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PE-backed physician groups grew 600% in a decade

The number of physician practices acquired by private equity firms increased by more than 600% from 2012 to 2021, according to a new analysis in Health Affairs

The analysis sought to comprehensively measure the growth and penetration of PE acquisitions of physician practices for certain specialties, finding PE-acquired practices increased from 816 sites across 119 metropolitan statistical areas in 2012 to 5,779 practice sites across 307 MSAs in 2021.

"When PE firms acquire multiple providers in the same specialty within a local or regional market, those firms can gain significant market power, which can lead to higher prices or lower quality, or both, as a result of reduced competitive pressure," the authors, affiliated with University of California Berkeley and the FTC, note. 

The 10 physician specialties measured in the study — because they are most frequently acquired by PE firms — are primary care, dermatology, obstetrics-gynecology, gastroenterology, ophthalmology, oncology, urology, radiology, orthopedics and cardiology. 

Here are five other findings from the study: 

1. 2021 marked a boom in PE-physician deals. There were 175 acquisitions in 2018 before plateauing in 2019 because of a decline in dermatology acquisitions. In 2020, COVID-19 brought down most acquisitions before buying boomed in 2021. That year brought 317 acquisitions across the 10 specialties — 84.3% more than 2020.

2. By 2021, PE firms collectively held a greater than 30% market share in at least one specialty in 120 of 384 (31%) of MSAs. In 60 of those 120 (50%) MSAs, PE firms collectively held a greater than 50% market share in at least one specialty, with the highest concentration in gastroenterology and dermatology. 

3. The highest concentrations of collective PE market share (50% or more) were found in the South and Northeast. Authors attribute variation in PE penetration at the national level to PE firms' strategies of establishing dominance in local markets to build leverage with insurance companies, hospitals and other payers, and firms' practice of targeting local markets with high service demand and high provider fragmentation. 

4. The authors note that limited scrutiny of PE-controlled medical specialties "exacerbates concerns," and a lack of obligatory reporting mechanisms for PE-physician acquisitions worsens the situation and hurts transparency. 

5. "Especially since 2020, these high market shares raise competitive concerns about PE control of specialty care in those areas," the authors note. "The high PE market shares observed in specific MSAs warrant close scrutiny by the Federal Trade Commission, state regulators, and policy makers, as these shares could adversely affect health care prices and quality." 

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