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LMS President’s Message: November 2023

LMS President’s Message: Does Private Equity keep all their promises to doctors?
By Lee Dossett, MD

In my role as a hospital administrator, I try to keep up to speed on national trends on physician workforce models and trends.  As a practicing hospitalist, my first and only job out of training was being employed by a hospital as part of a larger health system.  In the time since I was hired, there has been more and more of trend toward employment and away from physician owned practices.  Part of that includes practice acquisition by private equity (PE) groups.  Over the last 6 months there has been a lot of debate on physician social media about the benefits and drawbacks of these arrangements due to some high-profile failures.   Let’s look at some of the points made on both sides.

The biggest pro from a physician owner standpoint may be the financial support and stability.  Private equity buyouts can infuse much-needed capital into physician practices. This backing can facilitate the acquisition of advanced medical equipment, expansion of services, and recruitment of additional healthcare professionals. For physicians, this financial stability can alleviate the burden of practice management and administrative tasks, allowing them to focus on patient care.  For older physicians nearing retirement, selling their practice to a private equity firm can serve as a viable exit strategy. Private equity buyouts can provide physicians with the opportunity to realize the value of years of sweat equity.

PE firms may bring operational expertise and best practices to physician practices. They promise to streamline operations and improve efficiency, they can help practices increase profitability. This may translate to higher incomes for physicians while maintaining or even improving the quality of care.  With private equity backing, physician practices may gain access to a broader network of resources, including partnerships with other healthcare facilities, access to cutting-edge technology, and enhance the quality of care provided to patients.

On the other hand, the cons and risks of the PE model are numerous as well.  One of the primary concerns for physicians in private equity-backed practices is the potential loss of clinical and operational autonomy. Private equity investors may prioritize profitability over patient care, which can lead to conflicts of interest and a shift in the practice’s focus.  Private equity firms have their own shareholders to answer to and often have aggressive financial goals and expectations. This can lead to pressure on physicians to increase patient volume, order more tests, or provide additional services, potentially compromising the doctor-patient relationship and the principle of providing care in the best interest of the patient.

The PE model also does not guarantee financial success.  The healthcare industry is subject to regulatory changes, and private equity-owned practices may experience instability due to shifts in healthcare policy or reimbursement rates. The high-profile bankruptcy of emergency medicine focused Envision Healthcare earlier this year is a good example.  Their practice and billing model was at risk due to the federal No Suprises Act.  This post from the White Coat Investor provides a good summary and thoughts of an EM doctor.  It doesn’t take long searching to find more examples of PE practices going wrong.  This summer American Physician Partners collapsed in another blow to the emergency medical field.  All fields are susceptible to these downsides – PE owned Radiology Partners is raising 2 billion dollars to help service debt that is coming due.

Private equity buyouts in physician practices represent a double-edged sword for healthcare professionals. While the injection of capital and operational efficiency can offer numerous advantages, the potential loss of autonomy and patient-centric care remains a significant concern. Physicians must carefully weigh the pros and cons, considering their long-term goals and values in healthcare. Striking a balance between financial stability and the preservation of the doctor-patient relationship remains a challenge, and it is crucial that physicians enter into these agreements with full awareness of the potential implications for themselves, their practices, and their patients. If you are faced with this opportunity, you must do due diligence to make the best decision for you and your partners.

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