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As Congress considers efforts to rein them in, private equity firms are buying up more physician practices, according to a new study.

Private equity firms acquired 355 physician practices from 2013 to 2016, a number that jumped each year of the study, according to a research letter published today in JAMA. The number increased from 59 practices in 2013 to 136 practices in 2016.

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Across-the-Board Impact of an OB-GYN Hospitalist Program

A Denver facility saw across-the-board improvements in patient satisfaction, maternal quality metrics, decreased subsidy and increased service volume, thanks to the rollout of the first OB-GYN hospitalist program in the state.

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With approximately 18,000 group medical practices in the U.S., researchers said while private equity acquisitions increased across specialties during the study period, they still constituted a small proportion of practices. Those acquisitions continued in the years beyond those in the study period.

The 355 practices bought up included 1,426 sites and 5,714 physicians.

The majority of acquired practices (43.9%) were in the southern U.S., the study found. Practices acquired by private equity firms had several sites (a mean of four) and many physicians (a mean of 16.3 in each practice) with a mean of 6.2 physicians affiliated with each site.

The study, which identified group practice acquisitions using the Irving Levin Associates Health Care M&A data set that includes information on healthcare mergers and acquisitions, also looked at which specialties private equity firms were most interested in.

The most commonly acquired medical groups from 2013 to 2016:

  • Anesthesiology practices (19.4%)
     
  • Multispecialty practices (19.4%)
     
  • Emergency medicine (12.1%)
     
  • Family practice (11.0%)
     
  • Dermatology (9.9%)

From 2015 to 2016 there was an increase in the number of acquired cardiology, ophthalmology, radiology, and obstetrics/gynecology practices, according to the research letter.

Industry reports suggest further growth in acquisitions in 2017 and 2018, particularly in ophthalmology, dermatology, urology, orthopedics, and gastroenterology.

Within the acquired practices, anesthesiologists represented 33.1% of all physicians; emergency medicine specialists, 15.8%; family practitioners, 9%; and dermatologists, 5.8%.

That profile of practices with several sites and many doctors matches “private equity firms’ typical investment strategy of acquiring ‘platform’ practices with large community footprints and then growing value by recruiting additional physicians, acquiring smaller groups and expanding market reach,” said the study authors Jane M. Zhu, M.D., of the division of general internal medicine and geriatrics at the Oregon Health & Science University in Portland; Lynn M. Hua, of the department of health care management at the Wharton School of the University of Pennsylvania, in Philadelphia; and Daniel Polsky, Ph.D., of the Carey Business School at Johns Hopkins University in Baltimore.

They noted that more research is needed to understand the effect of the acquisitions to mitigate unintended consequences.

“Private equity firms expect greater than 20% annual returns and these financial incentives may conflict with the need for longer-term investments in practice stability, physician recruitment, quality, and safety,” wrote the researchers.

Ownership by private equity firms may create additional pressures to increase revenue streams (such as elective procedures and ancillary services), direct more referrals internally, and rely on lower-cost clinicians, the authors said.

A limitation of the study is that its data is based on publicly announced transitions and therefore may underestimate the total number of acquisitions, particularly of smaller practices, they said.

CommonSpirit Health posted $40 million in operating income in the second quarter of fiscal 2020 (PDF), its first operating gain since the health system was formed through the merger of Catholic Health Initiatives and Dignity Health last year.

The Chicago-based health system—the largest nonprofit health system in the country by revenue—cited a revenue jump to $7.5 billion, up 3.2% from $7.2 billion during the same quarter the prior year. The health system reported its total net income was $579 million, up from a loss of $724 million in the same quarter a year earlier.

In its first consolidated financial report last year after merging, the health system reported a net loss of $290 million on revenue of almost $29 billion, down from $1.1 billion in earnings on $29 billion in revenue in fiscal 2019. The health system’s operating loss was much higher when taking into account special charges and merger-related costs.

Case Study

Across-the-Board Impact of an OB-GYN Hospitalist Program

A Denver facility saw across-the-board improvements in patient satisfaction, maternal quality metrics, decreased subsidy and increased service volume, thanks to the rollout of the first OB-GYN hospitalist program in the state.

See how

CommonSpirit operates 137 hospitals and hundreds of additional facilities in 21 states.

The health system has called diversifying and increasing revenue from non-acute care settings “a strategic priority.” They reported a 4.1% increase in outpatient services. CommonSpirit’s home care and hospice care business grew 10.5% in the first half of the fiscal year compared to the previous year. Barely 30% of the company’s revenue came from value-based agreements with payers, employers and government programs, officials said.

“These results demonstrate that we are gaining traction with the strategy and operating model we’ve put in place,” said Daniel Morissette, CommonSpirit’s senior executive vice president and chief financial officer, in a statement.

“A year into our new organization we have a clear vision and well-defined strategy, we are growing in key markets and service lines, and we are keeping our expenses in check,” he said. “We still have significant work to do to realize our ambitious growth and savings goals, but there is no question that these results represent a step in the right direction.”