Private equity firms acquired over 700 oncology clinics in the US between 2003 and 2022, according to a study published in JAMA Internal Medicine. Researchers used financial databases and publicly available data to identify the transactions involving medical and radiation oncology clinics. The acquisitions happened across 45 states, with clinics affiliated with private equity firms accounting for over 25% of all oncology clinics in seven states. The study highlights the potential downsides of the private equity model, particularly in terms of the prioritization of short-term profitability at the expense of longer-term investments that could improve care practices.
Private equity acquisitions of healthcare practices have become increasingly common in recent years, with the oncology sector attracting significant attention due to its potential for high profits. A study published in JAMA Internal Medicine in August 2022 found that over 700 oncology practices became affiliated with private equity firms between 2003 and 2022, with around half of these being radiation clinics. This essay will provide a detailed analysis of the study, discussing the methods and results, as well as the implications of the findings for the healthcare industry, physicians, and policymakers.
Study Methods and Results
The study aimed to identify private equity-backed transactions involving medical and radiation oncology clinics in the US from 2003 to 2022. The researchers used financial databases and publicly available data to identify 724 oncology clinics that became affiliated with private equity-backed platform companies during this time. Of these clinics, 53 percent were radiation clinics, 23 percent were medical clinics, and 15 percent were multi-oncologic clinics. The clinics affiliated with private equity firms account for 10 percent of the estimated 6,919 oncology clinic locations in the US.
At least 2,060 oncologists were affiliated with clinics at the time of an initial private equity acquisition, accounting for 10 percent of practicing medical oncologists and 15 percent of radiation oncologists. The study also found that a third of clinics experienced multiple changes in private equity ownership, leading to a total of 1,074 private equity-backed transactions occurring during the study period.
The private equity acquisitions occurred across 45 states, with nearly 20 percent occurring in Florida and 16 percent in California. Clinics affiliated with private equity firms accounted for over 25 percent of all oncology clinics in seven states, including Tennessee, Florida, and Nevada. Ten of the 23 private equity-backed platform companies identified in the study were acquired by another private equity-backed entity or public company.
Discussion of Implications
The study raises several crucial issues regarding private equity acquisitions of healthcare practices, particularly in the oncology sector. Private equity firms typically invest in platform companies and then acquire healthcare practices, open new clinics, reduce costs, and increase revenues to seek financial returns. However, the study highlights the potential downsides of this model, particularly in terms of the prioritization of short-term profitability at the expense of longer-term investments that could improve care practices.
Furthermore, the study suggests that private equity acquisitions may lead to increased costs, which can have implications for patient care. Physicians should understand the potential downsides of private equity acquisitions and how they can impact decision-making control. Additionally, the Federal Trade Commission (FTC) should increase scrutiny of these acquisitions that tend to fly under the radar due to their small sizes. FTC should lower the existing $101 million threshold for examining private equity acquisition of physician practices.
Moreover, Congress should reconsider current incentives that favor private equity involvement in healthcare. Specifically, Congress could implement payment reform that moves away from the policy that reimburses oncologists at 106 percent of the average sales price for drugs. Similarly, federal tax regulations provide incentives for PE ownership of medical practices through lower tax rates: Congress could remove the carried interest tax loophole, which allows PE firms to pay preferential capital gains tax on a substantial proportion of their income, rather than a higher corporate tax on annual earnings.