Report Analyzes Impact of Private Equity Acquisition of Physician Practices

July 14, 2023
In markets where a single private equity firm holds more than 30 percent in one or more physician specialties, prices are almost 1.5 to over 3 times higher, study finds

A new report puts a spotlight on private equity groups’ acquisitions of physician practices over the last several years. The analysis evaluates market penetration across 10 physician practice specialties within markets across the U.S., the impact on market shares and concentration, and on prices and expenditures.

The report, “Monetizing Medicine: Private Equity and Competition in Physician Practice Markets,” was published by the American Antitrust Institute (AAI), in collaboration with the University of California at Berkeley (UCB) Petris Center on Health Care Markets and Consumer Welfare, and the Washington Center for Equitable Growth (Equitable Growth). Funding for the project was provided by Arnold Ventures.

“This report provides convincing evidence that incentives to put profits before patients have grown stronger with an increase in private equity ownership of physician practices. This will fundamentally change the way medicine is practiced,” said Richard Scheffler, Ph.D., lead author, and distinguished professor of health economics and public policy, and director of the Petris Center at UCB, in a statement.

The authors stress that their findings should draw significant attention by competition enforcers and healthcare policymakers. For example, the number of private equity acquisitions of physician practices has grown six-fold between 2012 and 2021. Some markets have been highly penetrated by private equity, with a single private equity firm holding more than 30 percent in one or more physician specialties. The study compares price increases in those markets to all markets and finds they are almost 1.5 to over 3 times higher. This is true for areas of medicine such as: gastroenterology, dermatology and obstetrics & gynecology.

“Our findings underline the vast implications that rapid, stealth consolidation of physician markets by private equity funds have had for competition, patients, and anyone who pays for healthcare practices. It’s clear that there is a need for attention and action from competition enforcers and policymakers to address these accelerating acquisitions,” said co-author Laura Alexander, J.D., director of markets and competition policy at Equitable Growth, in a statement.

The report makes recommendations of policy steps that would strengthen competition enforcement and healthcare policy in physician practice markets. For example, reporting and scrutiny of small healthcare provider acquisitions, particularly by private equity funds. Key adjustments to the Hart Scott Rodino (HSR) Act reporting requirements would support stronger antitrust enforcement. Mandatory reporting to increase transparency of ownership of physician practices is also critical, the authors say. Other policy implications include closing regulatory loopholes that distort competition in healthcare and expanding liability to private equity funds for misconduct by portfolio companies.

The authors say the report should also draw attention to the need to lower barriers to entry in concentrated physician markets and developing additional funding sources for capital investments. In a statement, Diana Moss, president of AAI, noted “The report makes clear that physicians need more options for restructuring their practices so they can continue to do what they do best–practice medicine. Selling out to private equity or other large corporate entities shouldn’t be the only options on the table.”

The report’s conclusion notes that the issue needs heightened attention from regulators. “Private equity’s role in healthcare provider markets is an ongoing and evolving challenge, and there are no signs that PE’s interest in healthcare markets is waning. While the COVID-19 pandemic caused a temporary leveling off in overall PE investment, we have seen PE investments in physician practices spring back and resume their previous pace as the pandemic has abated. PE funds are still sitting on enormous stores of uninvested capital, physician practices have been financially and psychologically battered by the COVID-19 crisis, and all of the incentives that drive providers away from independent practice and toward other ownership models persist.”