Bhagwan Satiani, MD, explores the entrance of insurance companies into the physician practice acquisition market.
The well-written recent editorial from Mal Sheahan, Vascular Specialist medical editor, explained the case against private equity in medicine, and what is at stake for physicians and patients.
I published a review of private equity about three years ago, hoping that surgeons would exercise caution before they jump into a ”deal.”1 It concluded that, “Fatigued by numerous stressors, physician practices and ASCs [ambulatory surgery centers] are increasingly choosing financial security through partnership with private equity investors as an alternative to hospitals or large group employment. However, careful consideration is needed in partnering with ‘for-profit’ and majority investor-owned private equity firms.” My opinion about private equity in healthcare has changed from being slightly negative to truly negative. However, as we pointed out, the model may work for a small group of physicians planning to retire within a few years. Other than cardiology, the number of private equity acquisitions dropped in 2023. I suspect this is because most physicians are hearing about the downsides from colleagues, and the Department of Justice (DOJ) is hot on the trail over allegations of poor business practices against private equity.
A much larger, and darker, cloud has appeared over our healthcare system, as I warned on these pages. “Over time, some of us may feel they are faced with thralldom and are looking for options,” I wrote. And: “Novel options may include staying in practice but considering non-traditional and even provocative paths.”2 I mentioned private equity and the new sheriff in town that has taken up residence: the publicly-traded insurance companies. This happened quietly and quickly.
When hospitals—which have integrated horizontally, vertically and every which way to consolidate and hire thousands of physicians— complain about the insurance companies buying physician practices, we better pay attention. Insurers like UnitedHealth Group now employ not only more physicians than the health systems, but they also own data analytic centers, accountable care organizations, office-based labs (OBLs), pharmacy benefit managers, urgent care centers, nursing homes, behavioral and mental health centers, and nursing schools. A recent example is the large acquisition of Wisconsin-based ProHealth Care, armed with 800 employees to manage the revenue cycle, information technology and data analytics. The strategy is to build out the back office to support the workers. Amazon-like, isn’t it? A particular concern with insurer-owned physician practices that are dominant in certain markets is their poor record related to passing on any savings to employers and ultimately patients.
You might say that is a corporate takeover? Right. Isn’t it prohibited by law in some states? Right again. They do this because state legislators have looked the other way. The Affordable Care Act (ACA) probably did nothing to discourage corporatization either. In fact, the law may have encouraged it. Insurers told the ACA head honchos back then that they knew how to make the system more efficient, bring down costs and, of course, improve the quality of care.
Let me remind younger members of the Society for Vascular Surgery (SVS) of the origin of the behemoth UnitedHealth Group insurance company. Physicians and others founded the firm in 1974 and incorporated it as Charter Med Incorporated, later morphing into United HealthCare Corporation (UHC). I was too busy with patient care, naïve and cash-poor then and missed the boat on buying shares in the company. In 1992, UHC acquired Columbus, Ohio-based HMO Physicians Health Plan of Ohio for $84 million. An older orthopedic surgeon friend bought shares. Do not ask me what those shares are worth today. The company kept buying up smaller health plans, and now you know the rest of the story, as the late Paul Harvey would say.
United Health Group, the parent group of insurance subsidiary UnitedHealthcare with $372 billion in revenue last year, is the largest insurer and covers about 53 million people. Its Optum subsidiary is now the largest employer of physicians in the U.S., with more than 90,000 employed or affiliated physicians, 40,000 advanced practice clinicians, pharmacy benefit managers, and technology and data analytics. Humana, Aetna, CVS Health and Anthem followed quickly.
Not to be left out, retailers including Walgreens, Walmart and Amazon are joining the physician buyout wave. Amazon purchased primary care company One Medical, which has 815,000 members, for $3.9 billion. Walmart acquired a health technology and a telehealth company, and expanded its Walmart Health centers. In this environment, why should retailers of home appliances such as Best Buy be left behind? TVs are part of healthcare, right? Sick people watch TV too. Fear not. They acquired GreatCall, a home health company, and offered technical support to Atrium Health (hospital at home program).
The latest sector of great concern to surgeons is ASCs. Optum snatched Surgical Care Affiliates (SCA), an owner of ASCs, for a mere $2.3 billion in 2017 to add to their portfolio of more than 300 ASCs and surgical facilities. Another big player in ASCs is Tenet, which, after acquiring/ partnering with established United Surgical Partners, has grown to 500 ASCs and “surgical” hospitals.3 I would not be surprised if they or others are already planning to approach surgeons who currently own about 35% of OBLs.
The American Hospital Association (AHA), representing powerful but alarmed members, has pointed out that from 2019–2023, most physicians were acquired by private equity (65%), physician groups (14%), payors (11%), health systems (8%) and others (4%). This trend has accelerated since then, compelling the AHA to argue against the market power of Optum to the DOJ, and requesting an antitrust investigation. The DOJ has obliged.
Like with the pursuit of private companies, the DOJ has now started looking into massive ownership interests and the conflicts between Optum-owned physicians and competing physicians. The last time the DOJ questioned the UnitedHealth Group about its acquisition of Change Healthcare (recent target of a cyber attack), it took a pass.
This entire wave of acquisitions reminds me and many others to remember the halcyon days, when hospitals went full throttle in the 1980s to hire thousands of primary care physicians. The hospitals lost their shirts. I suspect the loser in the end will be the stockholders of many—but not all—of these public companies that are going outside of their core businesses to catch the wave. What, then, happens to their employed physicians?
There appear to be several objectives to the employment of thousands of physicians: starting with “value-based care” and fixed payments for every service. We are already seeing some of this with physicians sharing profits with insurance companies for Medicare Advantage patients, by taking some financial risk in the care of these patients.
Beside profits, their focus is to aggressively push into the large healthcare markets with a focus on “meeting patients where they are, and utilizing technology and established retail locations to make healthcare as convenient as possible.”4 The impetus comes from the desire to project a “one-stop shopping” façade.
While I agree with almost all of Dr. Sheahan’s commentary in his recent editorial, shifting the blame onto judges— conservative or liberal—is missing the point.
The blame rests, as it often does, with Congress, which finds it convenient to ignore its own responsibilities in providing the federal bureaucracy with ambiguous directions. It is easy to blame a faceless and politicized bureaucracy.
So, what is ahead? It is possible we may have three or four vertically and horizontally integrated for-profit juggernauts serving the entire healthcare supply chain or a single payor system. Erstwhile foes like hospitals and insurers, now gaining the upper hand, may just join hands. Can you imagine the lobbying cash available?
It is like the Wild West and Dodge City right now. Is it possible for physicians to “get outta Dodge” and escape from this scenario? Is it possible that we will see a repeat of the hospital acquisitions of the 1980s and the accompanying financial disaster? CVS Health just purchased Oak Street Health, which employs 600 primary care physicians in 21 states. So far, that deal has been a huge money loser.
Not only that, the DOJ is reportedly investigating CVS for giving out “gift cards, swag and goody bags”!5 An Oregon-based Optum group recently lost 32 physicians within two years. Walgreens lost over $5 billion getting rid of its primary care chain.
We cannot discount that probability. We know there will be versions 3.0 or 4.0 of this familiar tale—and we as physicians will watch from the sidelines as always.
References
- Satiani B, Zigrang TA and Bailey-Wheaton JL. Should surgeons consider partnering with private equity investors? The American Journal of Surgery. https://doi. org/10.1016/j.amjsurg.2020.12.028
- Satiani B. The choice between autonomy, true partnership, or the slow drift to thralldom. Vascular Specialist. Feb. 2023
- Newitt P. https://www.beckersasc.com/asc-transactions-and-valuation-issues/tenet-enters-new-era-driven-by-uspi-growth.html
- Bailey-Wheaton JB. Zigrang TA. Health Capital Topics. Available at https://www. healthcapital.com/hcc/newsletter/03_23/ HTML/CORP/convert_corporate_moves_ in_hc_topics.php
- Abelson R. Corporate Giants Buy Up Primary Care Practices at Rapid Pace. New York Times. Available at https://www. doximity.com/articles/365f4e62-b782-4420- b3d8-0a231d61a056
BHAGWAN SATIANI is an associate editor for Vascular Specialist.
