Doctors warned of pitfalls behind private equity pledges
Private equity funds can help spur innovations or provide stable funding for workers’ pensions, but investors’ expectations for a quick return on investment can clash with the long-term sustainability of a medical practice and to the ethical requirements of physicians.
“The idea here is that private equity firms buy the practices and then their investors expect them to get their money back in about five to seven years with a profit of 20% to 30%,” he said. Francis J. Crosson, AMA Fellow, MD, one of the experts to present in an education session at the 2022 AMA Annual Meeting on ethical concerns surrounding private equity acquisitions of law firms medical.
“This is not a situation that leads to expecting long-term relationships and investments to improve practice – quite the opposite,” added Dr. Crosson, founding executive director of the Permanent Federation. – the national leadership and advisory organization for the eight Permanente medical groups, which includes Northwest Permanente, member of the AMA Health System program. Dr. Crosson also served as the AMA’s Senior Group Vice President for Professional Satisfaction and Practice Sustainability.
Ambar La Forgia, PhD, also presented at the session, who summarized his JAMA internal medicine study that detailed how physician management companies (PMCs) and private equity investments were associated with a dramatic increase in commercial healthcare prices for anesthesia services.
La Forgia and colleagues found that after signing PMC contracts, prices increased by 16.5% in their study of nearly 2.3 million privately insured patients who received anesthesia services in hospital outpatient departments and outpatient surgery centers from 2012 to 2017.
Their main finding, however, is that prices rose 26% with PE-backed SMPs, while prices for those companies without PE investment rose 12.9%.
“Takeout here is unfortunately bad for patients because these higher prices are directly passed on to them in the form of higher out-of-pocket payments, as well as possibly in the form of higher insurance premiums,” La Forgia said. , an assistant. professor of management at the University of California at the Berkeley Haas School of Business.
The impact on physicians is unclear because salaried PMC physicians may not be sharing in these growing revenues, La Forgia said, noting that money from price increases “likely goes into acquiring new practices” rather than benefiting doctors.
La Forgia said her study builds on previous research where evidence suggests that private equity takeovers of nursing homes and dialysis centers are associated with poorer patient outcomes and higher Medicare expenses.
Anesthesiology practices are targeted by private equity investors because they are seen as a high-margin, high-volume specialty and “therefore really attractive to private equity for the potential for higher returns,” it said. she declared.
“An often-used strategy to save costs is to replace anesthesiologists with CRNAs [certified registered nurse anesthetists] so you have one anesthesiologist overseeing five CRNAs simultaneously,” La Forgia explained.
A member of the JAMA internal medicine editorial board, Dr. Crosson wrote a commentary that accompanied the study by La Forgia and colleagues.
“One question we need to address is whether the entry of private equity into the US healthcare system is a bridge too far, a bridge that raises substance or at least the perception of a threat to the professionalism of physicians. due to more extreme managerial pressures on and profit opportunities for physicians,” Dr. Crosson wrote.
A similar trend was noted in a 2018 commentary written by AMA President Jack Resneck Jr., MD, which appeared in JAMA Dermatology.
Dermatologists working for practices acquired by private equity firms “raised concerns that their initial or subsequent investors were looking to increase their profitability by hiring medical assistants en masse to work in unsupervised satellite environments” , Dr. Resneck wrote. “As investors tout ongoing local decision-making, practices may also lose some control over staffing levels and capital equipment purchases.”
The training session was held at two different times during the annual meeting and sponsored by the AMA Private Physicians Section (AMA-PPPS) and the AMA Integrated Medical Practices Section (AMA-IPPS) . (Program slides available here.)
The program’s moderator, Mr. Zuhdi Jasser, MD, outgoing chairman of the AMA-PPPS board of directors, noted that “this group, more than others, is not anti-profit” given that Section members often see themselves as – among other things – small business owners.
“But the problem is that if profit is a beginning and an end in itself,” added AMA member Dr. Jasser. “He has no empathy, sympathy or engagement with the consumer… who the patient is.”
Dr Crosson urged the AMA to use its “bullying pulpit” to alert doctors considering a private equity buyout of the potential downsides of the arrangement.
“It may turn out that the best protection for maintaining the quality of patient care and the relevance of the services provided will be the professionalism of physicians,” he writes in his JAMA internal medicine comment.
Based on a resolution from WADA-IPPS, WADA’s House of Delegates took up the issue and asked WADA to “study and clarify the ethical challenges and considerations regarding the professionalism of physicians raised by the advent and expansion of private equity ownership or management”. medical practices and report on the status of any ethical dimension inherent in these arrangements, including consideration of the need for ethical guidelines, where appropriate.
Such a study “should assess the impact of private ownership, including, but not limited to, the effect on professional responsibilities and ethical priorities for medical practices,” the resolution passed by delegates reads.
Check out other highlights from the 2022 AMA Annual Meeting.