A recent study published in JAMA Health Forum found that private equity acquisitions of physician practices were associated with increased healthcare spending and patient utilization. According to the study, private equity-owned practices showed a consistent increase in spending through eight quarters after the acquisition, with the average charge per claim increasing 20% and the average allowed amount per claim up 11%. The study also found that there was an increase in the number of patients seen in the private equity-owned practices and a greater share of outpatient visits lasting longer than 30 minutes.
The study compared 578 dermatology, gastroenterology, and ophthalmology practices in the United States that were acquired by private equity firms from 2016 to 2020 to 2,874 similar independent physician groups. The private entity-owned practices saw new patient visits increase by 38% and total visit volume increased by 16%, when compared to the control group. There was a 9.4% increase in the share of office visits for established patients that were billed as more than 30 minutes.
However, the study found that there were no statistically significant changes in patient risk scores between private equity-acquired practices and the control group of independent physician groups.
“These findings may reflect changes in management and practice operations, such as expanding practice hours, branding and advertising, or broadening referral networks. Alternately, increased patient volume may also reflect overutilization of profitable services and/or unnecessary or low-value care, which could raise health care spending without commensurate patient benefits,” the study authors wrote.
While the study authors did not find specific reasons for the increase in spending associated with private equity ownership, they did note that the financial incentives of private equity firms (which tend to aim for annual returns above 20%) means that the new owners of medical practices must either work to generate higher revenue or lower costs.
While it is unclear as to whether these practices result in harm for patients, the authors believe that the findings “raise concerning parallels with the rapid growth of private equity acquisition of nursing homes and hospital systems,” as “private equity investment in nursing homes has been associated with an increase in short-term mortality and changes to staffing.”
“The reason this is of concern to patients and policymakers is that private equity is often driven by profit margins of 20% or more,” said senior author Jane M. Zhu, M.D., assistant professor of medicine (general internal medicine and geriatrics) in the OHSU School of Medicine. “To do that, they have to generate higher revenues or reduce costs. Increasing private equity in these physician practices may be a symptom of the continuing corporatization of health care.”
“Private equity ownership of physician practices has added a distinctly private and market-driven influence to the broader trends in corporate consolidation of physicians by health systems and insurers,” the authors concluded. “This study contributes evidence for potential overutilization and higher spending of care that will be important for policymakers to monitor.”