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Figure.  Investments in Surgical Practices by Private Equity Firms Over Time
Investments in Surgical Practices by Private Equity Firms Over Time
Table.  Investments Made by Private Equity Investors to Fund or Acquire Surgical Practices by Census Region
Investments Made by Private Equity Investors to Fund or Acquire Surgical Practices by Census Region
1.
Tan  S, Seiger  K, Renehan  P, Mostaghimi  A.  Trends in private equity acquisition of dermatology practices in the United States.   JAMA Dermatol. 2019;155(9):1013-1021. doi:10.1001/jamadermatol.2019.1634 PubMedGoogle ScholarCrossref
2.
Patel  SN, Groth  S, Sternberg  P  Jr.  The emergence of private equity in ophthalmology.   JAMA Ophthalmol. 2019;137(6):601-602. doi:10.1001/jamaophthalmol.2019.0964 PubMedGoogle ScholarCrossref
3.
Kaye  DR, Luckenbaugh  AN, Oerline  M,  et al.  Understanding the costs associated with surgical care delivery in the Medicare population.   Ann Surg. 2020;271(1):23-28. doi:10.1097/SLA.0000000000003165 PubMedGoogle ScholarCrossref
4.
Braun  RT, Yun  H, Casalino  LP,  et al.  Comparative performance of private-equity owned US nursing homes during the COVID-19 pandemic.   JAMA Netw Open. 2020;3(10):e2026702. doi:10.1001/jamanetworkopen.2020.26702 PubMedGoogle Scholar
5.
Bruch  JD, Gondi  S, Song  Z.  Changes in hospital income, use, and quality associated with private equity acquisition.   JAMA Intern Med. 2020;180(11):1428-1435. doi:10.1001/jamainternmed.2020.3552 PubMedGoogle ScholarCrossref
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    Research Letter
    August 25, 2021

    Trends in Funding and Acquisition of Surgical Practices by Private Equity Firms in the US From 2000 to 2020

    Author Affiliations
    • 1Section of Plastic Surgery, Michigan Medicine, Ann Arbor, Michigan
    JAMA Surg. 2021;156(11):1066-1068. doi:10.1001/jamasurg.2021.3642

    Health care has become a profitable field, drawing the attention of private equity (PE) firms with the goal of increasing return on investment. Studies have shown an increasing number of acquisitions of specialty practices, such as dermatology and ophthalmology practices, by PE firms.1,2 Private equity firms generally seek to consolidate practices, improve efficiencies in care, and increase market share. Surgical services are one of the most profitable aspects of health care; elective procedures account for billions of dollars of annual health care revenue. Currently, surgical services account for 51% of all Medicare spending, with an increasing market share from outpatient surgical costs.3 Although surgical services and facilities, including ambulatory surgery centers, have demonstrated the ability to profit, little is known regarding the scope of acquisitions of surgical care practices and facilities by PE firms. Understanding the temporal trends and geographic regions of surgical services acquired and funded by PE firms may help surgeons, payers, and patients appreciate the evolving financial situation of surgical care.

    Methods

    We conducted a cross-sectional study examining the acquisition and funding of surgical practices and facilities by PE firms in the US from January 1, 2000, to October 30, 2020. We used 3 financial databases that contain public and private business transaction data: Zephyr, S&P Global, and Privco. We used the following search terms to collect data for all surgical specialties: surg, orthop, uro, plastic, cosmetic, vascular, thoracic, oto, neuro, gyn, oral, maxillo, ophthal, and oncol. We collected data regarding types of investments (acquisition vs funding), industry acquired (health care facility vs services), location of the target company (divided into 4 census regions: West, Midwest, South, Northeast), and amount of funding. This study qualified for nonregulated status from the institutional review board at the University of Michigan Medical School, Ann Arbor. We used generalized linear regression models to examine temporal trends in funding and acquisition by PE firms. Statistical significance was set at 2-sided P < .05. Data analysis was performed using Stata, version 15.0 (StataCorp LLC).

    Results

    A total of 193 investments were made by 101 PE firms to acquire or fund surgical practices and facilities. Of these investments, 100 (52%) involved operative facilities including ambulatory surgery centers and 93 (48%) involved surgical services including physician practices. Most investments (117 [61%]) led to acquisition of the surgical practice or facility. The number of investments to acquire and fund practices by PE firms increased each year, from 4 in 2000 to 19 in 2019 (β, 0.65; 95% CI 0.42-0.88, P < .001) (Figure). The mean (SD) price of acquisitions was $143 ($356) million. Overall, most practices and facilities acquired and funded by PE firms (88 [46%]) were in the South; however, after 2016, the number of practices and facilities acquired and funded by PE firms was similar among the census regions (Table).

    Discussion

    The number of surgical services and facilities funded and acquired by PE firms has increased over the past 20 years. Involvement of PE firms in the financing of health care services remains controversial. Acquisitions result in consolidation of health care, which offers theoretical benefits, including a larger market share to negotiate contracts and reimbursement and less administrative costs through economies of scale. Moreover, funding from PE firms can potentially provide capital for new therapies, equipment, and advanced technologies. However, PE firms aim to ultimately increase profits and provide a return on investment, and whether these investments are optimal for patient care is unknown. For example, 1 study4 found that government-owned nursing homes had significantly fewer COVID-19 cases compared with nursing homes funded by PE firms. In another study,5 hospitals acquired by PE firms had increased charge to cost ratios and experienced improvements in process quality measures of medical conditions compared with hospitals not funded by PE firms. Funding from PE firms for surgical care may lead to concerns regarding how financial profits may affect patient care and, specifically, surgical outcomes. Financial involvement of PE firms may result in limited surgeon autonomy if the firm dictates patient-payer mix, may affect how surgical services are offered, and may ultimately lead to promotion of profitable interventions and surgical procedures.

    In this study, funding for surgical services by PE firms increased over time and across geographic regions, highlighting a new area of health care investment. A limitation of our study was that our search method was limited to 3 financial databases from which we could acquire data. The results likely underreport the number of investments. To ensure optimal patient care, additional investigation is needed.

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    Article Information

    Accepted for Publication: June 12, 2021.

    Published Online: August 25, 2021. doi:10.1001/jamasurg.2021.3642

    Corresponding Author: Kevin C. Chung, MD, MS, Section of Plastic Surgery, Michigan Medicine, 2130 Taubman Center, SPC 5340, 1500 E Medical Center Dr, Ann Arbor, MI 48109 (kecchung@med.umich.edu).

    Author Contributions: Dr Billig had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.

    Concept and design: Billig.

    Acquisition, analysis, or interpretation of data: All authors.

    Drafting of the manuscript: Billig, Kotsis.

    Critical revision of the manuscript for important intellectual content: Chung.

    Statistical analysis: Billig.

    Obtained funding: Chung

    Administrative, technical, or material support: Kotsis, Chung.

    Supervision: Chung.

    Conflict of Interest Disclosures: Dr Chung reported receiving grants from the National Institutes of Health during the conduct of the study and receiving book royalties from Wolters Kluwer and Elsevier and being a consultant for Integra and Axogen outside the submitted work. No other disclosures were reported.

    Additional Contributions: Tejas Kulkarni (student, University of Michigan, Ann Arbor) assisted with data collection. No compensation was received.

    References
    1.
    Tan  S, Seiger  K, Renehan  P, Mostaghimi  A.  Trends in private equity acquisition of dermatology practices in the United States.   JAMA Dermatol. 2019;155(9):1013-1021. doi:10.1001/jamadermatol.2019.1634 PubMedGoogle ScholarCrossref
    2.
    Patel  SN, Groth  S, Sternberg  P  Jr.  The emergence of private equity in ophthalmology.   JAMA Ophthalmol. 2019;137(6):601-602. doi:10.1001/jamaophthalmol.2019.0964 PubMedGoogle ScholarCrossref
    3.
    Kaye  DR, Luckenbaugh  AN, Oerline  M,  et al.  Understanding the costs associated with surgical care delivery in the Medicare population.   Ann Surg. 2020;271(1):23-28. doi:10.1097/SLA.0000000000003165 PubMedGoogle ScholarCrossref
    4.
    Braun  RT, Yun  H, Casalino  LP,  et al.  Comparative performance of private-equity owned US nursing homes during the COVID-19 pandemic.   JAMA Netw Open. 2020;3(10):e2026702. doi:10.1001/jamanetworkopen.2020.26702 PubMedGoogle Scholar
    5.
    Bruch  JD, Gondi  S, Song  Z.  Changes in hospital income, use, and quality associated with private equity acquisition.   JAMA Intern Med. 2020;180(11):1428-1435. doi:10.1001/jamainternmed.2020.3552 PubMedGoogle ScholarCrossref
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