The independent physician practice is dying, and healthcare is consolidating. This is an explicit goal of healthcare policymakers from the last 20 years, with the Affordable Care Act architects stating that “these reforms will unleash forces that favor integration across the continuum of care.” Hospitals are merging and purchasing physician practices, with an ever-increasing number of physicians becoming hospital employees. With this trend in mind, we can discuss the emergence of Private Equity (PE) in healthcare. 

PE is often portrayed as a boogeyman—a profit-maximizing entity swooping in to exploit doctors, nurses & patients. However, one must take an ethically agnostic view: it is merely another financing mechanism. Non-profit hospital conglomerates, which can also provide poor-quality care while focusing on maximizing net revenue, demonstrate that the issues in healthcare extend beyond ownership structures. As independent physician practices struggle to maintain financial stability due to the consolidating policies of the last 15 years, PE has become one of the few viable options for physicians who wish to avoid becoming hospital employees.

PE provides an alternative to large, centralized hospital systems. Certainly, there are trade-offs; physicians sacrifice some degree of independence regardless of the path they choose. However, it is important not to fault physicians who see the financial writing on the wall and opt to join a consolidated system, whether through hospital employment or PE. Crucially, PE offers a market-driven solution that fosters competition and innovation. When hospital employment becomes the only option, physicians become nothing more than another cog in the corporate wheel.

A recent Health Affairs article tracked trends in PE from 2012 to 2021, showing increased PE acquisition, particularly during financial downturns such as the COVID-19 pandemic. This is not surprising, as PE acquisitions mirror hospital consolidation trends.  The authors of the piece urge more scrutiny and suggest regulating the sector. 

At first glance, this is understandable.  The data on patient outcomes are mixed. Neither consolidated hospital systems nor PE-acquired practices have consistently improved clinical outcomes, with some studies suggesting harm.  Meanwhile, the cost data are consistent: consolidation increases costs. This basic economic principle is evident in the data. When hospital systems or PE firms buy up physician practices, costs rise.

Instead of criticizing PE as an entity, regulators should turn their attention to policies that drive consolidation.  Instead of labeling PE as inherently “bad,” we need a more nuanced view of consolidation in general.   Policies such as the lack of site neutrality, the 340B program, the ban on physician-owned hospitals, certificate of need laws, and regulatory burdens like electronic health records (EHR) and quality metrics are the true culprits.

These policies are the enemies. Hospital consolidation and PE are natural reactions to legislation explicitly designed to erode independent physician practices.

Before labeling PE as inherently evil, we should consider what it represents. It is simply an alternative for physicians who wish to avoid hospital employment. PE gives physicians some control over the fate of their practices, offering a counterbalance to the relentless march of hospital consolidation. While it is far from perfect, rather than demonizing PE as an entity, we should direct our criticism at the policies that are undermining independent practice.