Opinion: Private equity investment in health care isn’t receiving enough scrutiny | Opinion

Opinion: Private equity investment in health care isn’t receiving enough scrutiny | Opinion

Thomas Veverka


A troubling trend in organized medicine isn’t receiving enough attention: the flood of investment from private equity firms and the concerns for patients that wash in with it.

Over the last decade or so, private equity established a footing in the health care market, with investment firms rapidly acquiring medical practices across the country — and across specialties — in recent years.

According to the International Journal of Health Economics and Management, private equity investment in the health care industry increased from $5 billion annually in 2000 to $100 billion in 2018, with annual transactions growing from 78 to 855 in that period.

With no signs of slowing, we must consider the question: To what end?

The answer: To quickly turn a profit.

But those gains often come at the expense of patients and their needs.

The road map to success for private equity firms investing in medical practices:

1. Acquire a large “platform” practice in a market;

2. Work to grow market share and the value of the investment by acquiring smaller, nearby practices and recruiting clinicians;

3. Enhance the value of those holdings by reducing administrative inefficiencies through consolidating functions like human resources and billing;

4. Sell those holdings for a substantial profit in three to seven years.

In a perfect world, this might be what private equity investment in health care looks like. Inherent benefits come with the business management expertise and economies-of-scale opportunities that private equity can bring to physician owners.

In a perfect world, private equity would handle the business of running a practice and physicians could devote themselves to providing quality care.

We don’t live in a perfect world. There are other avenues by which private equity can squeeze value from its investment in medical practices, and they all hamstring providers and are at odds with what’s best for patients.

Valuing revenue generation and short-term profit often pressures physicians to prioritize things like increasing patient volume and using profitable procedures over delivering quality care. Reports demonstrate this in dermatology, which is marred by questionable, and oftentimes medically unnecessary, procedures performed at private equity-owned practices.

This lower standard of care often costs patients more. When private equity firms grow a practice’s footprint, that expanded market share and leverage it creates with payers often leads to higher insurance premiums.

Anything resulting in higher costs and a lower standard of care for patients has no place in our healthcare landscape. That’s what private equity delivers to patients with regularity.

Additionally, private equity firms want to create better margins by cutting salaries and staff — especially physicians, who can be replaced with lower cost and less highly trained clinicians.

Patients deserve and expect the best in quality care and that’s not what they’re receiving when private equity firms remove physicians as the leaders of care teams in the interest of earning an extra buck. In Michigan’s rural corners, staffing deficiencies brought on by private equity exacerbate the existing physician shortage.

The best recipe for consistent quality care and good health outcomes remains supporting strong relationships between physicians and their patients. Often, private equity investment weakens that relationship, and its place in our health care system comes into question.

About the author: Thomas J. Veverka, M.D., is the president of the Michigan State Medical Society.

About the author: Thomas J. Veverka, M.D., is the president of the Michigan State Medical Society.

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