Will High Prices Follow Private Equity Investment in Primary Care?

by Peter Johnson

Primary care practices are consolidating at a rapid pace: Independent physician practices are combining on their own, and growth-oriented, outside investors — such as private equity funds, health insurers and health systems — are taking stakes in practices or buying them outright. Experts tell AIS that the impact of such deals will vary, but warn that consolidation and investment by private equity firms has raised prices across the board in other areas of health care.

Private equity deals are on the rise

• According to a July 2021 report by investment bank Provident Healthcare Partners, 41 primary care transactions worth over $2 billion closed in 2020, a higher deal volume than any year since 2010.
• Meanwhile, 2019 set a record for capital invested, with $5.1 billion spread across 26 primary care deals.
• Several major transactions took place in the fourth quarter of 2021, including Bain Capital LP’s acquisition of a majority stake in Innovacare Health and Goldman Sachs Group Inc. and Charlesbank Capital Partners purchase of MDVIP.
• According to a November 2021 commentary in NEJM Catalyst regarding private equity investment in primary care, 26% of surveyed primary care organizations in Massachusetts “were considering selling to entities such as [private equity] firms.”

Practices should prioritize patients

• Khin-Kyemon Aung, M.D., a primary care resident at Brigham and Women’s Hospital and a coauthor of the commentary, tells AIS Health that the pandemic deepened preexisting financial strains on primary care practices.
• “With the pandemic, a lot of these challenges have been exacerbated, in terms of staffing shortages, or even thinking about where you get PPE [personal protective equipment],” she says.
• Aung emphasizes that private equity investment in primary care “is not necessarily good or bad.” But the NEJM commentary suggested that “successful PE partnerships” require the “‘right type’ of investors,” need to align incentives.
• “Venture capital is very different from growth equity, which is very different from leveraged buyouts,” she adds. “It’s important to take each type of model independently and weigh how best to create an ecosystem that supports that model while protecting patients.”

Consolidation could have hidden upside

• So what does all this investment mean for patients and carriers? Loren Adler, an economist and associate director of the USC-Brookings Schaeffer Initiative for Health Policy, thinks results will be mixed. 
• Adler has previously studied the effects of private equity investment on specialist physician and air ambulance prices, and found that it can drive up prices.
• “But primary care is a bit interesting compared to some other specialties,” he explains. “The argument for there being a net benefit to a large wave of investment is a little easier to envision.”
• “[For] newer primary care entities….some of their value adds is to be a better customer experience,” he continues. “That is where you go most often to see a doctor. So easier appointments, they see you on time, it looks nice, better bedside manner — that has real attraction and value to patients.”

From Health Plan Weekly

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