More physician practices being purchased by private equity firms

Private equity firms have made an impact on the world of healthcare by edging into the physician practice space through an increasing number of acquisitions primarily centered on specialty areas with potential for additional income.

In 2017, 102 physician practices were purchased by private equity firms, according to a Weill Cornell Medicine study published in the Annals of Internal Medicine on Monday afternoon.

The study found that independent physician practices are rapidly disappearing from healthcare while noting the rise of the "corporatization of medicine," despite a lack of peer-reviewed evidence to indicate what effect that has had on quality of care and patient outcomes. 

Private equity firms have standardized the approach to entering the physician practice space with an eye on specialty areas such as vision care and dermatology to maximize profit, and remembering to incorporate current physician leadership into the strategy.

Outside of acquiring a minority stake in large physician practices, private equity firms are fond of purchasing between 60 to 80% ownership of a physician practice with the anticipation of recouping an average annual return of 20% or more.

The study found these companies typically pay between $1-2 million per physician, provide "market rate salaries" to the physician owners, but stand to reap all or most additional revenues, such as through ancillary services.

Private equity firms avoid pursuing full ownership in order to include physician owners on the growth strategy, which ultimately leads to a sale in three to seven years' time. This is not a foolproof approach, however, as the study indicates that schisms occasionally rise between owning and nonowning physicians regarding contract incentives.

The findings are in line with the recent departure of private equity firms from acquiring hospital ownership stakes, instead aiming on less costly outpatient settings of care.

Physicians are also drawn to selling their practices because of the push towards value-based purchasing, the study argues, since smaller practices lack the resources to meet the requirements of value-based programs and linger under a cloud of uncertainty.

Additionally, receiving a large stake from a private equity group assists physician practices in recruiting new talent that may not have been readily available had they remained an independent operation, according to the study.

While this dynamic has proven fruitful for both private equity firms and some physician practices, critics worry that it places profitability over patient outcomes. The study cites critical concern over how much of a continued share of ownership in the practice is returned to physician leadership, as some private equity firms "vary widely in the extent to which they deliver on these promises."

Source: HealthLeaders