Private Equity in Healthcare: Colonoscopy Prices Soar While Care Remains the Same

Studies show that private equity buyouts of physician practices have increased sixfold between 2012 and 2021. Historically, these acquisitions have resulted in increased patient costs and, in some cases, an increase in hospital-related complications, such as falls or infections.

Private equity acquisitions differ from healthcare system acquisitions in several key ways. When a private equity firm acquires a hospital or medical practice, it typically does so by utilizing a combination of investor capital and debt financing, with most of the funds coming from debt financing. Private equity groups focus on a rapid return on investment, placing the burden of generating income to pay down debt on the hospital or medical practice. In many cases, quick profits are achieved through cost-cutting strategies and an increase in high-cost procedures.

A study published last month in JAMA Health Forum found that gastroenterology practices acquired by private equity firms have significantly increased the costs of colonoscopies compared with independent practices.

In contrast, when healthcare systems acquire practices or hospitals, the primary goal is typically to expand their networks and enhance patient care. They usually use their own money or borrow from existing lines of credit to make the purchase.

Private equity acquisitions have increased rapidly across all aspects of healthcare, with gastroenterology practices experiencing the highest share. In the U.S., approximately 13% of gastroenterologists work in practices owned by private equity groups. These factors may be linked to determinants, such as a rise in demand for colonoscopies and an aging population.

The U.S. Preventive Services Task Force recommends colonoscopy screenings for conditions such as precancerous polyps and colorectal cancer starting at age 45 and every ten years after that, with fewer, selective screenings for people ages 76 to 85 years. Colorectal cancer is the third leading cause of cancer deaths, but early detection with screenings, including colonoscopies, has prevented many deaths.

A study published last month in JAMA Health Forum found that gastroenterology practices acquired by private equity firms have significantly increased the costs of colonoscopies compared with independent practices. Furthermore, no significant difference in quality of care was observed between the two.

The economic evaluation, led by Daniel R. Arnold, Ph.D., senior research scientist at the department of health services, policy and practice at Brown University in Providence, RI, analyzed data from over 1.1 million patients who underwent 1.3 million colonoscopies. The group was divided into two cohorts: one of 590,900 patients from gastroenterology practices acquired by private equity groups between January 2012 and December 2021 and a control group of 527,380 patients from independent practices.

Arnold and his colleagues found that the price of colonoscopies at private equity-acquired practices increased by 4.5% more compared with independent practices. This increase was 6.7% more in areas where private equity-acquired practices were above the 75^th percentile of the market share. Gastroenterologists at private equity practices also spent 16% more, saw 11.3% more patients for colonoscopies, and performed 12.1% more colonoscopies than physicians at independent practices. No statistically significant differences were seen between the two cohorts when analyzing six quality measures. These included polypectomies, incomplete colonoscopies, cardiovascular complications, serious and nonserious gastroenterology complications, and any complications.

The authors conclude that private equity acquisition of gastroenterology practices has led to an increase in cost, spending, and utilization without providing better quality of care. Based on these results, the authors question the justification for private equity acquisitions associated with higher costs and utilization.

They wrote, “Our study adds to the evidence base of the need for transparency about corporate influence in health care, particularly [private equity] firms.”