Private Equity Acquisitions of Physician Practices

Venture capital and private equity firms raise money from pension funds and wealthy individuals and use it to fund the growth of businesses or just purchase those businesses outright, with the intent of making a lot of money when they sell the business or take it public.  This cycle accounts for an increasing proportion of American economic activity and is a key to innovation.  Since health care is almost 20% of the US economy, these financial firms have been very interested in opportunities in that sector.  Physicians control most health service receipt, so acquiring those practices has been a focus.  An article in Health Affairs discusses the impact of private equity ownership of dermatology practices.   (HA Article)   Similar effects are seen in other specialties.

Currently over 10% of dermatologists practice in a private-equity owned firm.  These practices tended to use more non-physician clinicians.  They saw 5% to 15% more patients per physician than did non-PE-owned practices.  The practices acquired by these firms tended to have more commercially insured patients, who typically pay more for services.  Payments for routine visits were 3% to 5% higher.  There did not seem to be greater utilization of various dermatology procedures and total spending per patient on dermatology services did not increase.  Dermatologists are pretty highly paid.  The study did not discuss compensation but it is likely that in exchange for their higher productivity under PE ownership, the physicians also saw an increase in pay.  Seems likely that the financial industry’s move into health services is associated with both higher productivity but also higher prices, although total spending seems unaffected.