Practices Experience Staffing Changes After Private Equity Acquisition

January 11, 2023 - Private equity (PE) acquisitions of physician-owned medical practices lead to workforce composition changes, such as greater replacement of clinicians and the addition of more advanced practice providers, according to a new Health Affairs study.

The study from Oregon Health & Science University, the University of Chicago, Harvard University, and Johns Hopkins University linked practice acquisition information to clinical-level data to study the workforce composition across PE-acquired and non-PE-acquired practices, as well as across PE-acquired practices.

The study found that the clinician replacement ratio was higher for PE-acquired practices compared with non-PE-acquired controls. The ratio was 1.75 at PE-acquired practices versus 1.37 at non-PE-acquired practices. The data also revealed a higher clinician replacement ratio within each specialty (dermatology, ophthalmology, and gastroenterology) and clinician type (physician and advanced practice provider).

Additionally, PE-acquired practices hired more advanced practice providers following private equity acquisition relative to non-PE-acquired practices during the study’s period.

“We really ought to be paying more attention to how these big-picture practice delivery shifts are affecting physicians,” said study author and assistant professor of medicine (general internal medicine and geriatrics) in the OHSU School of Medicine Jane Zhu, MD.

“There is a finite number of us. If the measures we found in this study suggest dissatisfaction among physicians, then ultimately that’s yet another burden on a workforce that is already on the brink of burnout.”

Private equity firms have become increasingly interested in the healthcare sector, particularly physician practices. However, some stakeholders, including clinicians, have questioned whether a PE acquisition is as good for patient outcomes as it can be for practice owner pockets. Now, research also suggests that a PE acquisition may harm the clinician workforce, which is already experiencing unprecedented levels of burnout.

“A lot of the current research on private equity looks at changes in costs, revenue or services following acquisitions. The purpose of this study was to capture private equity in the context of the clinical workforce,” explained first author Joseph Dov Bruch, PhD, assistant professor of public health sciences at the University of Chicago.

“That we observe greater clinician replacement at private equity-acquired practices compared with non-private equity-acquired practices suggests that private equity’s business strategy may differ from that of traditional practice owners.”

PE firms “are financial institutions that raise money from investors to acquire and then sell companies for sizable profits over three-to-seven-year time frames,” Zhu et al. stated in the study. The firms typically change organization, management, and financial incentives in order to make acquired companies more profitable.

Physician practice owners can greatly benefit from a PE acquisition. They can get a sizeable lump sum for selling their practice. Some can even retain some share and benefit from profits and other improvements down the road. However, physicians at the practices typically become employed by the PE firm or its platform practice subsidiary and receive salaries.

Some physicians may prefer a salaried, employed position without the administrative duties, Zhu et al. suggested. But greater clinician replacement can upset the stability of a practice’s workforce, which in turn can harm patient outcomes, they added.

“A more stable workforce is associated with better health outcomes for patients, improved quality metrics, and reduced resource use,” they wrote.

A growing body of literature has also indicated that PE firms tap advanced practice providers over physicians to maximize profits. This study also showed an increase in advanced practice provider staffing following a PE acquisition.

“Although these findings should be considered preliminary in nature, they raise important questions about the implications of PE ownership on the clinical workforce, particularly as PE investment accelerates across medical specialties,” the study concluded.