Nie J, Demkowicz PC, Hsiang W et al: Urology practice acquisitions by private equity firms from 2011-2021. Urol Pract 2021; 9: 17.

Health care provider markets have drawn increasing interest from private equity (PE) firms in recent years following successful investments across several specialties such as dermatology and ophthalmology.^1,2 When investing in health care practices, PE firms typically conduct leveraged buyouts, in which majority debt financing is combined with a small proportion of capital raised from institutional investors to acquire a controlling stake in practices.³ In general, the investment firms are legally separated from practices through “platform” companies, which consist of a management arm partnered with a physician-owned professional medical corporation, to comply with laws that ban the corporatization of medicine.⁴ Following acquisition, PE firms will restructure practices to reduce costs, streamline operations, and increase revenue to raise the valuation of the acquired practice for future sale.^3,5

Urology practices may be attractive targets for PE investment given their high procedural volume, labor shortages and common affiliations with revenue generating ancillary services such as radiation oncology and pathology.⁶ To understand changes in the ownership and practice consolidation in urology we conducted an analysis of all recent acquisitions using data from financial databases and Internet searches. By characterizing recent trends in practice acquisition, we aimed to provide a contemporary view of changes in the practice landscape that may affect care delivered to patients as well as the employment prospects for new and established urologists. We found that the first publicly announced PE investment in a urology practice occurred in August 2016. By March 2021, 5 PE-backed urology platform companies had been established, with the 2 largest spanning 5 noncontiguous states each (see figure).⁶ We found that PE firms executed a “buy and build” strategy, in which they sought to acquire a large practice (mean size of 60.8±32.6 urologists) with ownership of revenue-generating ancillary services (radiation centers, surgical centers, pathology labs) for initial platform formation, followed by subsequent acquisitions of smaller practices (mean of 15.9±14.5 urologists), a strategy that may aim to further develop geographic market power.⁶ On a national level, PE-backed platforms employed just 3.8% of the total urology workforce; however, in New Jersey and Maryland PE-backed platforms accounted for over 25% of the urology workforce. Platforms in these states are the most mature, and therefore, may provide insight about approaches that may be carried forward in other markets. Both New Jersey and Maryland are among the highest in urologists per capita.⁷ Therefore, by consolidating practices in these regions, PE-backed platforms can achieve significant bargaining power with suppliers, payers, and physicians to reduce costs, raise prices, and limit physician choice in employment, respectively.⁷ Another advantage platforms have over smaller practices is in achieving economies of scale from centralization of administrative tasks and cost-spreading of medical and information technology infrastructure. In addition, their size may allow them to influence referral patterns, making it difficult for smaller, neighboring practices to compete.⁶

Figure. From August 2016 to March 2021, 5 PE-backed urology platforms have emerged. In New Jersey and Maryland, PE-backed platforms employ over 25% of the urology workforce.

The long-term impact of PE investment in urology remains unclear. The development of urology platforms with national scale may represent the next stage of evolution in the trend of urology practice consolidation that has been occurring over the past 30 years in response to declining reimbursement and growing administrative burdens.⁸ For smaller practices, proponents may advocate that acquisition can lead to the implementation of workflow improvements and enhance physician clinical focus. However, specific considerations of PE based strategies represent a departure from conventional acquisition strategies in notable ways. In particular, the “buy and build” strategy is drawing increasing attention from antitrust regulators, who cite concerns with “higher costs and reduction in quality of care” resulting from reduced competition.⁹ In addition, the relatively narrow ownership horizon and focus on short-term valuation may, at times, be misaligned with high-quality, cost-effective care. Indeed, in the dermatology market, PE acquisition has been associated with higher prices for commercial payers and reports of pressure on physicians to increase productivity and revenue via increased self-referrals for ancillary services.^5,10

The emergence of PE investment in urology is reflective of the broader patterns of consolidation across health care and is poised to continue. In light of changes in ownership and employment structures, these findings also underscore an opportunity for providing education about practice structure to urologists in practice as well as trainees entering the workforce.