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The influence of private equity on Philly-area doctors’ practices is growing. A new study offers insight.

Regulators in Washington are taking a harder look at health-care consolidation by private equity firms and other corporate buyers.

Lina Khan, chair of the Federal Trade Commissions, speaking at a during a House Judiciary Committee hearing in 2023, is among the Biden administration officials critical of consolidation in health care, including the current expansion of private equity's role in the sector.
Lina Khan, chair of the Federal Trade Commissions, speaking at a during a House Judiciary Committee hearing in 2023, is among the Biden administration officials critical of consolidation in health care, including the current expansion of private equity's role in the sector.Read moreAl Drago / Bloomberg

Private equity-backed urology practices control nearly 40% of the market in the Philadelphia region, according to a recent Health Affairs study that provided rare insight into the opaque world of private, for-profit health-care businesses.

The area’s biggest PE-backed urology practice, MidLantic Urology LLC, has 55 urologists and 26 offices, yet does not account for all of the 40% market share in urology.

Researchers at the University of California-Berkeley and elsewhere did not identify individual practices, but found private equity, or PE, firms collectively had at least 30% market share in 120 markets nationwide in 2021 in at least one of 10 major specialties studied.

“The findings raise concerns about competition and call for closer scrutiny by the Federal Trade Commission, state regulators, and policy makers,” Ola Abdelhadi and coauthors wrote, while cautioning that their data might not be complete because private equity ownership is difficult to track.

Federal regulators with oversight of the health-care industry and economic competition in early March asked for public comments on private equity and other for-profit corporations’ increasing presence in health care. It’s part of what the FTC, the U.S. Department of Justice, and the U.S. Department of Health and Human Services called an “inquiry on the impact of corporate greed in health care.”

“Given recent trends, we are concerned that transactions may be generating profits for those firms at the expense of patients’ health, workers’ safety, and affordable health care for patients and taxpayers,” the three agencies said.

Private equity firms gather money from pension funds, endowments, and wealthy individuals. That money goes into limited partnerships, or funds, that buy companies or stakes in companies. The goal of the PE firm is to make a profit by selling the companies within the typical 10-year lifespan of the funds.

The number of U.S. physician practices acquired by private equity firms soared to 484 deals in 2021 from 75 in 2012, according to the researchers at the University of California-Berkeley.

The increase in PE deals with physician groups comes as the health-care industry consolidates under hospital systems and insurers, said Gary Kirsh, a urologist in Cincinnati and president of Solaris Health, which includes MidLantic, and is backed by Lee Equity Partners.

“Independent docs have a choice, because if they put their head in the sand and remain their own small operation in each locale, they are not going to survive the consolidating headwinds,” he said in an interview . They can join hospitals or work for an insurance company or get investor help, he said.

Private equity ownership of physician practices

On a national basis, physician practices owned by private equity firms employ less than 5% of doctors, according to the American Medical Association, a physician trade group.

But these acquisitions are drawing attention from academic researchers and advocates because they are typically too small to require a formal antitrust review. This allows firms to accumulate significant share in some markets. (The federal review goes beyond private equity ownership of doctors’ practices.)

Optum, owned by UnitedHealth Group, has 90,000 employed or affiliated physicians, a UnitedHealth official told investors last fall. That amounts to 10% of the nation’s physicians controlled by a single company. Optum has the same corporate parent as the nation’s largest insurer.

Optum would grow further under a deal disclosed last week to acquire financially troubled and PE-backed Steward Health Care’s physician group, which covers nine states but does not have a presence in the Philadelphia area.

Private equity firms can have outsized influence on “health care prices and quality” in markets with high PE concentrations, according to the study in the March issue of Health Affairs, a health policy journal. The study looked at PE market share by metropolitan statistical area (MSA), which is a Census Bureau group of counties with economic ties to at least one urban center.

Experts on a panel last year at the University of Pennsylvania’s Leonard Davis Institute, which studies health policy and economics, said private equity-backed health-care businesses should not have special rules for reimbursement, transparency, and other matters.

“It should be the same rule book for everyone,” said Ryan McDevitt, a Duke University economics professor.

PE-backed physician groups in Philly region

Three large urology groups in Philadelphia’s Pennsylvania suburbs formed MidLantic Urology in 2018 because they did not want to work for one of the big local health systems as they were consolidating the market, recalled Michael Hagg, a urologist who is MidLantic’s market president.

“We wanted to open our own ambulatory surgery center. It’s quite an economic lift,” Hagg said.

To open the center in Wayne in 2020, MidLantic sought private equity investment to share the economic risk, he said. “Solaris has absolutely no say or input in what we do clinically,” he said. “If we need help from an administrative standpoint, they’re there to help us.”

PE-backed groups in women’s health and gastroenterology also have significant market share in the Philadelphia region. This is how they came to be:

Axia Women’s Health: Boston-based Audax Group acquired and combined Women’s Health Care Group of PA and Regional Women’s Health Group, which were concentrated in Southeastern Pennsylvania and South Jersey, into Axia in 2017.

Audax then expanded the company, which is based in Voorhees, through 18 acquisitions, adding locations in Indiana, Ohio, and Kentucky, before selling it four years later to Partners AG, a Swiss firm, in a deal valued at nearly $800 million, according to PE Hub.

U.S. Digestive Health: Based in Exton and backed by a Connecticut private equity firm, U.S. Digestive has become the largest gastroenterology practice in the broader Philadelphia region in the last five years through the acquisition of multiple physician groups.

After starting with the consolidation of three large physician groups in Philadelphia’s western suburbs, as well as Lancaster and Berks Counties, U.S. Digestive has more than tripled in size with acquisitions in northern Delaware and across southern Pennsylvania. It has 40-plus offices and 24 surgery centers. The number of doctors has grown to 170 from 70 in 2020.

Align ENT & Allergy: In a recent deal, three ear, nose, and throat practices in the Philadelphia region joined with one in Connecticut to form Align ENT & Allergy, with 30 physicians and 28 audiologists in the two states. Behind the new company is Zenyth Partners, a New York PE firm. Zenyth also owns Schweiger Dermatology Group, which has 10 offices in Southeastern Pennsylvania.

“We [physicians] gain the advantages of a professionalized company while retaining local control so we can concentrate on our clinical practices and serve our local communities,” Mark Ginsburg, an otolaryngologist and facial plastic and cosmetic surgeon from Providence ENT, said in a news release announcing the deal in February. The other two Philadelphia-area groups are Pinnacle ENT and BergerHenry ENT.