Medicare spending drops, patients benefit when physicians work with private equity management, study says

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Physicians working with private equity investors may help patients and save money when compared with those affiliated with hospital and corporate ownership, according to a new study.

The American Independent Medical Practice Association (AIMPA) commissioned the examination of doctors across four physician practice models in five specialties: cardiology, gastroenterology, medical oncology, orthopedics and urology.

In a 2019 to 2022 period, private equity (PE) investment grew as management services organizations began working with private equity-affiliated private practices (PEAPPs) in those specialties. In 2022, Medicare patients of PEAPP physicians had Medicare expenditures in line, and sometimes lower, than patients of unaffiliated private practice (UPP) doctors or those in hospital or corporate settings. Patients in hospital and corporate settings had greater numbers of inpatient (IP) days and emergency department visits, whereas those measures were lower for patients of doctors in PEAPP.

“Independent physicians have long maintained that we provide high-quality care at lower cost than our physician colleagues who are affiliated with hospitals or vertically integrated insurers,” AIMPA President and Board Chair Paul Berggreen, MD, said in a news release. “This study supports our hypothesis — and illustrates how private equity investment can be a force for good in our health care system.”

Expenditures

In aggregate, physicians in UPP models had the lowest total Medicare expenditures per beneficiary per year (PBPY) at $26,996, for 2022. The other models were:

• $27,421 for PEAPP
• $27,796 for corporations
• $30,416 for hospitals

Broken down by specialty, PEAPP physicians were second-lowest in Medicare expenditures PBPY for cardiology, gastroenterology, medical oncology and urology, and third-lowest for orthopedics.

In general, beneficiaries attributed to hospital-affiliated physicians had the highest number of IP days, followed by beneficiaries attributed to corporate-affiliated, PEAPP, and UPP physicians.

The results show that spending growth in Medicare is driven by hospital systems, not doctors who practice independently with private-equity investment, said Jack Feltz, MD, chair of AIMPA’s Federal Health Policy Committee.

“When independent practices affiliate with private equity-backed entities, Medicare spending goes down and patients spend less time in the hospital,” he said in the news release. “Those are trends policymakers should encourage.”

Ownership trends

Another finding of the study may be less surprising to physicians who lament the decline of unaffiliated private practice, along with health care industry analysts. Across the specialties, the number of UPP physicians dipped from 2019 to 2022 as ownership affiliations with private equity investors, hospitals and corporations edged up. As of 2022, just 12% of physicians were in UPP in aggregate across the five specialties.

“In aggregate across the five specialties studied, just 12% of physicians were in UPP in 2022,” the study said.

Per specialty, shares ranged from 5% in medical oncology to 16% in urology. Orthopedics showed the greatest decrease, with 39% of physicians in UPP in 2019, dropping to 14% by 2022.

While it may seem like private equity investors are swallowing up medical practices, in the five specialties, just 6% were affiliated with PEAPP models, compared with 37% in corporate entities and 45% in hospitals. By 2022, private equity investment had its largest percentage of ownership in gastroenterology (14%), followed by urology (11%), medical oncology (6%), orthopedics (4%) and cardiology (1%). In contrast, hospitals and corporate entities owned at least 73% of physician practices across the five specialties, with a combined high of 89% ownership of medical oncology practices, according to the study.

About the study

AIMPA commissioned the study from health care consultant Avalere, which pulled data from a number of sources. The 48-page report said the findings were unique in examining Medicare spending, inpatient hospital days and emergency department visits by practice model.

The study acknowledged limitations because it examined Medicare fee-for-service data and just five medical specialties. It was a national analysis with broad controls for geography, but results may differ within smaller markets or regions.