Private equity-backed companies have invested in 900 clinics and other locations in the Philadelphia area, according to a new report from an advocacy group that opposes the spread of profit-driven business models.
Physical therapy clinics, dental offices and behavioral health centers ranked highly. Aggregation of local facilities compiled by Private Equity Stakeholder Project. The report comes as private equity investments in health care are in the crosshairs of federal regulators, with many lawmakers believing the results will harm patients and health care providers. .
Crozer Health in Delaware County is the highest-profile example of private equity hospital ownership in the Philadelphia area. Closer has been struggling financially since its former PE owner let debt pile up on the system in 2019, with two hospitals closing. (The now-closed Hahnemann University Hospital was owned by private investors who borrowed money from private equity financiers, although its demise is often lumped together with the example of private equity.)
“The purpose of preparing this data was to begin to measure private equity involvement in a city that was already aware of the risks. “It’s already garnered a lot of public attention,” said Michael Fenne, senior health care research coordinator at Chicago-based PESP.
His research shows that in the Philadelphia region, physical therapy (271) has the highest number of PE-owned facilities, followed by behavioral health (98), dental services (86), and home health and hospice (85) . Both are popular with private equity due to the growth and fragmentation of their specializations, with many smaller providers becoming acquisition targets.
Private equity scope
Private equity fiascos grab a lot of headlines, but PE firms control a relatively small portion of the overall health care market. Data firm Pitchbook estimates that just 4% of sales.
This is probably due to the heavy burden on hospitals. 30% of US health spendingIt has the largest share of the market, according to the latest federal accounts. and PE companies Owns only 8% of the nation’s private hospitalssays PESP. That tally includes many rehabilitation and community hospitals, which typically earn far less than large academic centers owned by nonprofits.
Nationally, as well as in the Philadelphia region, PE-assisted providers have the largest presence in home care, dental services, and mental health/substance use disorder treatment, according to PitchBook. Businesses that deal with musculoskeletal problems, including physical therapy, are also top areas for PE.
This wide range of services is distributed across many small provider locations and accounts for approximately 10% of the nation’s health care spending.
Difficult to understand the existence of local PEs
Research by advocacy groups and academics such as PESP aims to bring some clarity to the murky world of PE-supported healthcare.
Fenn warned. He has 900 sites The presence of PE in this region is considered to be low, as it is difficult to measure the presence of PE in a geographic market, as private equity firms are not required to disclose their holdings to the public. The report does not include, for example, PE-backed fertility clinics.
Research published this year in the Public Policy Journal health problems We showed that PE-backed urology practices control nearly 40% of the Philadelphia area market.
July, JAMA Psychiatry Research 3.7% of Pennsylvania mental health facilities found to be PE-owned and 14.3% of the state’s substance use disorder treatment facilities. In New Jersey, the mental health facility rate is 4.3% and the drug use rate is 9.2%.
Private equity’s move into these areas doesn’t surprise Marissa King, a professor of health management and policy at the Wharton School of the University of Pennsylvania and one of the authors of the JAMA study.
“There is a growing demand for treatment, both in mental health services and in opioid use disorder treatment,” Dr. King said on the show. Wharton Business Daily Podcast. “There’s a lack of treatment, and private equity appears to be taking advantage of some of those opportunities.”
The scope of private equity physician practice continues to expand. Exton-based gastroenterology practice US Digestive Health recently announced: Added 7 doctors. Amulet Capital Partners LP of Greenwich, Conn., founded the group in 2019.
But there is also resistance to the investment model, which pools money from pension funds, endowments and wealthy individuals to buy companies and shares in them. The goal of a PE firm is to sell the company for a profit, usually within 10 years. Even if the acquisition doesn’t work out, the PE firm can profit from the dividends paid to investors, funded by the company’s debt.
Last year, a Drexel Hill dermatologist refused to sell his practice to a PE company, and Trinity Health Mid-Atlantic ended its relationship with a PE-controlled radiology group.
Private equity influence
Although cases of PE-related financial failures have garnered attention, research shows that the impact is not all negative.
This year, researchers at the Wharton School of Pennsylvania and other institutions have found that PE ownership is lead to worse patient outcomes This also increases the burden on patients and insurance companies. But in a review of 25 years of research on the impact of private equity on health care, they also found evidence of increased efficiency for health care providers and lower rates of patient readmissions.
This is true in general, but Prices rise for consumers and insurers after hospital chain acquires independent hospitalAccording to a new paper by researchers at Penn University, Texas A&M University and others.
Politicians share academia’s interest in understanding the impact of private equity on health care.
Democratic Sen. Elizabeth Warren of Massachusetts has been pushing for legislation since 2019 that would prevent private equity from taking on debt to pay companies millions of dollars and then walking away unscathed. That would prevent another debacle like the May bankruptcy of Steward Healthcare, once the nation’s largest private hospital system.
This month, Warren and other congressional Democrats reintroduced the Stop Wall Street Looting Act of 2024. The proposal would make PE firms liable for debts, legal judgments, and other liabilities such as pension funds of the 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 companies in health care. This is part of what the FTC, U.S. Department of Justice, and U.S. Department of Health and Human Services call “.Research on the influence of corporate greed in healthcare”
In May, the FTC and the Justice Department’s antitrust division launched an investigation into the use of serial acquisition and rollup strategies by PE firms and others across the economy. Rollups involve the acquisition of a number of smaller companies and are a popular strategy for PE firms and other companies looking to build big businesses in healthcare and other industries.
Ivy Rehab, the Philadelphia area’s largest physical therapy company by number of clinics, exemplifies this strategy. The company, backed by Waud Capital Partners and others, has made at least five acquisitions and opened 145 locations in the Philadelphia area.
