Skip to content
  • About
  • Contact
  • Contribute
  • Book
  • Careers
  • Podcast
  • Recommended
  • Speaking
  • All
  • Physician
  • Practice
  • Policy
  • Finance
  • Conditions
  • .edu
  • Patient
  • Meds
  • Tech
  • Social
  • Video
    • All
    • Physician
    • Practice
    • Policy
    • Finance
    • Conditions
    • .edu
    • Patient
    • Meds
    • Tech
    • Social
    • Video
    • About
    • Contact
    • Contribute
    • Book
    • Careers
    • Podcast
    • Recommended
    • Speaking

How physician groups can beat private equity

Nathaniel Arana
Finance
May 22, 2024
Share
Tweet
Share

As a society, we should all be concerned about the increasing rate at which private equity firms are acquiring physician groups. Over the last decade, private equity firms have invested nearly $1 trillion in approximately 8,000 health care deals, encompassing a wide spectrum of medical services, from fertility clinics to neonatal care, primary care to cardiology, hospices, and everything in between.

The consequence? Health care has shifted towards a profit-driven model where physicians have minimal influence on the treatment plans for their former patients. Instead, decisions are made by profit-focused administrators, neglecting patient outcomes. A tragic example is the case of Zion Gastelum in Yuma, Arizona. Two-year-old Zion Gastelum tragically passed away shortly after undergoing root canals and crowns on six baby teeth at a clinic associated with a private equity firm.

His parents filed a lawsuit against the Kool Smiles dental clinic in Yuma, Arizona, and its private equity investor, FFL Partners. They alleged that these procedures were performed unnecessarily, driven by a corporate strategy to maximize profits by overtreating children from lower-income families enrolled in Medicaid. Zion’s demise was attributed to “brain damage caused by a lack of oxygen,” as per the lawsuit.

A recent investigation by Kaiser Health News has shed light on the detrimental impact of private equity in health care. As private equity delves deeper into the health care sector, mounting evidence suggests that this penetration has led to higher costs and reduced quality of care. Companies owned or managed by private equity firms have been obligated to pay fines exceeding $500 million since 2014 to settle at least 34 lawsuits under the False Claims Act, a federal law penalizing fraudulent billing submissions to the federal government. In most cases, private equity owners have managed to evade liability.

One might argue that physicians are to blame for selling their practices. In reality, health insurance payers have compelled physician groups to sell their practices due to inadequate reimbursement rates. Unlike other businesses, medical practices cannot simply raise their prices; they must negotiate with health insurance companies, a daunting task. The American Medical Association has revealed that the primary reason physicians sell their practices to any entity is the need for higher reimbursement rates to sustain financial viability. Isolated, they struggle to effectively negotiate these rates with insurers.

Private equity often portrays itself as a savior, luring physicians with promises of reduced workload, higher earnings, and improved work-life balance. However, physicians frequently encounter increased burnout, akin to employed hospital physicians. They are excluded from clinical decisions and referrals and pressured to utilize unnecessary ancillary services. Most physicians ultimately leave after 3-5 years, which coincides with the typical length of these buyout contracts.

Many physicians also discover that the promised pay increases fail to materialize. Health insurance companies are aware that negotiating with private equity firms leaves them with limited leverage, leading to reluctance. Insurance companies understand that this consolidation can result in private equity dictating health care service prices, further dissuading negotiations. Consequently, physicians are left with practices they no longer own, corporate control over medicine, reduced clinical outcomes, and often, the same or lower pay than before they sold their practice. In this situation, the sole beneficiary is typically the private equity firm, aligning with their primary objective.

So, what can physician groups do? The most critical step is to regularly negotiate reimbursement rates. If you haven’t negotiated these rates in the last three years, you’re already facing a 15 percent or even higher deficit, depending on local inflation rates. Insurance payers count on these groups not to negotiate, using it as a cost-saving strategy while they increase premiums significantly beyond inflationary rates.

After initial rate negotiations, practices should review these rates annually and request yearly cost-of-living increases. This approach eliminates the need to fight for a 15 percent increase three years down the line, allowing for smaller raises over three years with less effort.

Insurance payers are becoming more discerning about private equity’s influence and are reevaluating their support for private practices. Some payers are increasingly willing to assist private practices and raise rates if the physician group is not backed by private equity. More insurance payers are demanding disclosures of ownership to determine if a practice has private equity involvement. While this development is promising, physician groups must still take the initiative to negotiate. The process has become challenging, and we encourage physician groups to seek the assistance of consultants or companies with expertise in this endeavor.

Private equity’s presence is undeniable and rapidly reshaping our health care landscape. Physician groups must respond effectively. Many physicians end up regretting selling to private equity once they witness the cutthroat business tactics employed by these companies—disrupting and profiting from an industry. Private equity’s primary aim is to maximize profits, not forge partnerships, even if it means sacrificing physician groups and the quality of care. As stakeholders in health care, physician groups, and others must take a stand and adopt measures to safeguard against this corporate-owned health care approach.

Nathaniel Arana is CEO, NGA Healthcare. With many years of experience in business and in the health care field, Nathaniel earned a management degree from the Eller College of Management with an emphasis on operational management and organization. He helped start an out-of-network billing and consulting business from concept to profitability. Thereafter, he managed and grew a health care consulting business; under his management, the business dramatically increased its revenues and clients.

Nathaniel started NGA Healthcare because he found that practices were looking for consulting companies that could provide results—not just empty promises. Since then, NGA Healthcare has worked with all specialties to help grow, reorganize, and make practices more profitable. Nathaniel regularly contributes to many healthcare business magazines and companies as an expert in practice management. A physician advocate, Nathaniel believes in working directly with his clients to achieve and surpass their goals.

ADVERTISEMENT

Prev

Forced immigration and the American dream: a physician's story

May 22, 2024 Kevin 0
…
Next

The many faces of anger: from frustration to social change

May 22, 2024 Kevin 0
…

Tagged as: Practice Management

Post navigation

< Previous Post
Forced immigration and the American dream: a physician's story
Next Post >
The many faces of anger: from frustration to social change

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

More by Nathaniel Arana

  • Health insurers are ignoring price transparency rules at the expense of private practice

    Nathaniel Arana

Related Posts

  • Why private equity is a dangerous employer

    Kara Grant
  • Your bone fracture, my cash flow: the consequences of private equity in health care

    Michael L. Millenson
  • Building individual health equity

    Paula Muto, MD
  • I was trolled by another physician on social media. I am happy I did not respond.

    Casey P. Schukow, DO
  • The infiltration of venture capital and private equity in the surprise medical bills debate

    Rachel Bluth and Emmarie Huetteman
  • The black physician’s burden

    Naomi Tweyo Nkinsi

More in Finance

  • The business lesson new doctors must unlearn

    Stanley Liu, MD
  • The hidden impact of denials on health care systems

    Diana Ortiz, JD
  • Why physicians are unlike the “average” investor

    David B. Mandell, JD, MBA
  • Signing bonuses and taxes: What physicians should know

    Shane Tenny, CFP
  • 5 steps to ride out a non-compete without uprooting your family

    Stanley Liu, MD
  • What every physician should know before buying into a medical practice

    Dennis Hursh, Esq
  • Most Popular

  • Past Week

    • What the world must learn from the life and death of Hind Rajab

      Saba Qaiser, RN | Conditions
    • Why Medicaid cuts should alarm every doctor

      Ilan Shapiro, MD | Policy
    • When the diagnosis is personal: What my mother’s Alzheimer’s taught me about healing

      Pearl Jones, MD | Conditions
    • Key strategies for smooth EHR transitions in health care

      Sandra Johnson | Tech
    • Reassessing the impact of CDC’s opioid guidelines on chronic pain care [PODCAST]

      The Podcast by KevinMD | Podcast
    • Why flashy AI tools won’t fix health care without real infrastructure

      David Carmouche, MD | Tech
  • Past 6 Months

    • Why tracking cognitive load could save doctors and patients

      Hiba Fatima Hamid | Education
    • How dismantling DEI endangers the future of medical care

      Shashank Madhu and Christian Tallo | Education
    • What the world must learn from the life and death of Hind Rajab

      Saba Qaiser, RN | Conditions
    • How scales of justice saved a doctor-patient relationship

      Neil Baum, MD | Physician
    • The silent toll of ICE raids on U.S. patient care

      Carlin Lockwood | Policy
    • Why shared decision-making in medicine often fails

      M. Bennet Broner, PhD | Conditions
  • Recent Posts

    • How locum tenens work helps physicians and APPs reclaim control

      Brian Sutter | Policy
    • The hidden incentives driving frivolous malpractice lawsuits

      Howard Smith, MD | Physician
    • Why what doctors say matters more than you think [PODCAST]

      The Podcast by KevinMD | Podcast
    • How Mark Twain would dismantle today’s flawed medical AI

      Neil Baum, MD and Mark Ibsen, MD | Tech
    • Mastering medical presentations: Elevating your impact

      Harvey Castro, MD, MBA | Physician
    • Marketing as a clinician isn’t about selling. It’s about trust.

      Kara Pepper, MD | Physician

Subscribe to KevinMD and never miss a story!

Get free updates delivered free to your inbox.


Find jobs at
Careers by KevinMD.com

Search thousands of physician, PA, NP, and CRNA jobs now.

Learn more

Leave a Comment

Founded in 2004 by Kevin Pho, MD, KevinMD.com is the web’s leading platform where physicians, advanced practitioners, nurses, medical students, and patients share their insight and tell their stories.

Social

  • Like on Facebook
  • Follow on Twitter
  • Connect on Linkedin
  • Subscribe on Youtube
  • Instagram

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

  • Most Popular

  • Past Week

    • What the world must learn from the life and death of Hind Rajab

      Saba Qaiser, RN | Conditions
    • Why Medicaid cuts should alarm every doctor

      Ilan Shapiro, MD | Policy
    • When the diagnosis is personal: What my mother’s Alzheimer’s taught me about healing

      Pearl Jones, MD | Conditions
    • Key strategies for smooth EHR transitions in health care

      Sandra Johnson | Tech
    • Reassessing the impact of CDC’s opioid guidelines on chronic pain care [PODCAST]

      The Podcast by KevinMD | Podcast
    • Why flashy AI tools won’t fix health care without real infrastructure

      David Carmouche, MD | Tech
  • Past 6 Months

    • Why tracking cognitive load could save doctors and patients

      Hiba Fatima Hamid | Education
    • How dismantling DEI endangers the future of medical care

      Shashank Madhu and Christian Tallo | Education
    • What the world must learn from the life and death of Hind Rajab

      Saba Qaiser, RN | Conditions
    • How scales of justice saved a doctor-patient relationship

      Neil Baum, MD | Physician
    • The silent toll of ICE raids on U.S. patient care

      Carlin Lockwood | Policy
    • Why shared decision-making in medicine often fails

      M. Bennet Broner, PhD | Conditions
  • Recent Posts

    • How locum tenens work helps physicians and APPs reclaim control

      Brian Sutter | Policy
    • The hidden incentives driving frivolous malpractice lawsuits

      Howard Smith, MD | Physician
    • Why what doctors say matters more than you think [PODCAST]

      The Podcast by KevinMD | Podcast
    • How Mark Twain would dismantle today’s flawed medical AI

      Neil Baum, MD and Mark Ibsen, MD | Tech
    • Mastering medical presentations: Elevating your impact

      Harvey Castro, MD, MBA | Physician
    • Marketing as a clinician isn’t about selling. It’s about trust.

      Kara Pepper, MD | Physician

MedPage Today Professional

An Everyday Health Property Medpage Today
  • Terms of Use | Disclaimer
  • Privacy Policy
  • DMCA Policy
All Content © KevinMD, LLC
Site by Outthink Group

Leave a Comment

Comments are moderated before they are published. Please read the comment policy.

Loading Comments...