Private equity exits lead to physician turnover at practices

Private equity exits from physician practices lead to higher physician turnover years after the firm leaves, according to a new study in JAMA Health Forum.

The case-control study found that physicians employed in private equity-owned practices in which the owners exited between 2016 and 2018 were 16.5 percentage points less likely to be working at the same practice two years after the exit. This is compared to a matched set of physicians in similarly sized practices, in the same specialty and located in the same market whose practice did not experience a private equity exit during the same period.

Researchers said this represents a 27.5% reduction in retention given the 60% mean rate of staying in the control group.

They also stated that the increase in physician turnover two years after an exit occurred even after most practices were purchased by another private equity firm, which typically offers financial incentives to stay.

Researchers hypothesized that high physician turnover was linked to satisfaction with work after the exit, perhaps because the expected return from any equity stakes in later-stage, private equity-backed investments is generally lower.

Additionally, practices sold by a private equity firm tend to have fewer assets and more liabilities, reducing potential investment. The private equity firm may have also picked all the low-hanging fruit, meaning physicians must make more substantial changes to boost margins.

Physicians leaving a practice after a private equity exit were also more likely to join large practices for at least 120 physicians, according to the study.

Private equity's reach in healthcare has increased over the last two decades, with physician practices being an attractive target for firms. Private equity firms acquired over 1,000 U.S. practices between 2010 and 2020, according to data from the Brookings Institute. Dealmaking generally plateaued during the COVID-19 pandemic but has picked back up.

Physician practices are attractive to private equity firms that can make workflow changes to increase efficiency -- something practices have historically been lacking as they focus on patient care. When firms make the workflow, staffing and administrative changes for increased efficiency, they can then sell the practice for a profit, oftentimes selling to another private equity firm.

However, healthcare stakeholders are concerned about the impact private equity is having on practice management and patient care. Research has shown that prices have gone up after a private equity acquisition, as well as incidences of out-of-network surprise medical bills.

Studies have also documented staffing changes following a private equity acquisition. However, the latest study indicates that staffing changes continue even after private equity exits a physician practice, which can have major effects on patients, physicians, investors and markets, researchers said.

High physician turnover can disrupt access to care, impact experience and affect clinical outcomes. Physicians moving to larger practices also sparks concerns about healthcare consolidation and its impact on prices, quality of care and access.

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.