Mariel needed a new gastroenterologist.
After she had just moved back to San Antonio, the 30-year-old sought a doctor to manage her Crohn’s disease, an inflammation of the gut that is successfully managed with medication and lifelong supervision – including regular colonoscopies.
Mariel booked an appointment and learned that she would be on the hook for a $ 1,100 colonoscopy – about three times what she had paid for the same test in another state. Nearly three-quarters of the bill would be a “facility fee” for the in-office procedure at a colonoscopy clinic. (KHN agreed not to disclose Mariel’s last name because she was concerned that the pronunciation might affect her doctor’s willingness to manage her medical condition.)
Preventive colonoscopies are covered without sharing patient costs under the Affordable Care Act, but colonoscopies for patients with pre-existing conditions, such as Mariel, are not. A 2019 study found that patients with inflammatory bowel disease, including Crohn’s disease, incur about $ 23,000 in health care costs per year. Medication treatments alone can cost tens of thousands of dollars annually.
But shopping turned out to be frustrating. Although San Antonio has many gastroenterology offices, more than two dozen of them are controlled by the same private equity support group.
In 2018, one of the nation’s largest independent gastroenterology practices, Texas Digestive Disease Consultants, announced an agreement with Chicago-based private equity firm Waud Capital to expand by offering management services to other physicians. At the time, the Dallas-based practice had 110 locations, mostly in Texas – including San Antonio. Today, its management team, the GI Alliance, operates in dozens of states with more than 400 locations – and is growing rapidly.
With market dominance comes the business opportunity to set and maintain high prices. “It’s almost the only game in town,” Mariel said.
Private equity, known for making a profit on investments with rapid turnaround in wrestling companies in many industries, has taken an increasingly active interest in healthcare in recent decades. It has in recent years invested in gastroenterology practices to exploit the revenue potential to meet growing demand.
“We are in the Golden Age of older rectums,” wrote one investment manager in 2017.
Tired of managing the increasingly complicated business of running a practice and often lured by the sweet deals that investors offer, more and more doctors have partnered with or even sold their practices to private funds. That investment managers now control the financial decisions of many medical offices that care for patients with digestive problems. With profit the primary care provider, patients may find that they pay much more for the same – or less – care.
The Centers for Disease Control and Prevention has recently lowered the age at which healthy Americans are encouraged to begin routine screenings for colon cancer – and ensure that most regular colonoscopies are performed starting at age 45. And the population is getting older, which means that more people have the need to procedure.
For those 65 and older, Medicare takes up the tab. But even if a benign polyp is found during a simple screening, patients sometimes end up with an unexpected bill. And less-than-scrupulous providers often find ways to bill for some services, such as anesthesia monitoring outside the network.
Studies show that private investment in healthcare results in more surprise bills and overall higher costs for patients. Surprise billing is the practice of charging insured patients for non-network care that has been unknowingly received, including in emergencies and at other in-network facilities.
Before a federal ban on surprise billing came into effect this year, it was common for patients to be hit with an expensive bill after being treated by an emergency room doctor employed by a privately owned private equity firm – a problem that policy experts say it was not a glitch but rather a business model for private equity firms.
Nearly 10% of the nation’s 14,000 gastroenterologists were partners in or employed by a private equity organization as of last fall, according to a report by Physician Growth Partners, which represents independent physician groups in private equity transactions.
In 2021, the number of private acquisitions of gastroenterology practices grew by 28% compared to the previous year, according to Spherix Global Insights and Fraser Healthcare.
Complex government regulations, technological innovations and practices for the insurance sector have driven many gastroenterologists to sell shares in their practices, said Praveen Suthrum, who runs a consulting firm for medical practices. Many physicians argue that reimbursement rates are too low to keep up with complex negotiations with insurers and the other rising costs of operating an independent practice.
Private equity typically buys an interest in a healthcare practice, and then adjusts its operations to make it more profitable. It can switch to cheaper providers, shorten appointment windows, aggressively count, or lay off staff, to name a few strategies – the kind of changes that save money at the expense of patient care.
In December, NBC News reported on how one private equity-owned group of dermatology practices oversubscribed patients, lost test results, and relied on cheaper labor from physician assistants and nurses who might lack critical diagnosis.
A study from last year by the National Bureau of Economic Research found that when private equity owned a nursing home, patients were more likely to die in their first months there and much more likely to be prescribed antipsychotic drugs – those ‘ t are known to increase mortality among the elderly. The expenditure of taxpayers per procedure or service in a private equity facility is going up by about 11%.
Private equity has shown a lot of interest in healthcare practices that perform high-volume procedures, especially those with growth potential.
“A lot of people need eye injections for macular edema, and a lot of people need colonoscopies, and a lot of people need skin biopsies,” said Dr. Jane Zhu, a health care researcher at Oregon Health and Science University in Portland who has studied the role of private equity in health care. “And these are things that will only grow in volume over time as the population grows.”
Zhu said that investors usually start by adopting a well-performing practice, as a group practice, in one geographical area – called a “platform practice”.
“It’s well established. It has some brand recognition,” Zhu said. “It has good market reach. There can be multiple sites. It has a lot of patients who are already affiliated with that practice, and they are buying that up, and there are opportunities for consolidation.”
Mergers create larger groups with more power to negotiate rates with insurance companies and charge whatever they want. The ability to capitalize on the good name of a respected practice alone can make it a worthwhile investment.
Zhu said these medical practices are considered an investment in the short to medium term, with an average period of three to eight years before the investors sell.
Suthrum said private equity firms are good at making their case for doctors, assuring them that they will let the doctors do the medicine while the entrepreneurs do the business.
Doctors think, “If I’m going to survive, I’ll have to sell myself to the hospital or, what’s the alternative?” Suthrum said in an interview. “The alternative is private equity.”
This article was adapted from a recent episode fan “An arm and a leg“, a podcast on the cost of health care, produced in collaboration with KHN.
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Bet on ‘Golden Age’ of colonoscopies, Private Equity invests in Gastro Docs
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