Limiting acquisition of private practices was the norm for healthcare groups in the 1990s. As the calendar turned to the new century though, things began to change. Large groups began absorbing private practices one by one. And now, private equity investors are starting to muscle their way in. That is troubling on many levels.
Research published in the JAMA journal in 2020 reveals a troubling trend among private practices and private equity. Apparently, some 355 physician practices were acquired by private equity firms from 2013 to 2016. Though the number of practices seems relatively small, the acquisitions included more than 5,700 physicians and 1,400 physical sites. The number of acquisitions in 2016 tripled 2013 numbers.
The JAMA research, conducted by experts from John Hopkins University, the University of Pennsylvania’s Wharton School, and Oregon Health & Science University, suggests that its data may be on the low side. Due to nondisclosure agreements and other factors, there may be hundreds of additional acquisitions their research did not cover. Again, this is troubling.
What Private Equity Does
Industry consolidation is not necessarily a bad thing if done in the right way. The danger of private equity is that it consolidates industries with a short-term focus. In other words, private equity deals are not long-term. They are not designed to be. A private equity firm acquires a company, makes its money, and then exits. A typical private equity deal only lasts between three and five years.
Not all the private practices being acquired by private equity firms are going to stay with those firms forever. They are eventually going to be sold or abandoned. In the interim, private equity investors are just that: investors. They are not healthcare administrators, doctors, or nurses.
The danger in all of this is the further corporatization of healthcare. Why? Because the most likely customers willing to buy physician practices when private equity gets ready to sell are large medical groups. With every passing year, the smallest players get smaller while the largest get larger. We will eventually have a healthcare system dominated by fewer than half-a-dozen major healthcare groups.
More Corporate Employees
Private equity’s interest in healthcare will absolutely affect consumers. Equity investment always does. But it will also affect healthcare workers. iMedical Data, a healthcare marketing company that offers access healthcare practitioner databases, expects to see even more corporate employees as time goes on. Both clinicians and allied healthcare workers will be company employees just doing a job.
Healthcare is undoubtedly a business first. But it is a different kind of business. It is a business that, when done right, relies heavily on personal relationships between clinicians and patients. Take the relationship out of the equation and you have little more than a business transaction. That’s not the way healthcare is supposed to be.
iMedical Data can equip hospitals, clinics, and recruiters with all the healthcare data they need to recruit top physicians and other medical talent. The finest clinicians in the world can be employed by the finest institutions. But where medicine actually meets the patient, there has to be more than just a business transaction. Healthcare workers have to care about their patients. If those patients represent little more than numbers in a database, we have a problem.
There is nothing wrong with private equity as a business concept. But it is not a good fit for every industry. Healthcare, due to the very personal nature of its services, is not a good candidate for private equity. The fact that private equity is so interested in healthcare should be alarming to all of us.