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Think about the last time you went to the dentist. The office might have looked the same as it does every time you go for a teeth cleaning (and you are going twice a year, right?): same dentists and hygienists, same waiting room, same reception desk, same anxiety-inducing drilling sounds from the next room. But the dentist scolding you for not flossing more often may not own the business anymore. It may belong to a private equity firm thousands of miles away.
Private equity firms—which use money from rich individuals and funds like pensions and college endowments to buy businesses, extract cash, and flip them—have quietly moved into Main Street medical practices. In 2012, there were about 816 PE-owned physician practices in the U.S. By 2021, there were 5,779. Last year alone, PE firms purchased at least 149 dental offices and 148 outpatient medical practices.
These firms focus mostly on specialty fields built on high-volume procedures and steady insurance payments, like dermatology, dentistry, and gastroenterology. In many of these deals, private equity firms that manage billions of dollars purchase medical practices whose name recognition doesn’t extend far past a county line.
For doctors, striking a deal with a firm to buy up most or all of their business can help struggling medical practices obtain much-needed funding to invest in new resources. It also leaves them at the behest of wealthy firms in far-flung states with no ties to or understanding of the communities the medical practices serve.
Los Angeles–based Leonard Green & Partners, which has $75 billion in assets, buys and sells hospital systems and national retail chains, sometimes with the kinds of results that have turned private equity into a public villain. LG&P loaded up Joann Fabrics and the Container Store with debt, then drove them into bankruptcy. Under its ownership, Prospect Medical Holdings, a hospital chain, faced plummeting quality metrics and a bipartisan rebuke from a U.S. Senate subcommittee. Through a subsidy, LG&P last year acquired dermatology offices in Broomfield, Colorado, Reisterstown, Maryland, and Chesterfield, Missouri, each of which boasts a clinical staff of fewer than six.
Specialties like dermatology are especially lucrative to PE because they are “reliant on high-volume procedures that are reimbursed for service at a pretty high rate,” Jane M. Zhu, a primary care physician and researcher at Oregon Health and Science University who has studied PE ownership of outpatient practices, told me.
When a physician or group of doctors sell to private equity, they usually stay, at least for a while, even if they are looking to retire, says Zhu. The new owner wants that familiar public face. But emerging research has shown some worrying trends in how physician offices behave once they are on the hook to investors.
PE-owned practices consistently raise prices, which might knock one’s longtime specialist out of their insurance network. They also tend to squeeze their patients for more money in other ways. PE-owned practices tend to schedule more appointments and stretch those appointments for longer periods of time, increasing the charges to insurers per patient. They also tend to order more procedures. PE-owned dentist offices are more likely to change focus from prevention to more-lucrative restoration procedures, and some have been sued by former patients alleging unnecessary tooth extractions and root canals. Similarly, PE-backed dermatologists have been accused of ordering biopsies and surgery for benign skin anomalies, and even though they do more procedures, these offices have fewer support staff and even fewer medical supplies in the closet than non-PE-owned dermatology practices, one study found.
“That’s one of the risks for consumers,” Jim Baker, the executive director of the Private Equity Stakeholder Project, told me. “The private-equity-owned provider, just because of the nature of private equity, may be incentivized to take actions that generate substantial pay for a private equity firm but might not be necessary for consumers.”
Over time, patients might find fewer familiar faces at these practices. In one study, doctors at PE-backed practices were 16 percent more likely to work somewhere else within two years than non-PE-employed peers. This means that doctors and practitioners who often know deeply the patients and communities they serve are no longer there to help them.
The initial investors also don’t typically stick around for long. Most practices are resold to another PE firm within three years, putting a neighborhood optometry or gastroenterology practice through a succession of faraway new owners, all looking to sell for more to the next one.
Want to take your ailments to someplace untainted by PE? In some underserved areas, that could be hard. One study found that in 50 metropolitan areas of the U.S., one firm had bought up at least 50 percent of the physician market. Market saturation is constantly the goal. PE-backed ventures frequently roll up several once independent practices in a field under one umbrella company that can save money by pooling resources and becoming big enough to negotiate with insurers for higher rates.
As for why a doctor would allow a PE firm to assimilate the practice they spent decades building, it is one of the few ways a beleaguered independent can get enough cash to stay competitive against other corporatized medical entities, namely hospital systems. According to one industry group, 78 percent of physicians work for a corporate entity of some sort, be it a hospital system, pharmacy, insurance company, or private-equity-backed venture.
“For physician practices, private equity is a form of private capital, and you need capital injections into a practice in order to compete often with these larger health systems,” said Zhu. “In some ways, practices might be facing a Hobson’s choice, where they are damned if they do and they are damned if they don’t.”
Compounding the pressure is diminishing payment from Medicare, a foundation for most specialists. Over 25 years, the program’s physician payment has decreased by 33 percent. According to an American Medical Association survey, the main reason for selling to private equity is a better ability to negotiate payment rates.
Robert Aprill, a partner at Physician Growth Partners, a firm that connects doctors with investors, said that most physicians come to his company looking for a lifeline. Selling to private equity “can be defensive against these hospitals and these larger monopolies that are kind of forming in each market,” said Aprill, “or it can be opportunistic.” A private equity cash infusion could help practices expand, hire, or invest in new equipment.
Aprill defends private equity as an equalizer of sorts in an unequal medical marketplace. The deals allow smaller practices access to the “sophistication and services” that are typically available to offices in a “major medical metropolitan area.”
But the trade-offs are hotly debated among medical professionals. Nate Williams, a Phoenix-based accountant who specializes in dental practices, told me that the deals offered by PE firms are often not as good as they seem. He said that starting in 2020, his clients saw an influx of offers to buy their businesses from dental support organizations, which usually seek to roll up formerly independent dental practices into one PE-backed company.
“I started realizing that these DSOs are just fleecing the doctors, like totally taking advantage of them,” said Williams, who amplifies his objections by co-hosting the podcast Just Say No to the DSO.
“Increasingly, DSOs are offering less cash and more equity in the DSO itself. A typical offer might be 20 percent cash, 80 percent shares,” said Williams. “The problem with that is, you have no clue what that equity is actually worth.”
Physician offices are but one front in private equity’s foray into health care. PE owns 8 percent of hospitals in the U.S. (often valuing the real estate they sit on as much as the operation), and its track record has raised concern. PE-owned hospitals tend to have fewer nurses on staff, increased rates of patient falls and infections, and higher prices than average.
Zhu, the Oregon Health and Science University researcher, describes it as a vast, evolving experiment, with the quality of people’s health care on the line, to see if private equity can offer something that would balance the capital it removes.
“In the end, private equity extracts profits for its investors,” she said. “Even if you do develop efficiencies, the profits don’t go to the patients, and they don’t go to the clinicians, they don’t go to the practices. They don’t get reinvested. They go to investors. So the question would ultimately be: Do we think that that is going to be good for the practice in the long run?”
