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Should health providers partner with private equity?

Some may be surprised that 30% of doctors work in independent practices, while hospital systems, health insurers or private equity firms employ 70% of medical doctors. The largest increase among the three employers is private equity and health insurers, with a 32% jump between 2019 and 2020.

Profits versus patients

Private equity firms have targeted medical practices and health systems for several years. The practices and systems get an influx of capital, and some sound financial guidance while operating a complicated business operation. Doctors studied medicine to treat patients and often are less interested in the day-to-day needs of running a profitable practice. Private equity can streamline and eliminate redundancies, negotiate better contracts when the practice becomes part of a larger organization, purchase infrastructure, and ideally run profitably. It can be a good arrangement that works.

Still, inserting private equity firms into medicine has also been a cause for alarm, with even the Biden Administration voicing concern about the private equity deals. Increased emphasis on business and profits can cause anxiety among patients and staff. It’s also typical for private equity to shore up finances and sell a medical practice or organization for a profit to recoup their investment. While the new buyer may be a larger medical organization or another business group, the doctors who sold controlling shares of the practice may find that they subsequently work for someone they would not pick.

Oversight may be an issue for investors

Health care is also highly regulated, with the state and federal governments able to file lawsuits against practices, businesses or organizations that act irresponsibly or violate regulations. These actions can lead to massive financial penalties and other issues investors want no part of.

Make the right deal

Not every private equity group puts profits over patients, nor is every private practice operating altruistically. Finding the right partners is essential, making it a win-win for both sides. Still, it cannot happen without a clear plan for moving forward together. Negotiating the right deal with common or shared goals is often essential.