Private equity has interests in 900 doctor’s offices in the region

Private equity-backed companies have financial interests in 900 doctor’s offices and other locations in the Philadelphia region, according to a fresh report by an advocacy group opposing the spread of the for-profit business model.

Physical therapy clinics, dental offices and behavioral health centers topped the rankings a list of regional facilities developed as part of the Private Equity Stakeholder Project. His report comes at a time when private equity investments in health care are in the crosshairs of federal regulators, with many lawmakers believing the results are harming patients and providers.

Crozer Health Hospital in Delaware County is the most high-profile case of private equity hospital ownership in the Philadelphia region. Pennsylvania’s attorney general took an unprecedented move, filing a petition this week asking the court to hand over state control of a health care system that has closed two hospitals since a 2019 debt by owner PE. (The now closed Hahnemann University Hospital, whose collapse is often associated with private equity examples, was owned by an individual investor who borrowed money from private equity lenders.)

“The purpose of preparing this data was to start measuring private equity exposure in a city that already knows the risks. Several hospitals in and around Philadelphia have already attracted public attention due to their private equity ownership,” said Michael Fenne, senior coordinator of health care research at Chicago-based PESP.

His research found that the Philadelphia region had the highest number of PE-owned facilities in physical therapy (271), followed by behavioral health (98), dental services (86), and home health and hospice (85). All are popular with private equity investors due to the growth and fragmentation of their specialties, with many tiny providers available for acquisition.

Private equity reach

Private equity debacles make headlines, but PE firms control a relatively tiny portion of the overall health care market — just 4% of revenues, according to estimates by data firm PitchBook.

This is probably because hospitals are responsible for it 30 percent of US health care spendingwhich, according to the latest federal data, represents the largest market share. And PE firms has only 8% of private hospitals in the country– says PESP. The data includes many rehabilitation and community hospitals, which earn significantly less revenue than gigantic academic centers, which are typically owned by nonprofit organizations.

Nationwide, as in the Philadelphia area, PE-backed providers have the largest presence in home care, dental services and mental health/substance operate disorder treatment, according to PitchBook. Businesses dealing with musculoskeletal issues, including physiotherapy, are another vital area for PE.

This wide range of services, spanning many tiny facilities, accounts for approximately 10% of national healthcare spending.

The local presence of PE is challenging to capture

Advocacy groups such as PESP and scientists are pushing to bring some clarity to the unclear world of EP-backed healthcare.

Fenne warned this its number 900 sites in the region is likely low because private equity firms are not obliged to publicly disclose their holdings, making it challenging to assess PE’s presence in the geographic market. For example, the report does not include infertility clinics financed by the European Parliament.

The study was published this year in the journal Public Policy Health Matters found that PE-backed urology practices control nearly 40% of the market in the Philadelphia region.

In July, a JAMA Psychiatry study found that 3.7% of mental health facilities in Pennsylvania were owned by PE and 14.3% of state substance operate disorder treatment centers. In New Jersey, the mental health facility rate is 4.3% and the substance operate rate is 9.2%.

The entry of private equity into these areas does not surprise Marissa King from the University of Pennsylvania, professor of management and health policy at the Wharton School and one of the authors of the JAMA study.

“Treatment demand is growing for both mental health services and opioid use disorder treatment,” King stated in an episode of the show Wharton Business Daily Podcast. “There is a lack of treatment options and private equity appears to be taking advantage of some of those opportunities.”

The reach of private equity medical practices continues to grow. This was recently announced by US Digestive Health, an Exton-based gastroenterology practice adding seven doctors. Amulet Capital Partners LP of Greenwich, Conn., formed the group in 2019.

But there is also resistance to an investment model that pools money from pension funds, foundations and wealthy individuals to buy companies or shares in companies. The goal of a PE firm is to make a profit by selling companies, usually within 10 years. Even if the acquisition doesn’t go well, the PE firm can profit from dividends paid to investors, financed by the debt owed to the company.

Last year, a Drexel Hill dermatologist declined to sell his practice to PE, and Trinity Health Mid-Atlantic ended its relationship with a PE-controlled radiology group.

The impact of private equity

Research shows that financial meltdowns involving PE are high profile, but their effects are not all negative.

Researchers at Penn’s Wharton School and others discovered this year that PE ownership is is associated with worse patient outcomes and higher costs for patients and insurers. But in their review of 25 years of research on private equity’s impact on health care, they also found evidence of increased provider efficiency and lower hospital readmission rates.

Generally speaking, this is also true prices for consumers and insurers augment after a hospital chain acquires an independent hospital– according to a fresh article by scientists from Penn, Texas A&M University and other institutions.

Policymakers share academia’s interest in understanding the impact of private equity on health care.

Democratic U.S. Sen. Elizabeth Warren of Massachusetts has been calling for legislation since 2019 that would prevent private equity from taking on debt to pay itself millions and then emerging unscathed. It would protect against another failure like the May bankruptcy of Steward Health Care, once the nation’s largest private hospital system.

This month, Warren and other Democrats in Congress reintroduced the Stop Wall Street Looting Act of 2024. The proposal would hold PE firms liable for debts, legal judgments and liabilities such as pension funds of companies they control.

In early March, federal regulators that oversee the health care industry and economic competition asked for public comment on the growing presence of private equity and other for-profit corporations in health care. This is part of what the FTC, the U.S. Department of Justice, and the U.S. Department of Health and Human Services have called theexamining the impact of corporate greed on health care“

In May, the FTC and the Justice Department’s antitrust division launched an investigation into the use of serial takeovers and roll-up strategies by PE firms and others across the economy. Roll-ups involve acquiring multiple small companies, a strategy popular with PE firms and others trying to build a significant business in health care or any other industry.

Ivy Rehab, the largest physical therapy company in the Philadelphia region by number of clinics, illustrates this strategy. The company, backed by Waud Capital Partners and others, has made at least five acquisitions in the Philadelphia region, giving it 145 locations.