Practicing Medicine In The Era Of Private Equity, Venture Capital, And Public Markets

In the last decade, there has been a remarkable shift in ownership of healthcare delivery.  Previously independent, physician-owned medical practices have been acquired by private equity firms and publicly traded corporations. The rationale for these acquisitions is typically two-fold. First, the acquiring entity can streamline cost structures and implement management practices to lower the overall cost of delivering care. Second, these firms can use their consolidated position in the marketplace to extract more favorable rates from third-party payers.  In addition to private equity and publicly traded companies, venture capital firms have invested heavily in healthcare hoping to reap rewards from new models of care delivery.

Contrary to others observers of these trends, I believe this change in ownership of healthcare is not intrinsically good or bad. There are countless examples of not-for-profit healthcare organizations behaving in predatory ways, just as there are examples of for-profit healthcare organizations operating altruistically. In addition, private capital does create opportunities to transform care delivery at scale—in meaningful ways that otherwise might not otherwise receive investment.

This change in ownership does, however, create a new operating reality where the previous central tenet of healthcare delivery—doing what is best for the patient—now has a competing imperative: doing what is best for shareholders and investors. The code of professionalism taught in medical schools butts up against the fiduciary responsibility taught in business schools. I believe that publicly traded healthcare firms and their private equity counterparts must must proactively build ethical frameworks that ensure that these two imperatives conflict do not conflict.  

In the past several months, I have observed several cases where these competing priorities were handled poorly. A hiring freeze was implemented in a clinical care company because of potential earnings shortfalls by its publicly-traded parent—despite clear patient need for clinical services. In the midst of the COVID-19 pandemic, a private equity owned home-based assessments company continued to perform non-clinical coding visits to capture more Medicare Advantage revenue. Entering a new funding cycle, a venture-backed healthcare company pushed its physicians for schedule follow-up visits earlier than needed to improve revenue and enhance the company’s valuation. In each of these cases, a business imperative trumped a clinical one—in each case introducing potential harm to patients for the benefit of shareholders and investors.  

Source: Forbes