Ask Me MD: Medical School for the real world
Ask Me MD: Medical School for the real world
Jane Zhu, MD - Private Equity in Healthcare
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Dr. Jane Zhu MD, MPP, MSHP talks about her research into private equity investment in healthcare. Dr Zhu has an article in the February 2020 edition of JAMA.
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Ask Me MD, medical school for the real world with the MD Dr. D.J. Verret.
D.J. Verret, MD, FACS :Greetings and welcome to Ask Me MD, medical school for the real world. This week we continue our look into private equity involvement in health care. Today I'll be talking with Dr. Jane Zhu, assistant professor of medicine at the Oregon Health Sciences University, about her research into private equity involvement in health care. We'll talk to Jane right after this. Welcome back to Ask Me MD, medical school for the real world. I'm Dr. DJ Verret. And today we're interviewing Dr. Jane Zhu of the Oregon Health Sciences University, about her interest in research into private equity investments in health care. Jane, thanks for joining us.
Jane Zhu, MD :Thanks so much for having me. It's a pleasure.
D.J. Verret, MD, FACS :Can you tell us a little bit about yourself and how you came to be interested in researching private equity?
Jane Zhu, MD :Sure. So I'm an assistant professor of medicine at the Oregon Health and Science University in Portland, Oregon. I am primarily a physician investigator and health services researcher by training. And I'm also a primary care physician by practice with my own primary care clinic here in Oregon. And so a lot of my research to date has been around health care markets, and specifically provider incentives for care delivery changes. And I also look at questions surrounding access to care, quality of care, and delivery reform. And so, you know, by extension, I've become very interested in the the reported trend of private equity acquisitions in physician medical groups, mostly because it's been documented in industry reports and in market reports, as something that's been happening with increasing rapidity and increasing reach, especially in certain sorts of specialties like dermatology and behavioral health and orthopedics and ophthalmology, for example. And so, my colleagues and I started looking at this trend empirically using market data linked to a few other data sources to help describe who are the physicians and the specialties involved in these practices.
D.J. Verret, MD, FACS :And what did you find in doing that research?
Jane Zhu, MD :Sure. So our research was published in JAMA as a research letter in February of 2020. And it describes trends and physician Medical Group purchases, from 2013 to 2016, across multiple specialties, and what we found was that among approximately 18,000 unique medical group practices in the United States, during that time period, about 355, physician practices were acquired by private equity firms. And those private, those private practices involved over 1400 office sites, and over 5700 physicians, so quite a big platform. The other thing that we looked at was, what were those acquired practices in terms of their characteristics, and what we found was that they had relatively large footprints. Each acquired practice had an average of four office sites, an average of 16 physicians in each practice, and six physicians affiliated with each site. And what we found which was surprising was that these acquisitions were not just happening in a few of the, you know, a few different a few different practices and specialties it was actually happening across multiple specialties, most often in anaesthesia, in Ray, radiology, hospital medicine, and a slew of other smaller specialty areas. So definitely documenting that this phenomenon is happening across different medical specialties with, you know, increasing speed.
D.J. Verret, MD, FACS :Did you notice any temporal trends? You said the data set you looked at was over multiple years. Did you notice a trend in a different specialty areas over the years are an increasing number of acquisitions are? Were you able to kind of tease that out from the information you could find?
Jane Zhu, MD :Sure, yeah, we looked at specifically 2013 to 2016. So it's fairly, it's a fairly short period, it's only three years. But we did see some changes. Within those years, in the very beginning of this of the study period, we did find a lot more private equity acquisitions of physician medical groups that were multi specialty practices, anesthesiology, radiology emergency room, and then by 2015, to 2016. In the last year of our study, we saw an increasing number of acquisitions in cardiology, and ophthalmology and other dermatology and some of these other specialties that have documented more recent acquisition practices in their field.
D.J. Verret, MD, FACS :One of the things you kind of touched on and I know is an impediment to some of the research is just the ability to get data, how were you able to link the physicians to the private equity backing that they had?
Jane Zhu, MD :Sure it was a it was a certainly a time intensive, labor intensive effort. So we actually went into a dataset called Levin, m&a healthcare data. And what they do is they they basically have a repository of all different mergers and acquisitions within the healthcare space. And it's manually validated, and they update it with regular intervals. So we went and we looked at all of that data. And then we validated it through Google search, Google searches to make sure that these were in fact, physician owned medical groups, and that if there were any name changes that that was documented, and to verify that they had been purchased, in fact, by private equity firms. And then what we did was we linked that data to another data set that has a repository of all the physician medical groups, outpatient office based physicians, and their specialties and physician characteristics and volume of patients. And we painstakingly linked each one of the private equity purchases to that group manually. And so that took a little bit of time. What will I'll say is that because of the data limitations that you talked about, empirical studies of private equity positions has actually been really challenging. Most of the evidence that we have, is really limited because we can't number one, we can't keep up with the trends. The data is lagging behind the speed of these acquisitions. And number two, a lot of these publicly available data on mergers and acquisitions is only what's been announced. So if there's smaller groups that have been purchased by private equity, or if it's it's a private purchase, there's no mandate to announce that publicly. And so we may be missing some of that. So that that's all to say that, despite our estimates of how fast this is happening, and the scale to which this is happening, we still may be under estimating the numbers of practices that are being snatched up by private equity right now.
D.J. Verret, MD, FACS :You mentioned the Levin data set that that showed some of the acquisitions. Did that also give you any insight into this the monetary size of the acquisitions that you're talking about?
Jane Zhu, MD :That's a great question. Unfortunately, no, our data did not look at the actual the amounts that were involved in the The purchases. However, there have been a couple of more recent papers that have looked at or try to look at some of that information. A lot of that is, as I mentioned, opinion articles that have been that have looked at amounts just based on conversations with private equity groups. But from my knowledge, my understanding there is a wide range. However, if you think about the the typical strategy of a private equity group in terms of purchasing a physician practice, it seems to suggest that these deals tend to be kind of bigger amounts of money. And that's because a typical acquisition strategy usually involves linking a private equity owned physician management company with a physician owned Medical Group. And the reason that's the case is because in the United States, in most states, private equity firms are prohibited from owning physician practices, they're not allowed to be the owners of clinical practices, because they don't have MDS or other clinical degrees. And so the private equity strategy is usually to buy up a management company, and then link that with a medical group. And those medical groups, same as what we found in our, in our study, they're often these large, so called platform practices that have a really large footprint, in terms of market reach clinical reputation office locations, and the private equity group group will then grow the value of that medical practice. By being able to recruit more physicians, or nurse practitioners and advanced providers, they'll acquire small and solo practices around the area to merge with this larger platform practice. And then that way, they'll be able to expand market reach, they may also, at the same time, decrease costs in various ways through care delivery changes, by by going to other ancillary services that might be lower cost by going to other providers that might be lower cost than physicians, and all of these things. These strategies are ways to kind of profit maximize, and a private equity investor, from what we know, typically sell the business to another investor, after three to seven years of investing in a physician Medical Group, and they expect annual returns of over 20%. And so if you think about that, that's a big number. And it definitely raises questions about what are the impacts on the not only the physician group, but also quality of care and patient outcomes down the line? If your expectation is for an annual return? That's that high?
D.J. Verret, MD, FACS :Well, that that actually was going to be my next question is that, you know, there's a lot of talk out there about private equity acquisitions. And obviously, healthcare is kind of a unique area. It's not like producing widgets where you you have a product that public can or can't buy, it's up to them. Health care, you're dealing with people's lives, and in a lot of cases, the patients don't have a choice because of insurance constraints or emergency services. Has has, have you guys been able to really reach into what some of the quality metrics might be? And and what happens and in any event, once private equity starts acquiring practices?
Jane Zhu, MD :It's a great question. And I think that's the the million dollar one in this field, right? Because in theory, when you have financial incentives that are that great, it may conflict with the need for, you know, physician practices to otherwise invest in practices stability and quality and safety for patients. The downside is that there has not been much in terms of empirical evidence that's been generated around this question. The upside is that that work is in progress. There was one recent paper that was published in JAMA I am about a month ago, probably two weeks ago, if I remember correctly, and that was looking at what happens when a when private equity firms purchase hospitals. And what they found was that there were differential increases in the private equity owned houses. Hospitals compared to control hospitals in terms of net income and charges and case Miss mix index, which refers to the complexity of the patient population, they were seen over the very first three years after acquisition, and that is the best available evidence we have about what this trend is doing in terms of downstream effects. The study also looked at a few proxy measures for quality. So they looked at, for example, whether people were getting aspirin after an EMI and a few other of those sorts of proxy measures, and found that there was no clear indication that there was either a positive or negative net effect on quality of care. What I would say about that is that despite that being the best evidence we have right now, these proxy measures of quality may not reflect, you know, the, the deeper metrics that we're trying to get to. And so that is certainly a work in progress.
D.J. Verret, MD, FACS :It also seems that metrics for inpatient, they're fairly well established metrics for outpatient, though could be a little bit harder. Since follow up isn't quite as assured.
Jane Zhu, MD :It's a great point, I think whether the effects that they saw in terms of quality is analogous among physician practices is an open question. What I would add is that, you know, private equity acquisitions and health care is not a new phenomenon. It's been happening for many years. We know that private equity actually entered nurse, the nursing home market, many years ago. And there's a small body of literature that looks at what happens when private equity buys up nursing homes. And that literature, there's some sense that quality of care is is net neutral, as well, it's kind of a controversial and inconclusive area of study, because a few studies found that, for example, nurse staffing ratios went down after private equity, purchased a nursing home. And then at the same time, there's other studies that found that that was, you know, a general trend going on at the time anyway. And so the evidence there is fairly inconclusive in terms of, you know, what is the effect on quality of care across these different sorts of markets? And and it's an area that just needs a lot more study. It's something that we're working on currently.
D.J. Verret, MD, FACS :So what what does your research look like in the future? What can we look forward to that you guys are working on?
Jane Zhu, MD :Yeah, I think the goal is really to try to link, you know, these acquisitions to claims data, or administrative billing data so that we can actually go in and try to figure out what the effect is on patients and delivery of care. And there are several groups, you know, research groups that are working on similar questions. And I think very soon, you'll have a little bit more information about that. I think in general, what we know about this whole trend is that it's it's not just private equity that's coming in and purchasing up physician owned practices. The The fact of the matter is that there's consolidation that's happening across the healthcare market. And there's a lot of good research that's looking at what happens when, you know, a hospital chain, for example, purchases up a physician Medical Group, the fact of the matter is, there are there are fewer and fewer solo and small group practices. And whether a practice is facing acquisition by a private equity group, or a big hospital chain or a larger you know, practice. These are decisions that practice managers and and practice physician owners are facing every single day. And the same sorts of downstream effects may be you know, possible regardless of who's buying up, the the the practice, what we what's probably true is that there are good players and bad players in all of these markets. There's private equity firms potentially that do care a lot about maintaining clinical reputation and keeping quality of care up and making sure that, you know, the the way that the practice runs is efficient and streamlined and follows clinical guidelines. And then there may be private equity groups that don't do that. Well, for which that's not a priority. Same for, you know, hospital groups and physician owners. And so it may be hard at this point to really draw a conclusion about this. This trend and its effects across the entire arena.
D.J. Verret, MD, FACS :Definitely a lot more research to be done in that realm for sure. For sure, yes. We're talking with Dr. James Zoo of the Oregon Health Sciences University about her research into private equity involvement in healthcare. We'll take a quick break and we'll be back with Dr. Zhu right after this. Welcome back to Ask Me, MD. We're talking with Dr. Jane Zhu of the Oregon Health Sciences University about her research into private equity. As we do at the end of our segment, we're going to ask Dr. Zhu. Jane, what do you think are the top three things you would tell a physician thinking about a private equity acquisition? Just based on the research that you've done so far?
Jane Zhu, MD :Yeah, I think it's a great question. And, you know, based on our research, we know that private equity firms are essentially interested in practices across various specialties. So there's money to be made here. Any, any physician who's considering something like this should really step back and think about, you know, what is the extent to which a physician owner would be willing to surrender control. And, and and that means control in the day to day operations, the potentially the control in clinical operations, I think, often private equity firms, because they're expecting such a great return on investment, they may want to protect their investment and and make sure that the practices run in a certain business like way, and there can be both positives and negatives that are related to that. And so if that's true, one of the important things for physician group to consider is what are some of the ways in which private equity firm would think about changing the way that the office management administration and clinical day to day is run? And that is something that, you know, these physicians may not be accustomed to giving up control over but really need to clarify with, you know, an investing group. The other issue is, you know, what is the primary way that a private equity firm is considering expanding the practice. And that's something that really needs to be clarified as well. From our research, we know that private equity firms really come in and want to buy these large platform practices that have relatively large footprints in the community. One thing to ask them and to consider is, how would that be expanded? If a private equity firm were to enter the picture? Would they change the way that the change the the providers that are giving care and go to lower cost clinicians that are not physicians? Would they expand the practice to more and more sites? What are some of those trade offs that would be involved in some of those decisions. And then the third, and this is not something that is something that we looked at, necessarily in our research, but the third takeaway at a top three would be think about kind of the the long term implications of selling your practice to a PE firm. As I mentioned, a PE firm often wants really high returns within three to seven years and then they may turn around and sell that firm. That practice again. If a physician has spent years and years, building up a practice, making sure that they've provided really, really quality care, building up, you know, a patient panel that trusts them, and even recruiting really, really great associates and other younger physicians to try to take over. What are the long term implications of having a PE firm come in? Obviously, one is that the the physician owners might get a big lump sum. Or they may have, you know, a certain degree of their salary that's no longer dependent on clinical volume. But what does that mean for the younger physicians or for future physicians that they want to recruit into the firm? Those are all questions to be thinking about and considering the long and short of it is that there are potentially positives for private equity firm coming in, and investing in a physician practice. That might include management and administrative streamlining, it may include some administrative efficiencies, it may include, you know, adoption of electronic health records and other things that might make practice easier. But there's also potential downstream negative effects as well. Those are the things that we don't quite understand as well right now, but are definitely issues that should be considered carefully by any physician group that's considering such a purchase.
D.J. Verret, MD, FACS :I think all of those are excellent points. And a lot of them apply not just to private equity, but selling your practice to anyone. And one that I do hear talked alot, the loss of autonomy often is is cited when you're considering selling your practice. But one that I don't hear talked about that I think is equally important, is what you said, think about not tomorrow, but think about five years from now. Because once you sell that practice, you have no control over who the practice is going to be sold to. And, and you may end up you know, if you're a physician, I actually saw it here in Dallas, where physicians joined under a single tax ID in it in an entity. This was before kind of private equity got involved a few years ago, but under a single tax id entity, the physicians didn't have control of the entity, the entity ended up selling to one of the local hospital systems. And so a lot of the independent physicians who were independent and never wanted to go to work for the hospital system, all of a sudden found themselves employed by the hospital system because they were sold by somebody they had sold to. So it's definitely something.
Jane Zhu, MD :Yeah, I definitely with any of these sorts of you know, mergers and acquisitions, physicians have to be ready to surrender control and to give up some of their independence to some extent.
D.J. Verret, MD, FACS :Jane, thanks for joining us some a lot of good information in it and definitely look forward to to your additional research. It's going to be interesting to see what some of these outcomes look like, especially as some of these practice models end up maturing over time.
Jane Zhu, MD :Thank you so much for having me.
D.J. Verret, MD, FACS :We've been talking with Dr. Jane Zhu of the Oregon Health Sciences University about her research in private equity. I'm Dr. DJ Verret, you're listening to Ask Me MD, medical school for the real world. Until next time, make it an awesome week.
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