to pay attention to what happens when a company makes a series of seemingly modest acquisitions. “This builds the case for strong antitrust tools for these incrementally small but collectively larger consolidation trends,” said Erin Fuse Brown, the director of the Center for Law, Health and Society at Georgia State University.