Private equity investors raising U.S. medical prices, study says

Private equity firms are rapidly acquiring physician practices, gaining significant market share in many cities and boosting medical prices in an array of specialties, according to an academic study released Monday.

The study focused on private equity “roll ups” of physician practices, in which investors buy up several doctor groups in a city, consolidating a significant share of the market which they can use to raise prices.

The report found that “PE acquisitions are associated with price increases in 8 of 10 specialties, and that these price increases are particularly high in [metropolitan areas] where a single PE firm controls more than 30% of the market.”

For example, prices for gastroenterologists jumped 14%, for oncologists they increased 16% and for ophthalmologists it was 9%, according to the research from the University of California at Berkeley and the Washington Center for Equitable Growth. Price increases were greater when a private equity-owned practice controlled a large share of the market. The study found that the number of metropolitan areas in which a private equity firm served half or more of a market increased from a handful in 2012 to 50 in 2021.

A recent Washington Post story chronicled the price hikes that followed a private equity venture into anesthesia.

The study authors urged federal regulators to more closely examine the effects of private equity investments in medical groups.

“The vast majority of [private equity] acquisitions in this report took place without federal antitrust scrutiny and with limited state antitrust scrutiny,” the authors wrote.

In recent months, antitrust enforcers at the U.S. Department of Justice and the Federal Trade Commission have talked of applying more scrutiny to private equity acquisitions of physician practices.

“To the extent that private equity transactions and conduct are focused on short-term gains and aggressive cost-cutting in the health care space, they can lead to disastrous patient outcomes,” Deputy Assistant Attorney General Andrew Forman said in a speech last year.

Private equity firms say that their investments in physician practices have created more efficient systems of billing and medical records, enabling doctors to focus on patients.

“Private equity investment is helping improve patient care and ensuring that residents have high quality facilities in their local communities,” Drew Maloney, president of the American Investment Council, a private equity industry group, said in a statement for this story. “By partnering with private equity firms, physicians have more time to focus on caring for patients and benefit from experienced management teams, better technology, and stronger networks.”

The economics of practicing medicine have undergone a profound change in recent decades, with many doctors shifting from small practices that they owned to working for larger practices that are owned by corporations, hospitals, insurers and, more recently, private equity firms.

The study reported that private equity firms have shown increasing interest in acquiring physician practices, with the number of deals studied rising from 75 in 2012 to 484 in 2021. The largest number of deals occurred in dermatology, ophthalmology, gastroenterology and primary care. The other specialties considered in the study were cardiology, oncology, obstetrics and gynecology, orthopedics, urology, and radiology.

The private equity acquisitions were often focused on a particular local market, a strategy that sometimes gave their enlarged “roll ups” significant market share.

“Private equity firms are gaining control of markets and increasing prices,” the authors concluded.