Consolidation, broadly, and private equity, specifically, is threatening the survival of primary care. Because of its life-extending, quality-improving, cost-reducing, and equity-promoting benefits, primary care has been declared a common good, worthy of the public stewardship and investment provided to the justice system, highways, and public schools. Through its core functions – coordination, comprehensiveness, access, and continuity – primary care serves as a safeguard against the pernicious forces that lead to poor health and overtreatment.
Unfortunately, this foundational platform is already weakened by decades of neglect and is cracking under pressure. The transition to value-based payment, though necessary, has imposed costs on primary care practices. To succeed in this new era, practices must invest in electronic health records, build population health programs, and develop a measurement reporting infrastructure.
Meanwhile, health system spending on primary care has remained stagnant, accounting for only 6 cents out of every health care dollar spent. The COVID-19 pandemic accelerated this crisis, by reducing patient visits initially and contributing to historic inflation later. As a result, conditions are now ideal for consolidation, leading to markets dominated by a small number of powerful entities.
The Current Landscape
To survive, primary care practices have been merging with or are being acquired by larger organizations. In 2020, low interest rates spurred deals involving publicly traded companies, private equity firms, hospitals, and payers. Some of these groups, particularly payers, are looking to manage total costs of care, by strengthening their primary care networks. From the perspective of primary care, these transactions can theoretically enhance efficiency, provide capital, mitigate exposure in value-based contracts with downside risk, and increase negotiating power. Some remaining practices are similarly looking for safety and have sought the refuge of aggregators and independent practice associations. These are important goals for organizations that need to develop the reporting, information technology, and care management infrastructure needed to succeed in Centers for Medicare and Medicaid Services models, such as Making Care Primary, Primary Care First, and Accountable Care Organization Realizing Equity, Access, and Community Health.
Because the goals of these players differ, consolidation events are not created equal, and we have concerns that some may be more harmful than others. In this post, we examine the impact of private equity specifically on the primary care landscape, by summarizing findings from the 2024 University of Houston Health Policy Conference. Unfortunately, little is known about the effects of private equity on primary care. Therefore, we extrapolate based on lessons learned from other specialties and settings.
The Effects of Consolidation by Private Equity Investment:
Quality and Access to Care
First, while some studies have highlighted the positive benefits of private equity, there are potentially negative effects on primary care patients. Private equity’s impact on the quality of care delivered has been mixed, with some studies demonstrating harmful outcomes. Even before the pandemic, less than 10% of adults received all recommended preventive services. Therefore, any threat to quality is significant and can undermine the progress of national initiatives. Due to their focus on delivering profits to shareholders, private equity firms have closed unprofitable hospitals and reduced low-margin service lines.
While these reductions may indicate that the business models for these services are unsustainable, they carry societal consequences. Patients in these communities may not be able to receive the care they need, face longer travel distances, or pay higher prices for the same services. Although similar stories have yet to emerge for primary care, this trend will likely extend to them. Since primary care is a common good, the impact on the health of groups of patients could be substantial.
Costs
Second, there are undesirable effects on costs. Despite claims that these deals would improve efficiency through economies of scale, studies have shown that spending increased. Both patients and payers face higher costs due to increased charges, negotiated prices, and use of higher-reimbursed services. For instance, researchers found that hospice agencies acquired by private equity saw an increase in the number of low-acuity patients with dementia. The authors concluded that this reflects a profit-maximization strategy. The approach takes advantage of a flat per-diem reimbursement structure that rewards serving patients with longer lengths of stay.
These trends threaten to destabilize the premise of value-based payment and increase health care expenses in the US, which already leads the world in per-capita spending. Although this effect has not yet been documented specifically for primary care, these changes have the potential to undermine primary care’s efforts to manage total care costs.
Workforce Impacts
Finally, emerging evidence suggests that these deals have significant effects on the primary care workforce. Because of consolidation, primary care physicians are more likely to be employees and work in large practices. Once again, these trends can have negative consequences. Studies have shown that small practices are associated with lower rates of preventable hospital admissions and that accountable care organizations led by independent physician groups are more likely to save money.
Thus, while entities are racing to expand, evidence suggests that there are benefits to being small and independent. Additionally, to enhance profitability, the workforce composition of entities acquired by private equity changes, often resulting in staff reductions. This contraction could exacerbate already high levels of burnout. Private-equity-backed groups tend to use nurse practitioners and physician assistants, as seen in dermatology, ophthalmology, and gastroenterology practices. Should these changes extend to primary care, they could transform who delivers the care and how it is delivered.
The Future for Consolidation
There clearly are benefits to these arrangements, at least in the opinions of the physicians selling their practices. However, greater scrutiny and accountability are warranted. These deals can strengthen contracts and bring much-needed resources to practices that would otherwise have to close. Furthermore, enhancing efficiency by reducing waste remains a key goal of the health care system. However, these deals have occurred without sufficient oversight, stakeholder input, reporting, and impact assessment. Ensuring that these deals support the quintuple aim of better health, better experience, lower costs, better provider wellness, and greater equity requires more engagement from policymakers, regulators, patients, clinicians, and researchers.
Private equity deals that involve primary care are different from ones that involve department stores, technology companies, or food manufacturers. The risks are higher when a common good is at stake. Stakeholders must have influence over the entrance and exit of private equity into markets. Far too often, their voices are missing, because the financial arrangements are complex, opaque, and rapidly-changing. They need a seat at the table. History predicts that private equity firms will eventually exit and profit. When that happens, these stakeholders will be left to pick up the pieces.
Summary
Consolidation and private equity threaten primary care’s ability to improve health and reduce costs. Mergers and acquisitions, accelerated by financial strain and the COVID-19 pandemic, have increased costs and negatively impacted quality. Greater oversight and stakeholder involvement are needed to ensure these deals align with public health goals and protect primary care as a common good.
Winston Liaw
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Ken Janda
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Ben King