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Private Equity Firms Buying Medical Practices


Private Equity Firms Buying Medical Practices

There were more than 1,400 private equity deals in health care last year totaling $208.7 billion, more than double the 664 transactions, valued at a total of $58.5 billion, in 2016, according to PitchBook Data, Inc., a Seattle-based firm that tracks mergers and acquisitions.

Private equity firms owned 11% of U.S. nursing homes, along with 4% of U.S. hospitals as of 2021, according to the Medicare Payment Advisory Commission (MedPAC), a nonpartisan independent legislative branch agency that advises Congress. Private equity firms also acquired at least 2% of physician practices in the U.S. from 2013 to 2016, an estimate that does not take into account previous acquisitions, according to MedPAC. Private-equity firms have continued to expand in primary care since 2016, according to MedPAC.

It has been challenging to study how private equity ownership affects the care of patients, due in part to the difficulties in tracking down details about acquisitions. The Biden administration this year has made more data public about the ownership of nursing homes, intending to aid researchers. But the public reporting to date on these sales has been fairly murky.

So researchers like David Grabowski of Harvard University, Atul Gupta of the University of Pennsylvania, Jane Zhu of Oregon Health and Science University and Yashaswini Singh of Johns Hopkins University have had to consult a database created by Pitchbook to keep score in the private equity industry, research reports and in some cases comb press releases one by one for details.

The owners of private equity firms often borrow money for these purchases and then look to use revenue and assets of the acquired business to manage this debt. For example, firms sometimes sell the buildings owned by hospitals and nursing homes to other companies they own. They may then proceed to charge the hospitals and nursing homes rent for buildings they used to own. This results in a new expense for hospitals and nursing homes, diverting money they might have otherwise used on patient care.

Private equity firms also can charge fees for management and monitoring services to the nursing homes. In addition to these costs, some of the funds nursing homes receive for patient care go toward paying debt that private equity firms used to buy these businesses.

Traditional business owners and managers have salaries that are taxed the same way as other employees. But executives in private equity firms have a more complex system for getting paid, which lowers their tax payments. They typically receive a management fee equal to 2% of assets under management plus 20% of the profits generated by their fund.

The authors identified 578 practices that private equity firms acquired after 2015 and then created a control group of 2,874 similar practices under independent ownership. They then looked at how doctors in these practices had billed insurance plans between Jan. 1, 2015 and Dec. 31, 2020. Among the measures considered was the average allowed amounts per claims, meaning the price negotiated by insurers.

The practices owned by private equity firms on average allowed claims of $206 per patient before acquisition and $285 after, an increase of $79. That was $20 more than the increase in the control group of practices, where the average allowed claims rose by $59 from $201 to $260.

In practices owned by private equity firms, the total number of services, including procedures, referred to as total encounters, rose during the study period from 138.1 to 191.1, an increase of 53 encounters. In the control group, the number of encounters rose by 19.7 from 123.8 to 143.5.

Patients paid more for anesthesia if it was delivered by a doctor employed by a physician management company, with the tab rising even higher if that firm had received private equity funding, according to this cohort study of more than 2.2 million claims for privately insured patients.

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