PE Practice Ownership Raises Concerns About Competition

It is well known that private equity (PE) firms have invested heavily in physician practices, but a new study sheds light on how these practice acquisitions could impact competition in many areas.

The study recently published in Health Affairs analyzed PE acquisitions of practices between January 2012 and December 2021. Researchers focused on ten office-based physician specialties most frequently acquired by PE firms: primary care, dermatology, obstetrics-gynecology, gastroenterology, ophthalmology, oncology, urology, radiology, orthopedics, and cardiology.

There was a substantial increase in PE acquisitions of physician practices from 2012 to 2018, with 175 transactions across the ten selected specialties. Acquisitions plateaued in 2019 and declined in 2020 during the COVID-19 pandemic but picked back up in 2021 with 317 acquisitions — about 84 percent higher than the number of acquisitions in 2020.

Notably, during the study’s period, dermatology practices were most commonly acquired by PE firms (34 percent of all acquisitions), followed by ophthalmology (25 percent) and gastroenterology (11 percent).

With an increased interest in physician practice acquisitions, average PE penetration rates at the physician level increased across all metropolitan statistical areas (MSAs) studied during the period. Rates increased the most for gastroenterology (from 7.6 percent to 13.1 percent), dermatology (from 10.0 percent to 11.1 percent), and urology (from 4.4 percent to 9.0 percent).

Researchers also found that PE firms collectively held over 30 percent market share in at least one specialty in 120 of 384 MSAs studied by the end of the period. In half of those 120 MSAs, PE firms collectively held more than 50 percent market share, including 19 MSAs in gastroenterology, 15 in dermatology, and 8 each in orthopedics and oncology.

Additionally, a single PE firm held over 30 percent market share in at least one specialty in 108 MSAs. In 50 MSAs, a single PE firm held greater than 50 percent market share.

PE firms are attracted to physician practices, especially across the studied specialties, because of the opportunities to consolidate practices, streamline processes with technology, and meet patient demand, particularly as the aging population grows. However, the study’s findings raise concerns about competition in local markets as PE firms acquire more physician practices.

“Although non-PE firms can also dominate local markets, there are several reasons that the concentration of market power may be more problematic in the context of PE ownership,” researchers wrote in the study.

“PE firms tend to prioritize short-term profit maximization over long-term investment in patient care and infrastructure, implement aggressive acquisition strategies that may curtail patient choice and competition, use complex financial structures and leverage to finance acquisitions, and possess limited experience in the healthcare industry—all of which may lead to difficulties in managing and enhancing patient care,” they continued.

PE investments in physician practices have been linked to higher prices for consumers without impact on quality of care. As the literature grows, private equity’s role in healthcare has been under the microscope, especially as it relates to physician practice acquisitions.

Earlier this week, the Justice Department’s Antitrust Division, Federal Trade Commission (FTC), and Department of Health and Human Services (HHS) jointly launched a cross-government public inquiry into PE’s increasing control over healthcare. The request for information (RFI) asks the public to comment on PE and other corporations’ involvement in healthcare transactions and how that affects quality of care.

“Preserving competition in health care markets is a priority for the Justice Department because of its important impact on the health and well-being of Americans,” said Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division. “This RFI will enable the agencies to accurately understand the modern market realities of the health care industry and forcefully enforce the law against unlawful deals. Hearing from patients, workers and market participants will be critical in developing future enforcement and policy efforts relating to consolidation in the health care sector.”