Muhammad Awan, BS (1); Ankit Shah, MD (1).
Affiliations
1. Alabama College of Osteopathic Medicine, Dothan, Alabama.
Abstract
Throughout the last few decades, private equity has expanded into the field of ophthalmology at an alarming rate. Acquisitions of private practices by firms have increased with the intention of maximizing profits and patient volume in order to target the growing demand for medical services and address a fragmented healthcare practice system [2]. Private equity investment has proven to greatly benefit private equity firms and senior ophthalmologists of well-established practices alike. However, this trend of private equity acquisition has received much criticism despite its seemingly positive short-term outlook. In this commentary, we discuss the potential setbacks of private equity advancement in ophthalmology, a discussion which may also be applied to other specialties experiencing a similar predicament. Loss of physician autonomy, declining physician income for junior ophthalmologists, and the priority of profitability over patient care are a few of the significant concerns highlighted in this commentary regarding private equity. Furthermore, we consider the ramifications of private equity investment on incoming ophthalmologists who are entering an uncertain job marketplace and may struggle to locate stable practice opportunities [8]. This commentary concludes with the evaluation of private equity advancement through the lens of a medical student and an ophthalmologist, as well as the call for medical students and trainees to educate themselves on the matter and promote further research on the long-term consequences of this trend of private equity investment.
Commentary
Private equity has made significant advancements into the field of ophthalmology throughout the past few decades, most notably with a trend of increasing private equity acquisitions of private practices. For medical students, residents, and trainees in the early part of their career, this is an evolving dynamic that requires attention due to its paramount effect on the private practice landscape. This commentary attempts to further educate students, residents, and early career physicians on the impact of private equity’s encroachment on physician practices, specifically in the ophthalmology space. Most of these findings may relate to other specialties, such as dermatology and radiology.
Private equity firms seek to maximize profit through acquisitions of private practices, with the aim of increasing the value of purchased ophthalmology practices and thereupon selling the practice to another firm that shall do the same. These firms are thus understandably drawn toward more profitable private practices that are highly likely to grow financially [1]. Multiple ophthalmology practices may also be consolidated into larger groups under the same private equity firm to increase profitability, with the providers of these practices becoming employees under these firms.
This expansion of private equity into ophthalmology has been justified with multiple motives, including a growing demand for medical services from an aging United States population and targeting “inherent inefficiencies present in a relatively fragmented practice environment” [1, 2]. Private equity investment of ophthalmology practices has demonstrated short-term financial success for both senior ophthalmologist providers and the private equity firm itself due to increased profits, increased patient volume, and improved payer mix [3].
Nonetheless, there remains much skepticism regarding the true success of private equity acquisitions of private practices in the long-term perspective. Despite the beneficial short-term patterns mentioned above, other studies have also demonstrated decreased physician autonomy and physician salaries following acquisition. Due to the uncertainty regarding the fate of junior and incoming ophthalmology colleagues, private equity encroachment on ophthalmology practices raises a serious concern for the future of ophthalmology and patient care.
The decrease in physician autonomy results from ophthalmology providers handing clinical operations authority to the private equity firm. With the acquisition of practices by private equity firms, ophthalmologists must then operate under certain policies imposed by the larger business practice model. Subsequently, these firms then restructure the ophthalmology practice to establish an organization that primarily seeks financial success over patient satisfaction and optimal patient care [4, 5]. The decline in physician reimbursements is also influenced by the focus of private equity on financial efficiency. Private equity firms maximize profitability of ophthalmology practices by reducing costs of care, implementing structural changes, and increasing volume of service, among other methods. However, these strategies together may necessitate tighter control over expenses and ophthalmologist income.
Furthermore, multiple studies have suggested that junior and future ophthalmologists are “less likely to succeed financially compared with their contemporaries” [6] due to private equity investment. Junior ophthalmologists typically join large physician-owned practices with the goal of eventually becoming a partner, a process that requires buying into the practice after a pre-determined employment period. This process often takes several years for both junior and senior ophthalmologists. Both sides have to decide if the “marriage” is the right fit. For example, the junior ophthalmologist needs to determine if the practice model, philosophy, the patient clinical and surgical volume, and the practice environment are mutually beneficial. The senior ophthalmologist must decide whether the junior colleague’s personality, clinical and surgical expertise, and work ethic align with the practices. Once both sides have mutually decided to pursue a buy-in, a pre-determined price is then paid by the junior ophthalmologist over a period of time, after which subsequent profits of the practice are then appropriately distributed to all of the partners including the new junior ophthalmologist.
Unfortunately, the junior ophthalmologist is highly susceptible to the risk of a private equity firm buying out the practice before the physician can secure their buy-in. If a firm does approach the practice while the junior physician’s buy-in is not yet complete, this ophthalmologist is not considered a partner and hence is excluded from the negotiations with the private equity firm. The junior ophthalmologist is not included in the payout agreed upon by the partners. Consequently, the junior colleague loses their ability to buy the practice or become a partner, rendering their efforts over the last few years entirely useless. Additionally, once the buyout has been completed, the junior ophthalmologist loses all autonomy and will likely be asked to streamline clinical operations based on the private equity firm’s recommendations.
From the perspective of a practicing ophthalmologist, private equity encroachment on ophthalmology practices has been met with mostly negative reviews. The three biggest issues include loss of autonomy and independence, declining reimbursement, and a practice pattern built on profitability and not necessarily patient outcomes. Most private equities, once they purchase a practice, require senior providers who were paid out to remain on board for several years to help the transition to a private equity owned practice. In this time frame, there is significant clinical reorganization, where metrics are implemented to increase patient volume (clinical and surgical), optimize billing and collections, and reduce costs. This often results in adding more patient appointment times, reducing visit durations, reducing salaries, and increasing thresholds for bonus compensation structures. Additionally, product replacement and medical equipment purchasing are reduced to offset costs. Some groups may align compensation with patient satisfaction scores which often does not correlate with each other. The difficulty ultimately comes from the fact that the interests of the private equity company usually do not
align with those of the physician. Furthermore, solo and independent ophthalmology practices are left to compete against large private equity firm-owned ophthalmology practices who may more resources and finances to advertise, recruit, and retain patients, staff and physicians. This dichotomy becomes even greater as more practices become absorbed by private equity firms.
The increased presence of private equity in ophthalmology is a movement that also cannot be ignored and should be understood by all medical students intrigued by the field. Through a medical student and future ophthalmologist standpoint, the expansion of private equity into ophthalmology raises significant concern due to the lack of evidence regarding its long-term success. This trend also challenges the comfort of
physician autonomy and personalized patient care that have always been synonymous with the concept of private practices. Although private equity acquisition is associated with increased patient volume, the reality is that the focus of profit over patient care pressures ophthalmologists to see more patients in less time, resembling an unfavorable move away from personalized care. Less time for patients equates to poorer patient care, fragile physician-patient relationships, and greater patient dissatisfaction.
Patient care is the foundation of medicine, and making patient care secondary to profitability poses great danger to both the patient and the integrity of medical practices. Students are inspired by fields such as ophthalmology that entail established and prolonged relations with their patients, but the increasing involvement of private equity in ophthalmology may deter many trainees who are seeking these fond relationships. Furthermore, the anticipated difficulty of becoming a partner at physician-owned practices and an indeterminate job marketplace present much uncertainty in the future of incoming ophthalmologists [7, 8].
With private equity acquisitions on the rise in ophthalmology, it is imperative that medical students, residents, and junior ophthalmologists are knowledgeable on the impact of private equity on the future of this specialty. Education regarding private equity and practice options should be widely provided to trainees pursuing ophthalmology and other specialties that are being affected by the expansion of private equity investment. Although several highly accountable publications have exposed the trends of private equity encroachment on medical practices, additional research investigating the long-term implications of private equity acquisition and its impact on medicine must be done.
References
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5. Scheffler, Richard, et al. Soaring Private Equity Investment in the Healthcare Sector, 18 May 2021. https://bph-storage.s3.us-west-1.amazonaws.com/wp-content/uploads/2021/05/Private-Equity-I Healthcare-Report-FINAL.pdf
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7. Portney, David S et al. “Trainee Perspectives of Private Equity's Impact on Ophthalmology.” Journal of academic ophthalmology (2017) vol. 15,1 e56-e61. 9 Feb. 2023, doi:10.1055/s-0043-1761289 https://pubmed.ncbi.nlm.nih.gov/38737149/
8. Patel, Shriji et al. “Implications of the presence of private equity in ophthalmology: an academic perspective.” Current opinion in ophthalmology vol. 33,5 (2022): 377-380. doi:10.1097/ICU.0000000000000856 https://pubmed.ncbi.nlm.nih.gov/35819904/