Is private equity a threat to competition in medical practice?

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The concentration of medical practices owned by private equity (PE) is high enough in some parts of the country to warrant scrutiny by state and federal regulators, according to findings of a new study.

The study, published in Health Affairs, analyzes the growth and market penetration of PE-owned practices across metropolitan statistical areas (MSAs) between 2012 and 2021. It focused on 10 office-based specialties frequently targeted by PE firms, including primary care, dermatology, OB/GYN, ophthalmology, oncology, urology, radiology, orthopedics and cardiology.

To identify the practices the authors used data from two corporate databases that track merger and acquisition and private equity transactions, supplemented by information gleaned from news articles, press releases and industry reports. They calculated PE market penetration as the percentage of full-time equivalent physicians working in a PE-owned practice in an MSA and reported by specialty at the national level.

Their analysis found significant increases in both the number and geographic range of PE-owned practices from 2012 to 2021. During those years PE-acquired practices grew by more than 700%, from 816 to 5,779, while the number of MSAs with PE-owned practices nearly tripled, from 119 to 307.

The growth in PE-owned practices also led to greater concentration of market share in some MSAs. By 2021, PE firms collectively had a market share exceeding 30% in at least one specialty in 120 of 384 MSAs. In 60 of those 120, PE’s collective market share exceeded 50% in at least one specialty. 

Moreover, a single PE firm had a greater than 30% market share in at least one specialty in 108 MSAs, while in 50 PSAs a single firm’s market share was greater than 50% in at least one specialty.

The study found significant regional variations in degrees of PE penetration, which the authors speculate could result from a strategy of PE firms seeking to establish dominance in local markets to strengthen their negotiating leverage with payers and hospitals. It might also be due to targeting fragmented markets with high demand in certain specialties.

The authors note that the relatively small dollar amounts involved in most practice acquisitions means they aren’t examined by the Federal Trade Commission or other federal and state regulators. A possible solution, they suggest, is for regulators to scrutinize future acquisitions in markets that are already heavily consolidated. Doing so “could offer a measure of safeguarding against adverse effects on patient care and pricing within local markets.”

The study, “Private Equity-Acquired Physician Practices And Market Penetration Increased Substantially, 2021-21,” appears in the March, 2024 issue of Health Affairs.