This part of the month's cover story series features private equity and how it's coming for primary care. Jane Zhu, M.D., M.P.P., of Oregon Health & Science University shares that private equity takes advantage of economies of scale to make things more streamlined, then move onto the next market or specialty. This months cover story shines a light on the companies, trends and ideas that are shaking things up and reshaping the contour of how healthcare is paid for and delivered.
First, private equity came for hospitals and long-term care facilities, then it came for specialty practices such as anesthesia, emergency medicine, gastroenterology and dermatology. And now it’s coming for primary care. At the lower end of the physician pay scale, primary care practices have generally become targets for private equity investors eyeing value-care optimization and referral patterns.
From 2010 to 2019, private equity healthcare deals totaled about $750 billion, according to the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare at the University of California Berkeley School of Public Health, rising from $41.5 billion in 2010 to $119.9 billion in 2019. Industry tracker PitchBook recorded $206 billion in healthcare deals in 2021, with 1,400 acquisitions. Petris Center researchers expect the rising trend to continue due to increased healthcare spending projections, available private equity capital and the disruption to healthcare that the COVID-19 pandemic caused.
Earlier this year, the National Institute for Health Care Management published research showing that private equity acquisition of independent practices led to changes in workforce composition. These practice changes “may affect physician day-to-day workflow burden and feeling of autonomy and satisfaction,” says Jane Zhu, M.D., M.P.P., the study’s co-author, assistant professor of medicine at Oregon Health & Science University and practicing primary care physician.
The research found that after acquisition, these practices hired more advanced practice providers (APPs), such as nurse practitioners and physician assistants, “suggesting that private equity is potentially changing staffing structures,” Zhu says. The findings do not show that APPs were replacing physicians, only that practices were hiring more of them.
Private equity works by using the “first mover advantage,” Zhu says, which means coming into a region or specialty and rapidly consolidating practices within a healthcare system that has traditionally been fragmented. “They take advantage of economies of scale to make things more streamlined, then they move onto the next market or specialty,” she says. The acquisition pace is growing, and private equity firms have already consolidated in multiple specialties, including those with high procedure volumes, according to Zhu. “Now they’re moving into primary care. There is no stone is being left unturned,” she says.
One appeal of primary care for investors is the money that can be made by coding patients to show how sick or complex their needs are. “Aggressive” coding can mean higher payment. Primary care ownership also means control of referrals, including to private equity–owned multispecialty practices. There are also the economies of scale that Zhu mentioned; coding, billing and managing patients at the population level can yield efficiency — and profits — with scale.
Zhu’s study adds to a body of literature that shows “when practices consolidate, prices go up,” she says. Other research she has done has shown that charges per claim go up after private equity buys a practice. “It could be because they’re doing a better job billing appropriately or they negotiated better rates with payers,” she says. Payers will pay more initially, but the higher prices but will eventually get passed down to consumers, according to Zhu.