Anesthesiology practices are facing a mounting provider shortage as reimbursements continue to decline, and many groups are looking to private equity for profitability.
Around 20% of anesthesia practices make up private equity physician practice buyouts, according to a study published in JAMA Network in February 2020. The study also found that 33% of anesthesiologists have been acquired by a private equity physician practice buyout.
Anesthesia practices are viewed as a promising investment by private equity because procedure volume has grown steadily for decades and anesthesia groups are "already more aggregated than other specialties," according to a 2021 report from the American Society of Anesthesiologists journal, ASA Monitor.
Additionally, because anesthesia is administered more than 100 million times annually and has a high profit margin, it presents an "easy target for corporate investment by way of contracting with physician management companies," according to a report from CCI Anesthesia.
However, as anesthesia provider salaries grow and reimbursements decline, investors are pressed for ways to enhance revenue.
"If you Google search right now on private equity and anesthesia, you won't find a single positive story going on in the market," Jack Dillon, CEO of Anesthesia Practice Consultants, said in a June Becker's panel. "It's all pretty devastating to communities."
Private equity has led to higher patient costs and lower care quality. Another JAMA study, published in 2022, found that prices increased 26% on average when anesthesia companies, backed by private-equity investors, took over a hospital outpatient or surgery center compared with independent practices.
A study published in JAMA found private equity-backed hospitals may have worse quality of inpatient care. Findings like this could contribute to physicians' wariness toward private equity.
Moreover, private equity doesn't necessarily provide financial stability. More than 20% of healthcare bankruptcies in 2023 were by private equity-backed companies, according to a recent report from the Private Equity Stakeholder Project.
"The concern is that private equity investors do not put patients first, prioritizing profit over patient care," Stephen M. Topper, MD, orthopedic surgeon and partner and co-founder of Aspire Physician Solutions, told Becker's. "Physician owners understand that when you put patient safety and quality care first, success follows. I personally agree with that statement having been a clinical practitioner for 30 years. Private equity is an incredibly broad term and under that umbrella there are a lot of different models. That is why it is incumbent on physician owners to ensure alignment of interests when considering a private equity partnership."
Federal and state governments are attempting to mitigate the downsides of private equity investment.
In February 2024, Colorado Attorney General Phil Weiser resolved alleged anticompetitive business practices by Dallas-based U.S. Anesthesia Partners, a physician group backed by private-equity firm Welsh, Carson, Anderson & Stowe. Mr. Weiser claimed USAP drove up prices for consumers receiving surgical anesthesia services in the state.
USAP agreed to pay $200,000, divest its exclusive contracts at five Colorado hospitals and release and modify noncompete agreements with providers as part of the settlement.
In May, a federal judge ruled the Federal Trade Commission may proceed with a lawsuit against USAP. However, the judge also ruled that WCAS may be dismissed from the case.
The FTC first filed a lawsuit against USAP and WCAS rin 2023, alleging the two groups executed a multiyear anticompetitive scheme to consolidate anesthesiology practices in Texas, hike up the price of anesthesia services provided to Texas patients and increase their own profits.
Since its creation in 2012, PE-backed, Dallas-based USAP has acquired more than a dozen anesthesiology practices in Texas. According to a report published in The Washington Post June 2024, one-third of physicians left USAP over three years.
Private equity-backed consolidations will likely continue.
"Private, multistate large practices are being bought out by private equity groups," William Joseph Martin, DO, medical director of anesthesiology at Elkin, N.C.-based Hugh Chatham Health and who is employed by NorthStar Anesthesia, told Becker's. "Oftentimes they cut costs by cutting providers. The private equity groups have to make a certain profit, and they're going to make it one way or the other. In general, more and more hospitals can't afford to subsidize and the groups have to become larger to have leverage. That's the way it's evolving."