What happens when Wall Street takes over health care? You may not realize it, but private equity firms — which invest money for wealthy individuals, pension funds and endowments — are buying up medical practices and hospitals all over the U.S., expecting a big return on their money.
The growing role of private equity in health care is generating a lot of debate and raising the question: What’s the priority — patient care or making money?
It’s both in the view of Dr. Kenneth Gregg, president and medical director of eyecarecenter, which has 40 locations in North Carolina, including six in Charlotte. A private equity firm purchased eyecarecenter six years ago and quickly added new practices.
“We got leaner, we got meaner, you know,” Gregg said. “They brought in technology and electronic medical records.”
By “leaner,” Gregg means consolidating the human resources, accounting and billing departments of the newly acquired companies. Eyecarecenter got more efficient because of investment in new technology, and the company also placed more emphasis on hiring technicians who make less than eye doctors
“A lot of the work is done by very competent technicians,” Gregg said. “It makes it easier for doctors to see more patients.”
The quality of care remains excellent, Gregg said. It must be to keep patients and attract new ones. The bigger, the better. It has more leverage with insurance companies.
“If you’re an individual practitioner, you basically have a plan you either accept or don’t,” Gregg noted. “We have 650 optometrists, so we get better pricing because of our size.”
A report in the American Journal of Ophthalmology found that private equity firms bought 228 practices with more than 2,100 doctors nationwide between 2012 and 2019.
Eyecarecenter’s first private equity backers cashed out last year. In announcing the sale, the company said it grew the parent company, EyeCare Partners, from 63 locations to more than 450 sites in 13 states over five years. It said revenues increased 65% every year.
“(With private equity) you want to buy something and grow it as best you can and then sell it at a profit,” Gregg said. “And that’s what they do.”
It’s all part of a huge trend in American health care, says Gary Herschman, a New Jersey health care attorney who negotiates such deals. And it’s not just ophthalmology. Investors have been snapping up dermatologists, orthopedists, anesthesiologists, radiologists, emergency room doctors, health information technology and even hospitals
“Whether it be physician services or home health care or medical devices or cannabis, it just keeps growing,” Herschman said.
Private equity firms have invested $921 billion in U.S. health care since 2006, according to the industry trade association the American Investment Council. They own 4% of U.S. hospitals and 11% of nursing homes, the Medicare Payment Advisory Committee says. But it’s hard to know the number of medical practices because unlike publicly traded companies, which have to disclose information to the government, private companies can keep their records private.
There were 12 purchases of large North Carolina practices involving an estimated 300 doctors between 2013 and 2016 alone, according to research published in the Journal of the American Medical Association.
“Everyone says the bubble may burst, but it just doesn’t,” Herschman said. “It just keeps going and going and going.”
It keeps going because there’s so much money in health care. Americans spend twice as much on care as other wealthy countries, according to data from the Organization for Economic Cooperation and Development. And spending will grow by half in just seven years, the Centers for Medicare and Medicaid projects.
Private equity’s goal, Herschman says, is to triple its investment and sell out in three to eight years. But he says all that investment is good for health care.
“There was this movie, ‘Wall Street’ with Michael Douglas, right? And he would buy these companies — these airlines — and chop them apart and make money that way,” Herschman said. “That’s not what private equity is about nowadays.”
But a lot of doctors are concerned, says Dr. Jane Zhu, who studies private equity at Oregon Health and Sciences University.
“The main concern is that the motivations of investors to increase profits fundamentally is misaligned with the greater interests of patients and of the healthcare system at large,” Zhu said.
Zhu called investors’ motivations misaligned because the emphasis on making large profits quickly creates the incentive to cut too much, raise prices or even perform unnecessary procedures. Here are a few very public examples.
- Public interest in private equity grew after Yale University researchers found two large private equity-backed companies were at the heart of the surprise billing crisis. The companies, which provide emergency room staff to hospitals, kept their doctors out of insurance networks so they could issue exorbitant bills. After Congress drafted legislation to stop surprise billing, the companies then mounted an aggressive ad campaign to water down the measure. Both companies — Envision and TeamHealth — provide staff to hospitals and practices in North Carolina, including some in Charlotte.
- Public attention was again focused on private equity last March when Congress held a hearing after a study found 20,000 nursing home residents died prematurely over a 12-year period. Their private equity-owned homes had fewer staff members and were more likely to administer antipsychotics than other homes. But studies of nursing homes have been mixed. Another found investors boosted nursing home staffing.
- After a private equity company let a Philadelphia hospital go bankrupt while it sold off the hospital’s valuable real estate, U.S. Sen. Bernie Sanders made the facility’s imminent closure part of his 2020 campaign for president. Studies of private equity-owned hospitals find they have higher charges, fewer staff members per occupied bed and lower patient ratings.
But Zhu says there’s another reason to worry: When purchases are financed with debt, the hospitals and practices have to pay it off — not the private investors.
“They load debt onto the purchase that they’re purchasing,” Zhu said. “The practice is actually on the hook for any debt that is used to make the transaction happen. And so you know it's sort of a win-win for the private equity firm in some ways because they don’t have to hold on to as much risk.”
Nine rural North Carolina hospitals — including those in Hickory and Rutherfordton, a short distance from Charlotte — got swept up by private equity firm Apollo Global Management when it acquired LifePointHealth in 2018 in a $5.6 billion deal. LifePoint ended up with $2.9 billion worth of debt.
Neither Apollo nor LifePoint would comment on the impact except to say the hospitals are unaffected.
So does private equity help health care, as Herschman and Gregg contend, or hurt it?
We don’t have enough data to know, Zhu said, because private equity companies don’t have to disclose information, including about their purchases
“In fact, many of them may use strategies to keep some of those purchases quiet from the public,” Zhu said.
Strategies like non-disclosure agreements mean patients don’t always know when their doctors’ practices have been sold and researchers can’t investigate the impact on care.
“I think the question is: Where does the profit go with private equity investors? … Often, we don’t know who is at the end of the money trail,” Zhu said.
Zhu says private equity — whether it's good or bad — is a symptom of a larger issue in health care. There are a lot of profit-making business interests in health care. Private equity is just a newer one.