Your Practice Was Bought Out by Private Equity: Now What?

Alicia Gallegos

August 15, 2023

After her emergency medicine group was acquired by a staffing firm backed by a large private equity (PE) firm, Michelle Wiener, MD, said the workflow changes came swiftly.

"Our staffing has been greatly reduced," the Detroit physician said. "At this point, we have no say in anything. We have no say in the scheduling. We aren't allowed to see what is billed under our name. The morale has really gone down."

Wiener, who practices at Ascension St. John Hospital, said she and fellow physicians have repeatedly brought their concerns to TeamHealth, which in 2015 took over St. John Emergency Services PC. TeamHealth is owned by PE giant Blackstone.

"It's very frustrating," Wiener said. "We're taking it from all sides."

Blackstone and Ascension St. John did not respond to Medscape's request for comment.

TeamHealth would not respond directly to questions about the Ascension St. John Hospital physicians or their concerns.

Spokesman Josh Hopson provided only a general statement: "TeamHealth is committed to making sure that clinicians have the resources and support needed to provide first-class care to patients, particularly with regard to staffing and compensation. TeamHealth has and will always put patient care first, and that is not impacted by its ownership model."

Acquisitions of medical practices and hospitals by PE firms are rapidly growing, with more than 1400 PE deals in healthcare in 2021 totaling upwards of $208 billion, according to PitchBook Data Inc., a Seattle-based firm that tracks mergers and acquisitions.

Some physicians praise the partnerships as an opportunity to improve technology and efficiency, whereas others decry them as raising patient costs and lowering the quality of care. A recent UC Berkeley study found that PE ownership of medical practices was linked to consumer price increases for 8 of 10 specialties, most notably oncology and gastroenterology.

What Should You Expect After PE Acquisition?

Since his practice partnered with a PE firm in 2020, Milwaukee-based otolaryngologist Madan Kandula, MD, said he has found the changes positive. The practice has grown and improved operations in finance, accounting, compliance, and information technology, said Kandula, founder and CEO of Advent, an ENT practice with 15 clinics in four Midwestern states.

Kandula said his group already had a sound business practice, and that the goal of partnering with a PE firm wasn't to change day-to-day operations but to propel the organization forward.

"From patient load to visit time to how we staff our clinics, there has been no change," he said. "My private equity firm does not, [and] cannot, impose their will on our clinical decisions."

Experts say the impact of PE acquisitions on individual physicians often depends on where a doctor ranks in the organization, what stage they are in their career, and how much control they had over the deal.

"It's the older physicians who are usually selling the practice and getting the big payout," said Anjali Dooley, a St. Louis–based health law attorney who counsels physicians about PE deals. "The younger doctors are usually not part of the deal, as they may still be employees. They don't have any negotiating power. Hopefully, there is some transparency, but sometimes there is not, and they are blindsided by the deal."

When it comes to workload, most PE-owned groups are put on a production-based model, such as a wRVU-based model, said Roger Strode, a Chicago-based health law attorney who focuses on healthcare mergers and acquisitions. Most already operate under such a model, but there might be some changes after a buyout.

Staffing may also change, added Dooley. The PE firm may want to add partners or companies already in their portfolio to create efficiencies, causing training or workflow changes.

In a hospital buyout, changes may depend on whether a department is a significant revenue generator for the hospital, Dooley noted.

PE firms frequently favor higher revenue–generating specialties, like neurosurgery, cardiology, orthopedics, gastroenterology and plastic surgery. They closely scrutinize departments said that make less money, such as the emergency department or primary care, Dooley said. Physicians or teams that don't fit the firm's cost-efficiency plans may be terminated or replaced.

On the other hand, Strode said physicians may see improved electronic health records and collections.

"Some of your overall overhead costs may be reduced, because they're better at it," Strode said. "When you've got more scale, the cost per patient, the cost per hour, the cost per procedure, goes down, and the cost that's applied against your production will go down. As [practices grow], they have more bargaining power with payers and you can potentially get better rates. At least, that's the promise."

Analysts note that PE healthcare acquisitions show no signs of slowing and that it pays for physicians to know what to expect and how to cope if their practice or hospital is acquired. Whether physicians have some control over a buyout or are blindsided by the transition, it's critical to know what to consider, how workloads might change, and your options for settling in or settling up.

The PE industry has about $2 trillion lined up for potential investments in 2023, said Dooley.

"PE firms are looking at healthcare to expend some of this dry powder," Dooley continued. "If done correctly, PE firms that are aware of healthcare regulations, compliance, and patient care issues can…remove redundant services and improve…efficiencies, but the bad is when that doesn't happen, and the quality of care goes down or there are patient safety risks."

How to Prepare for and Cope With PE Partnerships

If your practice is considering a PE partnership, it's important to explore the terms and conditions and carefully weigh the pros and cons, said Gary Herschman, a Newark, New Jersey–based attorney who advises PE-owned physician groups.

"My recommendation is that physicians at a minimum conduct due diligence on all potential strategic options for their groups, and then make an informed decision regarding whether a partnership transaction is right for their group, as it's not right for every group," he said.

When Texas cardiologist Rick Snyder, MD, was considering PE partnerships, he spoke with physicians who made similar deals to determine whether they were satisfied years later, he said. In April, Snyder's practice HeartPlace, the largest physician-owned cardiology practice in Texas, was acquired by US Heart & Vascular, a practice management platform backed by PE firm Ares Management.

"I called every group that I knew that had done private equity for any meaningful amount of time," Snyder said. "For the first year or two, everybody is in the honeymoon period. If the model is going to succeed or break down, it's not going to be in the first year or two. So I wanted to talk to groups that had done this for a longer amount of time and find out what their pitfalls were. What would they have done differently? Has it been a productive relationship? Did they grow?"

Snyder, who is president of the Texas Medical Association, said his practice met with seven or eight firms before choosing one that best met their needs. His group wanted a platform that preserved their clinical autonomy, governance, and culture, he said. They also wanted to ensure they were not entering into a "buy and flip" scenario, but rather a "buy and build" plan.

"Thus, financial capital was not sufficient, they also had to have intellectual capital and relationship capital on their bench," he said. "When we found the partner that embraced all of these factors as well as a history of buying and long-term building, we pulled the trigger and partnered with Ares and US Heart & Vascular Management. The partner we chose did not offer us the most money. We put a premium on these other criteria."

"I always tell docs, know the culture of your group and your vision," he said. "Before you go down that route, ask yourself what you want to accomplish and if it makes sense having a private equity partner to accomplish that vision with."

For younger physicians or those with little control over buyouts, experts recommend they review their contracts and consider consulting with an attorney to better understand how the deal may affect their earnings and career prospects.

Those who have a much longer career runway need to weigh whether they want to work for a PE-linked practice, Strode said. For some, it's time to check when their noncompete agreements end and find a position elsewhere.

Additionally, physicians should know their rights and the laws in their state regarding the corporate practice of medicine. Statutes vary by state, and knowing the provisions in your state helps doctors recognize their legal rights, learn possible exceptions to the requirements, and know the penalties for violations.

In Michigan, a group of physicians and other health professionals at Ascension St. John has voted to unionize. Doctors hope that the union, which also includes advanced practice clinicians, nurse practitioners, and physician assistants, will help improve patient care and protect working conditions for staff, Wiener said.

She advises physicians who are unhappy after acquisitions to speak up and stick together.

"That's the biggest thing I think physicians should start doing," she said. "Support each other and stand up. You are stronger together."

Why Is PE So Attracted to Healthcare?

PE firms typically buy practices or hospitals, work to make the entities more profitable, and then sell them, with the goal of doubling or tripling their investment over a short period. In general, PE firms aim for annual returns exceeding 20% after 3-7 years.

These firms know that healthcare is relatively recession-proof, that providers have third-party payers, and that the industry is fragmented and requires more efficiency, Dooley said.

When PE practice acquisitions started gaining momentum about 12 years ago, traditional hospital-based specialties such as anesthesiology and radiology were prime targets, said Strode.

At the same time, increasing challenges in private practice, such as declining compensation from payers, pressure to participate in value-based care programs, and rising regional competitors have fueled more physician groups to partner with PE firms, Herschman noted.

Physicians who partner with PE firms often benefit by having new access to capital to grow their practices, cost savings through group purchasing, and the ability to compete with larger health groups, Herschman said.

Questions remain, however, about how PE involvement affects healthcare use and spending. An April 2023 JAMA Viewpoint article called out the lack of oversight and regulation in the healthcare/PE space, suggesting that a stronger framework for regulation and transparency is needed.

A 2022 study in JAMA Health Forum that examined changes in prices and utilization associated with the PE acquisitions of 578 dermatology, gastroenterology, and ophthalmology physician practices from 2016 to 2020 found that prices increased by an average of 11%, and volume rose by 16%, after acquisition.

"We found that acquisitions were associated with increases in healthcare spending and utilization, as well as some other patterns of care like potential upcoding," said Jane M. Zhu, MD, an author of the study and assistant professor at Oregon Health & Science University in Portland.

Another recent study that Zhu co-authored, published in Health Affairs, found that physician practices acquired by PE firms experience greater staff turnover and rely more heavily on advanced practice professionals than doctors.

"To the extent that that turnover indicates physicians are dissatisfied after private equity comes in, that's really important to investigate further," Zhu said.

PE firms owned 4% of US hospitals in 2021 and 11% of nursing homes, according to a Medicare Payment Advisory Commission (MedPAC) report. The report does not include 2021 data on medical practices but notes that from 2013 to 2016, PE firms acquired at least 2% of physician practices. Estimates of PE deals are probably lower than actual numbers because of the lack of comprehensive information sources, according to the MedPAC report.

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