Health Policy$ense

Private Equity Investment in Physician Practices

New study describes recent acquisitions

Private equity acquisition of physician medical groups has come under increasing scrutiny for its potential role in expanding the use of “surprise” medical bills. Due to limited data availability, empirical study of private equity acquisition has been challenging, with most existing evidence coming from industry reports and a growing chorus of opinion articles in academic journals.

In a new JAMA research letter, we describe private equity firms' acquisition of physician medical practices across specialties from 2013-2016. Of approximately 18,000 group medical practices, we found 355 physician practice acquisitions across a number of specialties, most commonly anesthesiology (19.4%), multi-specialty (19.4%), emergency medicine (12.1%), family practice (11.1%), and dermatology (9.9%). From 2015 to 2016, there was also an increase in the number of acquired cardiology, ophthalmology, radiology, and obstetrics/gynecology practices. Acquired practices had an average of 16.3 physicians, 4 sites, and 6.2 physicians affiliated with each site. About 44% of acquired practices were in the South. The map below shows the number of acquisitions by state:


Map based on authors’ analysis of Levin Health Care M&A and SK&A data. Total number of acquisitions is 355, but as some groups span multiple states, they may be counted more than once (N=548 for this map).

More recent industry reports suggest new targets within orthopedics, gastroenterology, urology, and ophthalmology, which may promise increased revenue through ancillary services like ambulatory surgery centers, labs, and imaging.

Our study confirms that acquired practices have several sites and large patient volume, consistent with private equity firms’ typical investment strategy. Because private equity firms are prohibited from owning physician practices in most states, a typical acquisition strategy involves linking a private-equity owned physician management company with a physician-owned medical group. These medical groups are often large “platform” practices that have a substantial community footprint in terms of office locations, market reach, and reputation. The private equity firm then grows the value of the medical group by recruiting additional physicians, acquiring small and solo practices to merge with the larger “platform” practice, expanding market reach, and decreasing costs. Three to seven years down the line, a private equity investor may sell the expanded business to another investor with an expectation of annual returns that surpass 20%.

News headlines have highlighted some of the more concerning consequences of private equity investment. Two of the largest private equity-backed physician staffing and management companies in the US were recently outed as having funded a dark money lobbying campaign – to the tune of $28 million - to end proposed legislation to regulate out-of-network billing.

One of these companies, Envision Healthcare, employs 25,000 clinicians including emergency room doctors, anesthesiologists, radiologists, hospitalists, and a slew of additional specialists who are outsourced to hospitals and ambulatory surgery centers across the country. Envision has recently come under scrutiny for sending out-of-network “surprise” medical bills to emergency room patients, an extremely lucrative practice given the financial incentives of these companies. In prior research examining billing practices of EmCare, Envision’s physician staffing division, charges for patient care nearly doubled after EmCare took over emergency room management from other physician groups.

Despite these cases, the extent to which private equity ownership may change practice patterns and delivery of care is unknown. Studies have examined private equity acquisitions of nursing homes, which have seen private ownership for decades; in limited research, results have been mixed and inconclusive. Some have reported decreases in nursing staffing after private equity purchase; others have shown that these changes began prior to changes in ownership, as part of a general trend across the nursing home industry. A limited number of studies, using different methodological approaches, did not find statistically significant reductions in quality of care indicators. Yet questions remain regarding how variations in private equity strategies may affect downstream care, given that different companies may employ different practice management strategies.

These examples highlight the need for longitudinal research that examines the effects of private equity acquisition of physician medical groups on care delivery and health outcomes. A model where private equity ownership can increase administrative and billing efficiencies, negotiate for higher reimbursement rates, strengthen technology adoption, and reorganize practice patterns may yield a number of benefits to patients, physicians, and investors alike. However, these deals also raise many questions about whether private equity investment, focused on maximizing profit, may conflict with practice stability, physician recruitment, quality, and safety in the longer run. Understanding the scope of this phenomenon is a first step; as more investment dollars are infused into physician medical groups, greater investment in rigorous empirical analyses is also needed.

The research letter, "Private Equity Acquisitions of Physician Medical Groups Across Specialties, 2013-2016," was authored by Jane M. Zhu, Lynn M. Hua, and Daniel Polsky, and appeared in the February 18, 2020 issue of JAMA.