Private Equity Firms Acquired Over 700 Oncology Practices in 20 Years

Private equity acquisition of oncology practices has grown in the past two decades, with over 700 clinics becoming affiliated with a private equity firm between 2003 and 2022, a study published in JAMA Internal Medicine found.

Private equity firms typically invest in platform companies and then acquire healthcare practices, open new clinics, reduce costs, and increase revenues to seek financial returns.

Researchers used financial databases and publicly available data to identify private equity-backed transactions involving medical and radiation oncology clinics from 2003 to 2022.

They found that 724 oncology clinics became affiliated with a private equity-backed platform company during this time. Around half (53 percent) were radiation clinics, 23 percent were medical clinics, and 15 percent were multi-oncologic clinics. These clinics account for 10 percent of the estimated 6,919 oncology clinic locations in the US.

At least 2,060 oncologists were affiliated with clinics at the time of an initial private equity acquisition, accounting for 10 percent of practicing medical oncologists and 15 percent of radiation oncologists.

A third of clinics experienced multiple changes in private equity ownership, leading to a total of 1,074 private equity-backed transactions occurring during the study period.

The private equity acquisitions happened across 45 states. Nearly 20 percent occurred in Florida and 16 percent were in California, the study noted. Clinics affiliated with private equity firms accounted for over 25 percent of all oncology clinics in seven states, including Tennessee (28 percent), Florida (27 percent), and Nevada (26 percent).

Ten of the 23 private equity-backed platform companies identified in the study were acquired by another private equity-backed entity or public company. Most platform companies had a regional focus and completed acquisitions in areas with little competition, researchers said.

Private equity’s involvement in the healthcare industry has raised concern among stakeholders.

The oncology sector, in particular, may attract private equity firms because of the profit potential related to the volume of chemotherapy administered and the expensive drugs involved in treatment.

Additionally, private equity acquisitions may appeal to community-based oncologists struggling with prior authorization and other nonclinical aspects of care.

In a response to the study, Cary P. Gross, MD, of Yale School of Medicine, stated that the findings raise several crucial issues.

The private equity acquisition business model generally leads to firms increasing revenue and reducing costs and then selling the practice within four to seven years. This model prioritizes short-term profitability at the expense of longer-term investments that could improve care at practices.

Some studies have shown that private equity acquisitions increase costs, while others suggest that these deals are associated with stable or improved quality.

Physicians should understand the potential downsides of private equity acquisitions and how they can impact decision-making control, Gross said.

In addition, the Federal Trade Commission (FTC) should increase scrutiny of these acquisitions that tend to fly under the radar due to their small sizes. FTC should lower the existing $101 million threshold for examining private equity acquisition of physician practices.

Congress should also reconsider current incentives that favor private equity involvement in healthcare. Specifically, Congress could implement payment reform that moves away from the policy that reimburses oncologists at 106 percent of the average sales price for drugs.

“Similarly, federal tax regulations provide incentives for PE ownership of medical practices through lower tax rates: Congress could remove the carried interest tax loophole, which allows PE firms to pay preferential capital gains tax on a substantial proportion of their income, rather than a higher corporate tax on annual earnings,” Gross wrote.