Who employs your doctor?

What are private equity (PE) firms?

Singh: Private equity firms in general are investors who invest in private companies with profitability as their main emphasis. Now, the key thing to remember with private equity is they typically are looking to exit their investments in a three-to-seven-year time period. And recently they've been very attracted to the American health care system, investing in nursing homes, hospitals, physician practices—really every segment where care is delivered.

In the early 2000s we saw a lot of private equity investments materialize in long-term care settings like nursing homes and assisted living facilities, and hospitals as well. More recently, since 2015 or so, we've seen the investment focus shift towards physician practices. And since the COVID-19 pandemic, the focus of investments has shifted to specialties where the care is focused more on value-based care and less on doing procedures: settings like primary care or oncology. 

Do private equity firms basically operate as really advanced house flippers?

I love that you use that analogy because the first time I started reading about private equity, I was watching an HGTV house flipping show, and I thought, ‘Oh my gosh, this is the perfect analogy.’ You know, you have investors who buy something that maybe quite hasn't realized its full potential—like a house flipper—and you make a whole bunch of renovations, maybe add a room, maybe put in some fancy glass panes, and then you flip it and you sell it for a profit. But the incentive is to sell it for a profit. You're not there just to make a home out of it: you're there to make a profit.

In physician practices, PE firms often deploy a consolidation strategy where they can roll up multiple smaller physician practices under the same parent entity. And this does a few things: One, it enables the PE firm to capitalize on something economists call economies of scale, which essentially means, you know, a way of delivering maybe backend functions more efficiently. The billing, the administrative burden and so on. 

The second thing it does is because you're consolidating smaller physician practices into one large entity, it can have a significant impact on the local level of market competition, which has direct and significant implications for the cost of care and access to care.

What is the playbook for private equity firms that buy hospitals?

Hospitals across different cities in the U.S. sit on really valuable real estate. Blocks and blocks of properties in downtown Philadelphia. The most valuable real estate in downtown Boston. That's more often where the hospital is sitting.

PE firms often sell those properties and make the hospital pay rent on the land they used to own. These are called real estate leasebacks because the property is then leased back to the hospital or the nursing home that once owned their own real estate, but now have the privilege of paying rent on it, because they're now owned by a private equity firm.

We’re realizing now with the Steward Health Care episode that this is really not a great deal for hospitals because when you have hospitals losing their most valuable asset, the real estate that they're sitting on creates a lot of financial pressures for the hospital to pay off the debt and service interest payments.

And that financial pressure starts to affect decisions at the hospital?

Research has shown that after PE buyouts of hospitals, there are reductions in how much hospitals spend on hiring and retaining talented staff. There's also research that shows that the services that hospitals offer, those also tend to change, kind of aligned with the expected profitability of those services. So things that are really lucrative, like imaging services, go up. And at the same time, things that aren't traditionally considered to be money making, like inpatient psychiatry services, for example, are paired down again in service of profitability for investors.

And whether a private equity firm buys a hospital or a physician group, it has a big effect on doctors.

Yeah, so I've done a ton of work that shows when PE firms invest in health care practices, the way that physicians practice medicine changes. So we've seen physicians increase how many patients they see. They're made to see more patients per day. They're also made to do more tests and procedures that oftentimes have unclear benefits for patients, right? It's unclear if they're driving any clinical value to the patients. But they're certainly serving the bottom line of the practice. And then at the same time because of all of these changes to the way the practice may be in operation or the way medicine is practiced, you see a lot of dissatisfaction with the profession of medicine entirely.

So the changes that the private equity firms make, it sounds like they really affect quality of life for these physicians.

That's right. A lot of these trends can have very real, very human implications on job satisfaction, work-life balance, whether you see career progression, long-term in medicine and so on. And those are questions that are harder to study systematically.

Some recent work I've done has shown that PE investments of physician practices in particular are followed by physicians quitting the practice and oftentimes moving to different regions in search of alternate employment. A recent study of mine showed that physician turnover increases by about 200% when PE firms buy up a practice.

It sounds like they kind of start to feel just sort of like a cog in the system instead of like an independent doctor making the right choices for their patients.

That's exactly right. I talk to a lot of physicians for my work, just, you know, to understand what their experience is like and one doctor described it to me as being a professional athlete. They said, you're just being traded from one team to the other and you're being told how to, you know, practice and how to be a professional by people who have no idea. And you have no say in who you get sold to. You have no say in who you get traded to. And that's just what the practice of medicine has become.

And most people didn't go to medical school for that.

Absolutely not.

How are patients seeing these changes? How is it affecting them?

So there's some early research that shows when PE firms invest in nursing homes and hospitals, patient care really deteriorates in the nursing home setting.

Mortality goes up by about 10% in the hospital setting. There's an increase in infections and falls and worse patient care experiences, based on how patients themselves self-report their care experience. It's a little harder to study in the setting of physician practices because as you can imagine, you know, a lot of the settings where PE firms are investing like ophthalmology practices, for example. Care is pretty standard. It's really difficult to see the complexity after a cataract surgery, for example. And so those settings are not as well studied as hospitals and nursing homes. But overall, the prognosis isn't great.

One of the clearest changes though, is just about the cost of health care:

The research literature is pretty consistent that when PE firms invest in health care, the cost of care goes up. We often don't see any clear benefits materialized to patients or health care workers.

You know, we might not always see the harms, but the fact that the cost of care goes up and quality doesn't change at best, means that the value of care goes down. And so to me, you know, that signals a broader problem in the sustainability of this approach.