Private equity acquisition of medical practices increased in recent years

A recent study finds that private equity acquisitions of physician medical groups steadily increased between 2013-2016. The report, published in the Journal of the American Medical Association (JAMA), shows that acquisitions by private equity firms increased from 59 practices in 2013 to 136 practices in 2016. At the end of the study period 355

of the approximately 18,000 unique group practices in the country were owned by private equity.

The most common targets of private equity firms were anesthesiology (19.4 percent), multispecialty (19.4 percent), emergency medicine (12.1 percent), family practice (11 percent) and dermatology (9.9 percent). According to the report, between 2015 and 2016, there was also an increase in the number of cardiology, ophthalmology, radiology, and obstetrics/gynecology practices acquired.

Acquired practices had a mean of four sites, 16.3 physicians per practice, and 6.2 physicians affiliated with each site. Overall, 81.4 percent of these practices reported accepting new patients, 83.4 percent accepted Medicare, and 60.3 percent accepted Medicaid. The majority (43.9 percent) of acquired practices were in the south.

The study authors said that while private equity acquisitions increased from 2013-2016, the number is still considered small in proportion to the total number of group practices, though they note that industry reports suggest further growth in 2017-2018. This growth was reported highest in ophthalmology, dermatology, urology, orthopedics, and gastroenterology.

The authors note that data from their study is consistent with private equity firms’ typical investment strategy of acquiring practices with large community footprints and then growing value by recruiting additional physicians, acquiring smaller groups, and expanding market reach.

The authors also state that further research is needed to understand the effect of acquisitions and to mitigate unintended consequences, since private equity firms expect greater than 20 percent annual return. This expectation, they say, may conflict with the need for longer-term investments in practice stability, physician recruitment, quality, and safety. These high expected return rates may also create pressure on physicians to promote more elective procedures, direct more referrals internally, and rely on lower-cost clinicians to perform more services.

The full research letter is published in the Feb. 18, 2020, edition of JAMA.