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Ideas and Opinions |15 January 2019

Private Equity Acquisition of Physician Practices

Lawrence P. Casalino, MD, PhD; Rayhan Saiani, MD; Sami Bhidya, MS; Dhruv Khullar, MD, MPP; Eloise O'Donnell, MPH

Article, Author, and Disclosure Information
Author, Article, and Disclosure Information
This article was published at Annals.org on 8 January 2019.
  • Weill Cornell Medicine and New York Presbyterian Hospital, New York, New York (L.P.C., R.S., D.K.)
    New York Presbyterian Hospital, New York, New York; and Weill Cornell Medicine, New York, New York (S.B., E.O.)

    Financial Support: By the Physicians Foundation Center for the Study of Physician Practice and Leadership at Weill Cornell Medicine. The Foundation did not suggest the topic or participate in the research or the writing of the manuscript.

    Disclosures: Disclosures can be viewed at www.acponline.org/authors/icmje/ConflictOfInterestForms.do?msNum=M18-2363.

    Corresponding Author: Lawrence P. Casalino, MD, PhD, Livingston Farrand Professor of Public Health, Chief, Division of Health Policy and Economics, Department of Healthcare Policy and Research, Weill Cornell Medicine/New York Presbyterian Hospital, 402 East 67th Street, Room LA 217, New York, NY 10065-6304; e-mail, Lac2021@med.cornell.edu.

    Current Author Addresses: Dr. Casalino and Ms. O'Donnell: Department of Healthcare Policy and Research, Weill Cornell Medicine/New York Presbyterian Hospital, 402 East 67th Street, Room LA 217, New York, NY 10065-6304.

    Dr. Saiani: New York Presbyterian Hospital, 525 East 65th Street, New York, NY 10065.

    Mr. Bhidya and Dr. Khullar: Weill Cornell Medicine, Department of Healthcare Policy and Research, Weill Cornell Medicine/New York Presbyterian Hospital, 402 East 67th Street, New York, NY 10065-6304.

    Author Contributions: Conception and design: L.P. Casalino, R. Saiani, D. Khullar, E. O'Donnell.

    Analysis and interpretation of the data: L.P. Casalino, R. Saiani, S. Bhidya, D. Khullar, E. O'Donnell.

    Drafting of the article: L.P. Casalino, R. Saiani, S. Bhidya, D. Khullar, E. O'Donnell.

    Critical revision of the article for important intellectual content: R. Saiani, D. Khullar.

    Final approval of the article: L.P. Casalino, R. Saiani, S. Bhidya, D. Khullar, E. O'Donnell.

    Provision of study materials or patients: E. O'Donnell.

    Statistical expertise: S. Bhidya.

    Obtaining of funding: L.P. Casalino.

    Administrative, technical, or logistic support: S. Bhidya, E. O'Donnell.

    Collection and assembly of data: L.P. Casalino, R. Saiani, S. Bhidya, D. Khullar, E. O'Donnell.

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FULL TEXT
Acquisition of physician practices by private equity firms has increased dramatically during the past few years (1). Such acquisitions are a significant phenomenon with unknown consequences for physicians and patients, although they have received little attention from researchers and policymakers.
We describe this phenomenon and explore its implications, based on review of the gray literature and the very limited peer-reviewed literature. We interviewed 21 knowledgeable individuals around the United States, including consultants; attorneys; investment bankers; and leaders of private equity firms, physician practices, and health insurers.
Private equity firms invest in many industries using capital provided by pension funds, sovereign wealth funds, high net-worth individuals, and university endowments. These investors anticipate average annual returns of 20% or more (2). To achieve such returns, private equity firms focus on acquiring “platform practices” that are large, well managed, and reputable in their community. The firms sell these practices after augmenting their value by recruiting additional physicians, acquiring smaller practices to merge with the larger practice, increasing revenue (for example, by bringing pathology services into a dermatology practice) (3), and decreasing costs (for example, by substituting physician assistants for physicians) (4). Growth makes it possible to spread fixed costs, exploit synergies across merged practices, expand ancillary revenues, and increase negotiating leverage with health insurers.
Acquisition prices are based on EBITDA (earnings before interest, taxes, depreciation, and amortization), a proxy for operating cash flow. Acquisition of smaller practices provides a major arbitrage opportunity: The private equity...
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Casalino LP, Saiani R, Bhidya S, et al. Private Equity Acquisition of Physician Practices. Ann Intern Med. 2019;170:114–115. [Epub ahead of print 8 January 2019]. doi: https://doi.org/10.7326/M18-2363

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Published: Ann Intern Med. 2019;170(2):114-115.

DOI: 10.7326/M18-2363

Published at www.annals.org on 8 January 2019

©
2019 American College of Physicians
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