Bradley partner Sidney Welch was quoted in Chicago Medicine Magazine on the shift of private equity into medical practices and the concerns raised over this integration and its impact on patients.
When asked about physicians’ transactions with private equity firms, Welch said, “Private equity firms offer physicians an alternative to selling their practices to hospitals. They can provide physicians with capital, outsourced management, and access to new markets.”
Welch noted the benefits for physicians who intend to retire or continue practicing. She said, “For many retiring physicians who have spent decades building their practices, private equity investment is a way to realize return on their investment, which simply isn’t otherwise present in today’s marketplace. For other physicians who intend to continue practicing, it’s a way to fund expansion and growth for future long-term survival.”
Welch added that physicians who are considering private equity investment should be aware that a factor of the goal of these firms is to operate the practice differently. In the worst-case scenario, that would mean that the private equity investor is going to trim employees and overhead. Done well, that won’t be noticeable. In fact, that will be more efficient, and the patients will benefit from that as well as the practice and the providers. Done poorly, the physicians and patients may see some of that in delivery,” she said.
Welch continued, “Due to differences in reimbursement, hospitals have the ability to capture a significant delta between hospital and physician charges that is the driver for those deals.”
Following this thought, she said “hospital deals still occur, but the private equity deals are much more popular and significant in number as an alternative because they have more flexibility for physicians.”
Considering the interest of private equity in medical practice, Welch added, “The firms are attracted to physician practices because healthcare investments have held good rates of return generally and practices are often profitable businesses with strong cash flow.”
Welch commented that the legal ramifications, alongside the operational issues and specialty-specific considerations, should be thought through. “And a step beyond that, they need to consider the nuances with various specialty practices and how those translate into important legal and business terms,” she said.
Welch acknowledges that patients might be concerned about the impact of private equity investment on their quality of care.
The full article, “Private Equity Moves into Medical Practice,” was published by Chicago Medicine Magazine on October 30, 2023.