A wave of private equity cash has poured into doctors' practices. We got an inside look at how the largest medical group in the US is weighing the benefits and pitfalls.

Emma Court

Oct 1, 2019, 18:40 IST

A wave of private equity cash has poured into doctors' practices. We got an inside look at how the largest medical group in the US is weighing the benefits and pitfalls.

A report from the American Medical Association, the US's largest doctors group, examined the "risks and benefits" of corporate firms like private equity investors getting involved in medicine.
Much of the report is concerned with private equity firms, which have been increasingly investing in physician practices - sparking concerns among doctors that the trend may come at the expense of patient care.
The AMA report concludes that there isn't enough "empirical evidence" about impact "to draw meaningful or actionable conclusions." The findings show a group that's staying on the sidelines of a divisive debate.
Dr. Joshua Sharfstein, a vice dean at Johns Hopkins Bloomberg School of Public Health, agrees about the lack of evidence, but said there are still steps that professional groups like the AMA could take.
Sharfstein has called for a moratorium on sales of dermatology practices to private equity "given the serious warning signs of problems."
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For corporate investors like private equity firms, medicine is an increasingly lucrative target. The trend has aroused concerns among doctors, who worry that it is affecting patient care.

The American Medical Association, the US's largest doctor group, recently examined the trend. The AMA's report found "a great deal of angst among many physicians" about corporate investors, but fell short of making a call on what the wider implications might be, including for patients.

"Although anecdotal information is available from affected specialties, there is not sufficient data to draw meaningful or actionable conclusions," the report, which is dated June 2019, found. "Nonetheless, the Council underscores the paramount importance to this discussion of safeguarding patient-centered care, clinical governance and physician autonomy in all physician practice arrangements."

Private equity has been taking on a bigger role in healthcare, with provider deals playing a starring role, according to a report from the consulting firm Bain & Co. this year. Last year, private equity poured about $23 billion into 84 deals in the medical-provider sector, Bain found.

As the role of private equity divides doctors, the AMA report shows the group staying on the sidelines. The report was commissioned more than a year ago and quietly released as part of a meeting of the House of Delegates, the AMA's policymaking body, in June.

It did not meet with any objections from the House of Delegates and its recommendations were adopted, Dr. James Hinsdale, who presented the report and is the immediate past chair of the AMA's Council on Medical Service, told Business Insider.

Recommendations included:

reaffirming existing AMA policies, like physician responsibility being to patients first
detailing some guidelines doctors considering such partnerships should weigh
encouraging medical specialty groups to examine the impact of corporate investors
recommending more transparency about corporate investments in practices, since non-disclosure agreements are commonly used in this space

Even without definitive evidence on impact, there are 'serious warning signs of problems,' one expert says

Dr. Joshua Sharfstein, the vice dean for public health practice and community engagement at Johns Hopkins Bloomberg School of Public Health, said he agrees with the report that there isn't enough evidence to assess private investment's impact on important questions like cost and health.

Yet medical professional societies like the AMA could take steps to promote transparency and establish standards while more data is collected, he wrote in an email to Business Insider.

"In the absence of definitive evidence, the question remains what to do," he said.

Sharfstein, who has also served as a government health official at places like the US Food and Drug Administration, noted that he and a colleague this summer called, in a JAMA Dermatology editorial, for a moratorium on sales of dermatology practices to private equity, "given the serious warning signs of problems."

They pointed to, for instance, the role of private equity in other industries, giving the example of retailer Toys "R" Us; media reports of worrisome practices in private equity-backed dermatology offices, and the disincentive for private equity to prioritize lower-cost care, given short investment timelines.

The American Medical Association report outlines 'risks and benefits' of corporate investors

Getty Images/Christopher Furlong

Hospitals are among the corporate investors that have been buying up doctor practices.

The category of corporate investors in healthcare is broad. Beyond private equity, doctor practices are also getting snapped up by hospitals, health insurers and other players.

And there are both risks and benefits of working with any corporate investor, including private equity, the AMA report concludes. Risks include losing control of the practice, a focus on profit or financial goals, and conflicts of interest. Benefits may include lucrative deals for doctors as well as fewer administrative and regulatory pressures, according to the report.

"Concerns regarding these partnerships have primarily centered on the potential for subsequent increases in prices, service volume, and internal referrals, as well as the use of unsupervised non-physician providers," like nurse practitioners and physician assistants, the report said.

Ultimately, though, "longstanding AMA policy states that physicians are free to choose their mode of practice and enter into contractual arrangements as they see fit, and it is essential that the AMA maintain a leadership role that is uniting and supportive of physicians and care delivery models," it concludes.

The AMA subsequently put out a series of resources over the summer intended to advise physicians considering deals with private equity or venture capital, including a "checklist" of key issues and a paper on how to evaluate these types of contracts.

Investors have been drawn to doctor practices, but it's been controversial

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PabloBenii/Shutterstock

Dentists have been of interest to private equity investors.

Private equity and venture capital firms see medicine as a space where efficiencies and economies of scale can be immensely profitable.

That and the prospect of large financial returns make it an attractive pitch to doctors, as they work to compete in a rapidly consolidating healthcare environment.

Dermatology is a hotbed of the trend, which typically takes the shape of private equity-backed management or support groups snapping up the practices.

There were 184 such acquisitions from 2012 to 2018 in the specialty, a figure that rose over time and represents about 381 dermatology clinics, one study published in the peer-reviewed JAMA Dermatology found.

The AMA report noted the "surge" of interest in dermatology, as well as in eye doctors, or ophthalmologists. Additional specialties that have been of interest to such investors are physical therapy, dentistry, primary care, allergy medicine, gastroenterology and OB-GYN.

In emergency medicine, the role of private equity firms has attracted scrutiny from lawmakers. A bipartisan investigation launched by the House of Representatives' Energy and Commerce Committee Chairman Frank Pallone, Jr., a Democrat from New Jersey, and Ranking Member Greg Walden, a Republican from Oregon, is looking into how these firms may be influencing a practice called "surprise billing," or when patients go to a hospital that's in-network but get large out-of-network bills anyway.