This transcript has been edited for clarity.
Robert A. Harrington, MD: I’m continuing my series of conversations with leaders in the field of cardiovascular medicine who are working on interesting projects and making contributions in the science and policy space. We have three guests joining us today who have recently written two papers in the Journal of the American College of Cardiology. One is an original research paper dealing with the issue of private equity’s acquisition of outpatient cardiology practices. And the second is an editorial that really tries to get at why this is happening. Is it a problem? Is it a solution to a problem?
Fortunately, I have all three as guests to think about this important issue that has implications for clinical care, reimbursement, physician wellness, and clinician wellness, and it has implications regarding public policy and how we should be thinking about the practice of medicine in this country.
Dr. Victoria L. Bartlett is an internal medicine resident at Brigham and Women’s Hospital in Boston, and a research fellow in the Smith Center at the Beth Israel Lahey medical center in Boston. Dr Rishi K. Wadhera is the senior author of the paper written by Dr. Bartlett. Dr. Rishi is associate professor of medicine at Harvard Medical School, and he is the associate director of the Smith Center at Beth Israel Lahey.
Rishi K. Wadhera, MD, MPP, MPhil: Thanks for having us, Bob.
Dr. Harrington: The editorialist, Dr. Ed Fry, is the national service line leader for cardiovascular medicine, for Ascension Health. Dr. Frey is a recent past president of the American College of Cardiology (ACC).
Edward T. A. Fry, MD: Great to be here. Thanks.
What is private equity? Why the interest in medicine?
Dr. Harrington: I was intrigued by the papers and it caused me to do a deeper dive into some of the earlier works that you have referenced about this growing topic of private equity making its way into medical practice. Rishi, I’ll start with you. For the casual reader like myself, what is the business of private equity?
Dr. Wadhera: Private equity firms basically used pooled investments from multiple sources. These can be individual and institutional investors, pension funds, endowments, and they use those funds to invest in private companies that have the potential to return a profit. The goal really is to turn a profit for institutional investors over a shorter time horizon.
Dr. Harrington: How do they do that? I can understand, you buy a factory and you want to make the factory a little more efficient, and you think that perhaps, by combining some technologies, etc., that you might have in other factories, you can drive more value out of the one you just invested in in a short period of time. What’s the general business sense of how they’re going to do that in a cardiology practice? Is it all about making us more efficient?
Dr. Wadhera: Operational efficiency is the overarching theme here. One could argue that perhaps, private equity firms have the expertise to bring that kind of organizational know-how and operational efficiency to medicine. But there’s evidence that the way that private equity firms maximize their margin is maybe through mechanisms that aren’t necessarily good for patient care, such as reduced nursing staffing. When private equity acquires hospitals or practices in the same location, they have greater negotiating power at the payer table, to have higher prices for the services they deliver. There’s a lot of discussion about whether the sort of changes that private equity firms tend to implement are good or bad for patient care and also for clinicians.
Dr. Harrington: Great summary. Ed. Why is this happening in medicine? What did we do in medicine that made us ripe for investment by private equity? When you and I started out years ago, I don’t think we ever would have thought that this was in the future.
Dr. Fry: I think number one, as we know, is that medicine represents about 20% of our economy. There are huge amounts of money involved in these considerations. If players in this space can access even a small fraction of that money, it’s a lot of money and a lot of incentive for them.
In medicine in general, and then maybe more specifically, in cardiology, we’ve seen a shift away from private practice into employed practice. When people made those decisions over the past 10-15 years, there were certainly positives and risks that they took. I think for some, along the way, they realized that perhaps they gave up more than they thought in terms of control and running their own business and the opportunity to shape that themselves and be rewarded for that as they were in private practice. In cardiology, more specifically, we’ve seen this shift to the outpatient space: moving diagnostics and even therapeutics into ambulatory surgical centers and outpatient-based labs, and that is another potential source of revenue for these private equity companies.
As I wrote in the editorial, there are certainly a lot of pressures and frustrations that the day-to-day clinician feels, and maybe, this move to private equity is more of a symptom of those concerns and that this could be an opportunity to take the bull by the horns again in cardiology. We’ve evolved from a predominantly hospital-based acute care specialty into one of diagnosis, chronic disease management, and longitudinal care punctuated by diagnostics and therapeutics, which are, again, I think, attractive to private equity firms as potential sources for revenue.
Dr. Harrington: Ed, why cardiology? What’s happened over the years that has led to that appearance, if you will, of private equity and cardiovascular medicine?
Dr. Fry: Some of the earlier specialties were dermatology, ophthalmology, and gastroenterology, in particular. And interestingly, those tend to be specialties that have less chronic disease management and are more based on procedures and things like that. Within cardiology, obviously, the big driver is that our population is aging: 11,000 people turn 65 every day and become eligible for Medicare. With that, we see a rise in disease prevalence and then the rise in risk factors, obviously, with obesity and diabetes driving that, so there are more people who are going to have an illness that requires evaluation, diagnostics, and procedures. Because of that, it is a very target rich environment for private equity.
Dr. Harrington: That’s great background. Now, let’s dive into what you did, Victoria. What got you interested in the question? And give us some background on the literature that you were trying to build upon when you asked your series of questions.
Victoria L. Bartlett, MD: There’s been a lot of interest in private equity acquisitions and healthcare. A lot of the existing literature has been around hospital acquisitions and what happens there. There’s some literature, as you’ve mentioned, in outpatient practices, in certain specialties, where private equity has existed a little bit longer than in cardiology. They’ve been asking really similar questions to what we have been asking about cardiology, which is what happens when practices are acquired.
A kind of overview is that many of those studies have found increased costs to payers, to patients, and many have also found evidence of decreased quality. The evidence for the latter is honestly more difficult to figure out, but there has been evidence of decreased nursing ratios in nursing homes. There’s been evidence of changing the mix in clinics to more advanced practice providers than physicians. There’s been some evidence in hospitals that maybe quality doesn’t change too much. But the deeper layer under that is that these private equity–acquired hospitals may be selecting certain patients that are less sick, that are not going to negatively affect their metrics as much. That’s the environment that we had been reading about and starting to ask: Are we seeing that in cardiology too?
Dr. Harrington: Share with the audience what you did. You took what I would call a descriptive approach to try to understand the current landscape in cardiovascular medicine. As Ed already pointed out, a lot of the earlier data does not concern cardiology practices. My read of your paper is that you were trying to at least lay the groundwork for us to understand as a community what’s going on out there. Is that a fair interpretation?
Dr. Bartlett: Absolutely. Even that initial question of what’s happening is more challenging than it seems it might be to answer, partly because with private equity, these are private transactions. They don’t have to publicly report anything. So there’s a lot of manual work to gather these data. Our first questions were: What are these transactions? When are they happening? Where are they happening? What are the clinics that private equity is interested in? What are the community characteristics of those clinics? And what could that tell us about what’s going on?