An influx of private-equity investment during the past decade – along with regulatory changes and revised models of payment and delivery – has contributed to a more consolidated, more corporatized health care industry. In just the 18-month period from mid-2016 to early 2018, U.S. hospitals and health systems bought up more than 8,000 private medical practices, and some 14,000 physicians left private practice to join hospital staffs.
As a Perspective in The New England Journal of Medicine states, this significant shift in the business of health care raises “important questions about the implications of such investments for health equity and larger health system goals.”
Private equity purchases of physician practices may indeed lead to operational improvements and enhanced efficiency that would benefit patients. At the same time, it might harm them by reducing competition and bringing higher prices or lower-quality services, say the co-authors, Bloomberg Distinguished Professor Daniel Polsky of Johns Hopkins University and Assistant Professor Jane Zhu of the Oregon Health and Sciences University, in their commentary titled “Private Equity and Physician Medical Practices – Navigating a Changing Ecosystem.” (Polsky holds joint appointments at Johns Hopkins’s Carey Business School and Bloomberg School of Public Health.)
What’s more, they caution, “The experiences of some private-equity–backed clinics suggest that there is pressure to expand certain revenue streams by conducting more elective procedures and providing more ancillary services, and to engage in ‘upcharging.’”
Not only patients but also doctors could feel some pain from the new model, say Polsky and Zhu, as “private-equity firms’ goal of maximizing short- to medium-term profits may place undue pressure on physicians.”
To help prevent abuses, the co-authors propose transparency across the industry so watchful regulators can take action as needed.
“Greater standardization, monitoring, and enforcement of safeguards might help constrain nefarious practices that could unduly influence clinical care,” they write. “All states, for instance, should have a comprehensive corporate practice of medicine doctrine, which prohibits medical management companies from exerting control over clinical judgment and practice. Nearly 20 states don’t have such a rule, and those that do vary substantially in the types of financial and contractual arrangements that they permit. As a result, private-equity firms frequently exploit loopholes, such as by structuring a parent company to have financial control of a practice while naming the physicians as owners.”
As an example of the regulatory approach they advocate, Polsky and Zhu cite the recently passed federal No Surprises Act protecting the public from unexpected medical bills, which, the co-authors note, have been tied to medical institutions backed by private-equity investment.
Such “guardrails,” they say, are “needed to more closely monitor billing practices, protect access to care, and redress anticompetitive actions in the face of consolidation.”
