Read This Before Agreeing to a Private Equity Deal

by Mary Beth Nierengarten •

Maximize Value While Prioritizing Patient Care

According to Dr. Setzen, a favorable private equity partnership should provide for physician leadership and maximum value to physicians and shareholders. How do otolaryngology practices ensure they receive maximum value to their practices while remaining focused on patients?

Embedded in this simple question is a complex web of issues that physician practices need to consider when looking at private equity as an investment strategy. Physicians need to weigh various factors that govern a practice: revenue and costs, management, and operations, including who gets to decide key issues such as hiring employees and buying new equipment.

“When considering a private equity deal, favorable terms include significant cash at close, no claw-back provisions, no contingency clause, and no benchmarks, with physicians maintaining control of daily clinical decisions,” Dr. Setzen said.

To remain focused on patients, physicians need to ensure that services prioritize patients and not a financial bottom line.

“The otolaryngologist must consider, above all, whether there will be any potential negative impacts on patient care and professional behavior that cannot be tolerated,” said G. Richard Holt, MD, MSE, MPH, MABE, DBE, professor emeritus and clinical professor of otolaryngology-head and neck surgery and a faculty member of the Center for Medical Humanities and Ethics at the University of Texas Health Science Center. “Once patient care and physician autonomy are compromised, even a little, the slope becomes steeper and more slippery.”

Dr. Holt listed three main ethical concerns physician practices should consider when selling to private equity:

  • Ensure that patient care is not compromised by continuing to provide excellent medical and surgical care in a caring and compassionate environment.
  • Ensure that physicians do not subjugate their practice model to that of private equity business by practices that may jeopardize the patient-physician relationship.
  • Ensure that physicians adhere to the ethical responsibility to their patients, which is a greater sacred obligation than a business has to its clients.

Of these, he said that patient care ethics is the foremost consideration.

Recent reports show that the advances private equity has made into dermatology have resulted in practices placing profitability over patient care. A 2019 study by Tan and colleagues reported on the steady increase in private equity acquisition of dermatology practices since 2012, from five acquisitions in 2012 to 59 in 2017 and another 34 during the first half of 2018 (JAMA Dermatol. 2019;155:1013-1021). The report highlights the need to assess how private equity is influencing the practice of dermatology, from clinical decision-making to patient outcomes. In 2018, Resneck (JAMA Dermatol. 2018;154:13-14) reported on concerns expressed by dermatologists under private equity ownership. Specific issues reported included feeling pressure to sell skin products, referring patients to affiliated specialists, upcharging in billing offices, and reliance on unsupervised physician assistants that could potentially compromise patient safety.