Private equity ownership has become increasingly common across physician practices over the last decade, with investors backing groups in specialties like anesthesiology, orthopedics, gastroenterology and pain management.
Now, a new federal bill aims to ban it outright.
Democratic lawmakers introduced the Stop Corporate Takeovers of Physicians Act on Sept. 16. The federal bill would ban private equity firms, insurers and other for-profit corporations from owning or controlling physician practices.
Becker’s connected with 14 physicians, healthcare executives and attorneys to get their take on the bill. Most agreed the legislation is unlikely to pass or to fully undo private equity’s footprint in healthcare, but several said it targets the right problem and could shape future deals. Many also warned that the bill’s exemptions for hospitals and nonprofits could speed up hospital consolidation, and that it does little to address the reimbursement pressures pushing independent practices toward outside investors in the first place.
Editor’s note: Responses have been lightly edited for clarity.
The question: Do you think this bill could actually change anything, or is private equity already too entrenched in the industry for it to matter?
Brian Cohen, MD. Administrative Chief of Miami Anesthesia Services (Miami): The Stop Corporate Takeovers of Physicians Act can change things, but not in the way its sponsors intend. Removing private equity from healthcare does check the “trendy” box. However, we have seen the managing health systems and organizations self-regulate the spread of private equity by simply choosing not to contract with their companies.
My partners and I created our physician-owned anesthesia group 11 years ago because we strongly believed there was incredible value in physician ownership and decision making. We were blissfully ignorant of the outside factors that would ultimately determine whether we would survive, thrive or end up as something that barely resembled our original partnership. Some of these outside factors are addressed in the bill, while many important features are ignored.
The bill focuses heavily on the group’s control rights on paper, while ignoring the administrative burden that drives physicians into these private equity backed arrangements. The exemptions in this bill also seem to create a path directly toward hospital employment. Ironically, that does not facilitate physician ownership or address clinical independence. If payers are not held to stricter standards of fair rate negotiation or IDR payment efficiencies, the hospital’s cost of these clinical services will also become unsustainable.
While this bill attempts to restore who holds the equity, it doesn’t help with the value of the equity or what the owner can actually decide. Our physician-owned anesthesia group has full control over hiring, scheduling, and clinical protocol today. The problem remains that we still can’t control the two numbers that determine whether we survive: the commercial rates and the provider salaries. Handing control back to physicians in a market where neither input is negotiable from a position of strength is making us the captain while shutting off our engines.
Paul DeMuro. Chief Artificial Intelligence Officer of Amputation Prevention Experts Health Network (Tulsa, Okla.): If PE firms had to jettison their interests in physician practices, the industry would lose a needed source of capital. As you know, traditionally physician groups have not been good at retaining large sums of money. Many PE firms already are struggling to liquidate certain of their investments; this would just exacerbate that problem. I am presenting on this topic for the first time at the California Society of Healthcare Attorneys’ conference in November. As I will note in my Ultra-IPA model, Family Offices and Private Credit can provide some of the capital needed for physician practices, but a good degree of physician autonomy and independence can be preserved in most models, although I do think Family Offices offer some greater degree of flexibility.
Travis Doering, MD. Hand Surgeon at Upper Extremity ATX (Austin, Texas): My gut reaction is that it changes less than it appears to — but not for the reason most people assume. Texas already bans corporate ownership of medical practices, and has for a century. PE never came through the front door here; it came through the management services organization, with a friendly physician holding nominal title to the practice. This bill goes directly at that structure, which is the correct target and something no state enforcement has meaningfully done.
The problem is what it exempts. Hospitals and nonprofits are carved out, and in Texas, nonprofit health system employment has pulled far more physicians out of independent practice than private equity ever did. A bill that bans one corporate owner and exempts the larger one doesn’t restore physician independence — it just changes the logo on the badge.
Jonathan Godin, MD. Orthopedic Surgeon at Steadman Clinic (Vail, Colo.): Lobbying groups on behalf of the private equity industry would very much oppose this bill. However, this bill would help increase awareness of some of the consequences of PE ownership of physician practices.
Christopher Grubb, MD. Anesthesiologist at East Carolina Pain Consultants and East Carolina Anesthesia Associates (Greenville, N.C.): The real question isn’t whether private equity technically owns a physician practice — it’s who controls the economics of the practice.
Private equity has become very adept at using MSO structures to comply with corporate-practice-of-medicine laws while still extracting much of the practice’s economic value through management agreements. If Congress wants this legislation to have a meaningful impact, it will need to distinguish legitimate administrative services from arrangements that effectively transfer financial and operational control of a physician practice to outside investors.
Gary Herschman. Shareholder and Co-Chair of the Health Care Transactions Group at Baker Donelson (Iselin, N.J.): Earlier this year, several clients reached out to us regarding CPOM compliance, in light of the heightened scrutiny in many states, including California, Washington, Texas, Illinois and several others.
There were multiple recent developments in this regard in California, due to the Ark Holdings, Carbon Health and Aspen Dental matters there, so there is a ton of industry buzz about CPOM compliance, even before the bill was introduced in Congress.
CPOM noncompliance can create serious potential exposure to a platform that can harm its reputation and value, such as:
- State AG, DOH and professional board investigations and penalties;
- Physicians using CPOM noncompliance as a basis to declare their contracts (and restrictions) invalid and unenforceable; and
- Payers claiming illegality as a basis for denying claims and/or clawing back prior reimbursement payments.
Regardless of whether this bill becomes law — which I seriously doubt will happen, as you pointed out in your email — it will further heighten the industry buzz about this concern. It is important that investor platforms in all CPOM states take a fresh look at their CPOM compliance — not just the provisions of their agreements (which usually but not always are compliant), but more importantly, whether platforms are operating consistent with such provisions (which many aren’t), and whether they are fully documenting such compliance on an ongoing basis (e.g., the clear separation between administrative/support services and clinical matters).
In fact, because of the increased interest in this issue, we are offering a “CPOM Compliance Checkup” (for a manageable fixed fee) to quickly assess a platform’s CPOM compliance and make recommendations to reduce CPOM risk.
C. Todd Jones. Chief Strategy Officer and Chief Ambulatory Officer of BayCare Health System (Clearwater, Fla.): Private equity is probably too entrenched to make this a game-changer overnight, but it could meaningfully shape future physician practice transactions. My concern has never been physician alignment itself. It’s whether the ownership model is designed for long-term investment in patient care and community health, or primarily to optimize the next financial transaction.
Gary Lawson, MD, Anesthesiologist and owner of Quantum Anesthesia(Sarasota, FL): The issue of PE in medicine is following the natural arc of history.
First it was seen as a godsend to counter hospitals purchasing physician practices. Now we are at the other end of the pendulum, where PE is the pariah. How long we stay at this end of the arc is anyone’s guess. But we will again see a paradigm shift to the middle.
As an independent owner of a small anesthesia practice I welcome the competition that PE money brings to the table.
Section 6001 of the Affordable Care Act stops Physician ownership of hospitals. This stifled innovation and led to Hospital Corporations without competition to run rough shod over Medical practices. Private equity funding is currently the means of holding the big box health corporations at bay.
Taif Mukhdomi, MD. Medical Director at Pain Zero (Columbus, Ohio): This is clearly subterfuge. Competition and fair markets help any industry and these terms favor hospital acquisitions. Regardless, if the goal is to promote independent practice — then there needs to be action that directly improves functioning in a private practice setting — not these indirect ways that clearly have ulterior motives.
Julie O’Connor. Senior Business Development at CCI Anesthesia (Pensacola, Fla.): I believe there is a misconception that PE involvement in large physician groups somehow impacts the day-to-day care delivery in the hospitals’ worksites, and I don’t believe that to be true. At least not at the local level. When clinicians are in the ER, the OR or on the floors seeing patients, their clinical decision-making is their own. They are not being “told how to care” for a patient in real time from some suit at a financial company just because the physician group they work for gets money from said financial company.
The current private payer system makes it increasingly difficult for privately-owned physician groups to survive on their own. Reimbursements are down, physician shortages are growing across specialties, and the IDR costs are staggering.
It’s a very complex industry these days.
Adam Rana, MD. Attending Orthopedic Surgeon and Director of the Joint Replacement Center at Maine Medical Center (Portland, Maine): From an orthopedics / arthroplasty perspective, I strongly support protecting private practices and physician autonomy. Private equity has increased its footprint in practice ownership, but represents only a small fraction (~5%) of orthopedic practices. The larger trend we currently see is consolidation into hospital systems. Any legislation, such as the Stop Corporate Takeovers of Physicians Act, addressing corporate ownership should therefore be structured so that it does not unintentionally disadvantage independent physician practices or accelerate consolidation. While it may not alter existing PE arrangements, the proposed act can be beneficial for protecting future physicians and their practices from being hurt from these purchases.
Nicholas Schiavoni, MD. Co-Founder and CEO of Calder Health, Anesthesia Direct Contracting Platform (Laguna Beach, Calif.): I think any movement on this is a good thing. Some PE-backed groups have driven up costs and squeezed clinicians with little accountability. So this most recent bill helps raise awareness, sets a precedent, and levels the playing field a bit.
Will it fully solve the problem? Probably not. These groups will always work to find a loophole. And it doesn’t address the deeper issue, that many independent docs and small groups just can’t survive on their own anymore. Until that changes, the pressure to consolidate will always be there.
Teresa Tam, MD. Owner and Physician at All for Women Healthcare (Chicago): I believe the new federal bill could have an impact, particularly by reinforcing the principle that physicians, not investors, should control clinical decision-making. Although private equity is already firmly entrenched in healthcare, meaningful oversight and clear protections for physician autonomy can still influence how practices operate. When investor priorities drive healthcare services and care decisions, physicians and ultimately patients lose. This bill can help restore accountability and protect patient care.
Bill Trombetta, PhD. Professor Emeritus and Attorney at Saint Joseph’s University (Philadelphia): No, I don’t think the bill can pass, but having said that, I believe there is a place for PE in healthcare.
In one of my talks, I cite the relatively recent acquisition of Oak Street Health by CVS/Aetna, a powerful example of vertical integration. Oak Street Health was started by 3 docs in Chicago. Their target: over 65, Medicare. Their docs spend more time with patients and their focus: Medicare patients. About two years ago, CVS bought Oak Street for $10 billion. So I like the rarefied ideal of a group of healthcare professionals creating a business that grows into an ongoing, profitable venture.
A big problem with PE acquiring physician practices is that Hart-Scott-Rodino sets the need for more info level at $133.9 million; the vast majority of physician mergers and acquisitions are far below that so merger law does not reach physician acquisitions and mergers. But states are taking on more scrutiny of healthcare acquisitions; e.g., see California. The vast overwhelming number of reports of the effects of physician, hospital and nursing home acquisitions show higher prices, lowering of quality of care, et al. Maybe it’s just me, but I have yet to come across a pro-consumer healthcare practice acquisition that results in lower prices and/or high quality. Again, it’s time for a PE healthcare acquisition that shows uplifting quality and/or lowering of prices.
And don’t forget, states are going to be the key overseers of PE. I served as a deputy attorney general with the state of New Jersey, Department of Law & Public Safety, Division of Criminal Justice, Antitrust Section. I was an antitrust law prosecutor. For states, healthcare is arguably the biggest spend. And healthcare is the number one private employer in 38 of our states. So states are concerned not just with anticompetitive and bankruptcy matters, but also, keeping hospitals running, serving rural areas where 1 in 5 Americans live, and enhancing healthcare access for their citizens.
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