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Private Equity Buying Physician Practices

People ask me all the time if I can help them find a good doctor. Unfortunately it is not so easy.

In many affluent communities, most of the primary care physicians are now "concierge" and require a monthly fee for access. A new appointment for a specialty problem may take weeks and even then you may be seeing a nurse practitioner or a physician assistant. Many practices do not accept insurance and certainly not Medicare/Medicaid. From the doctor's point of view, these practice decisions may be understandable and I won't go into the changes in USA medicine that have driven it.

But there is a new game in town that will make affordable healthcare even more difficult. Private equity acquisition of physician medical groups.

This is a new frontier and no-one can predict how it will turn out for patients and health care costs.  Never before have medical practices been part of a merger and acquisition (M&A) portfolio but they are now and it's growing every year.   According toJAMA,between 2013 and 2016 there were 355 practice acquisitions over 1426 sites that included 5714 physicians.  The majority of these practice purchases occurred in the South.  Since that time acquisitions have increased.

The most acquired were groups in anesthesiology, multi specialty, emergency medicine, family medicine and dermatology. Now it is including ophthalmology urology, orthopedics and gastroenterology.

Keep in mind that private equity firms expect greater than 20% annual returns and those financial incentives may conflict with the need for longer term investment in practice stability, physician recruitment, quality and safety.  There will be pressure to increase revenue streams.

How do you increase revenue streams without spending more money?  You hire lower trained people to deliver care, you demand higher productivity (meaning seeing more patients in less time). You pump up services that pay more and order more of them (labs, imaging, xrays and procedures) and you decline insurance contracts that are not lucrative.  Tuck this thought away when you hear about "surprise billing" that is becoming a huge problem for patients that have insurance and thought their policy would cover them.

This type of consolidation and "beat the market" mentality has no place in healthcare. If practice acquisitions could "get the waste out" and bring actual value to the patient by recruiting additional physicians and making health care more affordable, it would be a win-win.  I don't see it going that way.

Wall Street is about maximizing profits.  Health care is about improving quality and quantity of life. The net time you hear about a practice IPO or acquisition into a larger for profit entity, think about how that might turn out. 


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