Private-Equity Firms Are Buying Out Medical Practices and Raising Prices for Americans: Study

Private-equity firms have been buying up individual physician practices at a rapidly increasing rate over the past decade and raising prices for millions of Americans, according to a study released this week.

The rise in acquisitions by investor groups of market share in the health care industry are leading to higher treatment costs, the study showed.

When private insurers pay higher prices, this in turn contributes to high insurance premiums, which patients are then forced to pay for through out-of-pocket expenses.

The joint report, “Monetizing Medicine: Private Equity and Competition in Physician Practice Markets,” was released on July by the American Antitrust Institute, the University of California at Berkeley, and the Washington Center for Equitable Growth.

The study focused on private-equity “roll ups” of private physician practices in which investors bought up several offices in a city to consolidate a significant share of the market to form larger companies, allowing the new owners to increase treatment prices.

The authors of the report used data on deals from a company called PitchBook, which they then matched with doctors in a health care claims database to calculate payments from private health insurers.

Investor Groups Buying Out Small Medical Practices

Private-equity firms, which gather funds from institutional investors and individuals to form investment funds, have long purchased companies using debt with the intent on reselling them in a few years.

The industry is now focusing on the health care sector as an investment and are purchasing private medical practices at a steady pace.

Private medical practices have been relatively small historically and are owned by the doctors themselves.

The old model has been rapidly declining as the medical business becomes more complex and health insurance companies, which negotiate with doctors over prices, have gained more bargaining power.

“We’re seeing a fundamental change in how medicine is being practiced in the U.S.,” Richard Scheffler, a professor of health economics and public policy at Berkeley and Director of the Petris Center, told The New York Times.

Nearly 70 percent of all doctors are employed by either a hospital or a corporation, as of 2021, according to a recent paper published by the Physicians Advocacy Institute.

Meanwhile, over 25 percent of local health care markets are now controlled by a single private-equity firm that owns more than 30 percent of medical practices in a given specialty in 2021. It was also found that in 13 percent of markets, privately owned health care providers employed more than half the local specialists.

Hospitals and insurance companies have also bought out many independent physicians’ practices.

Optum, a subsidiary of UnitedHealth Group, one of the nation’s largest insurers, now employs roughly 70,000 physicians.

Many physicians concede to having their practice being bought by a hospital or private equity firm since many gain financial relief in office administration and technological assistance.

Private Equity Acquisitions Causing Health Care Costs to Rise

The study further noted that health care costs rose in 80 percent of medical specialist areas after private-equity firms bought out existing practices.

Where these entities took over more than 30 percent of a local market, gastroenterology, dermatology, and obstetrics and gynecology costs increased by double digits.

Gastroenterologist prices jumped 14 percent, oncologists rose 16 percent, while ophthalmologists saw a 9 percent increase, the report said. The cost of care obstetrics and gynecology by 16 percent, and dermatology 13 percent.

“Increased attention to the competition impacts of PE [private equity] in physician markets is urgently needed,” the report said.

“The pace at which PE is entering these markets and monetizing medicine makes a quick response imperative” and that “price increases associated with PE acquisitions are exceptionally high where a PE firm controls a competitively significant share of the local market.”

However, private-equity firms argue that their investments in medicine have beneficially improved administrative efficiency and free up doctors to focus more on their patients.

Health care administrative costs are four times more than the average of other wealthy countries and about the same as spent on preventive or long-term healthcare.

Private investors are more prone toward eliminating inefficiencies and administrative waste in general as they cut into profits.

“Private-equity investment is helping improve patient care and ensuring that residents have high-quality facilities in their local communities,” Drew Maloney, president of the American Investment Council, a private equity industry group, told the The Washington Post.

“By partnering with private equity firms, physicians have more time to focus on caring for patients and benefit from experienced management teams, better technology, and stronger networks,” Mr. Maloney said.

Authorities Looking to Prevent Medical Sector Monopoly

The massive buyout of the American health sector by private equity is beginning to attract additional scrutiny from policymakers and medical associations.

House lawmakers have proposed new legislation, like the PATIENT Act of 2023, which requires health care companies to provide additional details on acquisitions by private firms, as these are currently hard to track.

Antitrust regulators at the Department of Justice and the Federal Trade Commission have also recently signaled concerns about the effects of private investment on the industry.

“To the extent that private-equity transactions and conduct are focused on short-term gains and aggressive cost-cutting in the health care space, they can lead to disastrous patient outcomes,” warned Deputy Assistant Attorney General Andrew Forman in a June 2022 speech.

The American Medical Association’s (AMA) House of Delegates has also taken up the issue, as some members worry about the independence of their profession.

The AMA said it will “study and clarify the ethical challenges and considerations regarding physician professionalism raised by the advent and expansion of private-equity ownership or management of physician practices and report back on the status of any ethical dimensions inherent in these arrangements, including consideration of the need for ethical guidelines as appropriate.”

The report recommended eight immediate policy reforms, including improved monitoring of private-equity acquisitions of small medical practices, greater transparency about ownership, lower barriers to entry for health care providers, the elimination of regulatory loopholes, and toughen legal penalties for equity firms regarding the actions of their portfolio companies.

The authors further recommended improvements to the Medicare payment system for doctors by improving their ability to cover costs and making them less susceptible to acquisitions.

What topics would you like to read about? Please let us know at health@epochtimes.nyc

Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.
You May Also Like