Background and Prostate Cancer Study

Private equity (PE) firms, which are financed by investors and debt, acquire practices with potential for growth and aim to increase their value through a variety of strategies. The ultimate goal of an acquisition is to subsequently sell the acquired entity within 3 to 7 years for a profit. An important aspect of an acquisition (Figure 1) is to increase the value of a practice. This can be done by reducing labor costs, investing in profitable service lines, expanding market share, and increasing throughput.

Proponents of PE involvement in health care argue that firms improve quality of care through expansion of new services to patients, which affords convenience and potentially improves adherence to physician recommendations. However, others worry that the time-sensitive nature to grow the practice value to make a profit could affect physician behavior in a manner that manifests as changes in practice patterns, potentially coming at the expense of patient quality.

Studies across various specialties have demonstrated that PE acquisitions increase throughput and health care costs.¹ However, there have been mixed findings on the effect on patient quality and the physician experience.^1,2 In urology, PE’s involvement has increased substantially in recent years (Figure 2), but the effect on patient care is unclear.

We performed a retrospective study that assessed the effect of these acquisitions on prostate cancer care among men enrolled in Medicare. Prostate cancer was selected as a target disease because prior work has shown that decision-making can be influenced by nonclinical factors at the physician level (eg, physician finances).^3,4

Our study demonstrated that, compared to men who were managed at nonacquired practices, PE acquisition did not significantly affect prostate cancer spending, treatment, or overtreatment in the year after acquisition.⁵ Limitations included (1) the inability to assess acquisitions that occurred since 2019 because Medicare data were not available for these years and (2) the possibility that changes implemented beyond a year after acquisition had an influence on patient care because we only assessed the year after acquisition. Thus, future work should seek to evaluate the effect of acquisition over longer time horizons.

Private Equity Involvement: Pro Argument

As of 2021, 7.2% of urologists in private practice were employed by one of the 5 PE platforms active at that time, and 25% of urologists practicing in Maryland and New Jersey were employed by a PE platform.⁶

Urologists in independent practice who want to grow their practices in the face of decreasing third-party payments and increasing regulatory burden have choices. One of those choices is engaging in a PE relationship in order to share ownership and have access to the capital necessary for growth.

When a practice considers whether to entertain PE options, the first step is to clearly identify the goals of the practice. A move to a PE model should never be based primarily on the potential financial upside for the physicians. It is critical to match the practice’s goals with the goals and culture of the PE partner, and the goals should be clearly delineated in the founding documents of the relationship.

For one of us (ME), our group’s transition from a small (4 doctors and 3 advanced practice providers) independent practice to joining a large group (70 doctors and 50 advanced practice providers) that had previously partnered with a PE firm was the best thing we have ever done for ourselves and our patients.

A brief (and not exhaustive) summary of the benefits realized by both the group’s physicians and the group’s patients is shown in Figure 3. The benefit of having new access to a full-service ambulatory surgery center (ASC) allowed an increase in our ASC volume from 797 cases in 2018 (local cases only) to 3859 cases in 2023 (all locals and same-day cases requiring anesthesia).

A component of PE practice acquisition deals is a physician’s willingness to reduce their annual salary by a defined percentage (often around 25%) in exchange for a purchase price. This is the revenue stream that the PE partner is purchasing/investing in. Some current urology PE platforms specify a plan for “income repair,” or raising the physician salary back to at least the same amount as before the deal. However, some do not. Our platform did present an income repair plan based on (1) negotiating better private payer contracts for evaluation and management services; (2) expanding ASC capacity, services, and throughput; and (3) expanding of service lines, such as developing an in-house pharmacy and the dispensing of specialty drugs. Our physicians are paid a fixed percentage of physician-attributed gross profit, which insulates them from fluctuations in overhead from inflation and other factors. In our practice, the gross profit attributable to each doctor rose from $0.9 million per doctor in 2018 to $2.3 million per doctor in 2023.

Private Equity: Can Medicine Afford the Risks?

PE acquisition is a concept that has generally proven advantageous to fund many types of businesses and ideas, but is it really a concept we should endorse in medicine? Concerns pertinent to the incongruous corporate goal of short-term financial gains in contrast to the costs to employed physicians from reimbursement losses, forfeiture of practice autonomy, and diminished professional satisfaction infuse the experiences reported by physicians employed in many of these practice settings. In addition, a detrimental effect on quality of care delivery and patient outcomes in medical practices acquired by PE firms has emerged as a paramount concern and is detrimental to the fundamental purpose of medical care, in which corporate profit must not supersede the primary aims of quality health care.⁷

In a recent publication in JAMA Internal Medicine, 60.8% of physicians were skeptical with respect to PE involvement in health care.⁸ The subset of physicians who responded and were employed by PE were less likely to report high professional satisfaction compared to those who did not work for PE (44.8% vs 74.4%, respectively). Studies that have evaluated cost reveal an increase in health care costs. One example showed an increase in utilization of higher-priced drugs in PE-owned practices and thus an increase in Medicare utilization and spending after PE acquisition of retinal practices.⁹

From a more global vantage, several risks are pertinent. Explosive growth of the PE landscape in health care (from $41 billion in 2010 to nearly $200 billion in 2019) coupled with lack of public regulation poses serious concern. Because PE is inherently a private venture, most PE firms are not reportable to financial regulation authorities, and the complexity of these structures may undermine and disrupt market competition. This also raises concern that these companies economically operate without prudent oversight. Further, the short-term goal of substantial revenue returns does not align with medical quality and creates forces that focus on lowering the cost of the product (health care) that can undercut suppliers of durable equipment or supplies, payers, physicians, and patients to reduce corporate cost and accelerate gains. This lack of alignment harms patients and their physicians by prioritizing revenue over patient safety and best practices and also diminishes respect for the traditionally safeguarded relationship between doctors and their patients.

Importantly, PE acquisition of hospitals has resulted in increased preventable hospital-acquired events including falls, central line–associated bloodstream infections, and increased surgical site infections. There was also a shift of patient mix toward younger (healthier) patients and an increase in transfers to other hospitals, effectively decreasing in-hospital mortality statistics at PE hospitals. A recent systematic review also linked PE ownership to higher costs for patients and payers. In addition, 21 of 27 studies showed evidence that PE ownership is associated with poorer quality of care and ultimately higher overall cost.¹⁰

In conclusion, the current climate of rapid PE expansion and ownership in health care challenges all physicians to strongly consider the current impact of these ventures and the vision of what the future may look like. Our decision to engage with these entities may have some short-term financial benefit, yet the long-term benefits are unproven, and early studies suggest potential for great cost to the equitable practice of medicine. These costs will not favor the physician or the patient because the primary goal is economic profit for PE entity owners and investors.