Is private equity harming or benefiting orthopedic, spine surgery? 5 surgeons weigh in

Ariana Portalatin -  

Although private equity has the ability to increase inefficiency and growth at orthopedic and spine practices, many surgeons still believe there could be disadvantages to these deals.

Five surgeons recently spoke with Becker's about private equity's role in the field and the potential advantages and disadvantages. 

Editor's note: Responses were lightly edited for clarity and length. 

Joshua Wind, MD. Neurosurgeon at Washington Neurosurgical Associates (Washington, D.C.): The true answer is that it remains to be seen. The promise of private equity is that it will bring increased business efficiencies, allow consolidation and greater bargaining power of smaller independent practices, provide capital infusions for practices as well as front-end financial benefit to physicians. Downsides include loss of autonomy and having business decision-making supersede clinical decision making and strategic practice goals. The real unknowns are whether the promise of future equity events and the alignment of long-term practice goals with private equity goals will pan out. With increasing activity in [private equity] acquisitions, we are only seeing the first phase of the cycle. The second phase, when private equity exits and sells their interest to another party, may not have much physician involvement in this decision making at all. Previously independent practices may find themselves eventually absorbed by healthcare systems or other large entities at this second phase, where physician independence is even further eroded. Private equity has a definite timeline of their interest in a physician practice, and time will truly tell whether their involvement is a benefit or a harm.

Brian Larkin, MD. Orthopedic Surgeon and Chief Medical Officer at Orthopedic Centers of Colorado (Denver): Private equity investment in the orthopedic surgery space has certainly increased over the last handful of years. This increased attention comes with potential risks and benefits. The proposed benefits of private equity investment often center around the fact that the infusion of capital into an orthopedic group allows a group to increase their scale while allowing surgeons to focus on patient care. This then allows the private equity/business-minded side of the merger to focus on growth, insurance contracting and other ways to leverage the size of the new found entity. While this sounds very appealing at the onset, the interplay between physician autonomy and the needs of the business side can come into conflict.

There are challenges that I have seen with some of these investments in healthcare. Healthcare delivery and compensation models are changing, and being able to navigate these changes is paramount to having success. While a private equity buyout is great for partners that are nearing retirement, attracting future young talent to continue the group down the road is often challenging. These younger partners or potential future partners don't get to see as much of the upside, or none at all, of such a transaction. Beyond this, holding out for enhanced rates from payers may be beneficial in the short term, but I believe future success will hinge on alternative payment models that look at value-based care and this approach will reward those with the highest quality.

In short, time will tell how much value private equity will bring to the orthopedics industry. The key to success with any partnership will be that the relationship will enhance patient care, access and quality. At the same time, physician partners need to have the ability to continue to innovate [and] improve care and achieve professional satisfaction. Historically, professional satisfaction has been linked to having autonomy and the ability to lead beneficial change. It will be interesting to see how physicians that have had previous autonomy react to a model where the business of medicine may be dictating the delivery of healthcare.

Tom Wascher, MD. Neurosurgeon at the Advanced Spine Center of Wisconsin (Neenah): The private equity market has the potential to both help and hurt the outpatient spine market. As challenges to operate an ASC (including but not limited to decreasing reimbursement, increased overhead, supply chain issues, government interference, direct hospital competition, inflation, etc.) become more pervasive, the attractiveness to use private equity to "take some money off the table" for owners has increased and will continue to increase for the foreseeable future. Private equity investment can allow physician owners to immediately build their practice with regard to financial security, debt resolution, purchasing expensive equipment, expansion of resources, etc., allowing for timely and dexterous change in the current dynamic environment. 

This can make the ASCs more attractive to new business development and future potential partnership arrangements. However, these potential benefits come at a considerable cost: loss of autonomy and the risk of interference with day-to-day functioning imposed on the physician owners and their staff by new [private equity] shareholders who may have different incentives. The focus should always be to produce a model of care delivery that focuses on a best case scenario for the patient. Lowering costs to maximize profit may not always provide for the best patient experience. Growth, including development of ancillary in-house services, new procedures and new technology may require a significant up-front investment to secure long-term benefit that may not be viewed as economically warranted by the new [private equity] partners. Changes that upset the ASC staff, resulting in the need for recruitment and extensive training of new staff, is never cost effective. The best scenario is to continuously balance the priorities/incentives of the surgeons and the new [private equity] partners. Up-front and ongoing communication and competent legal counsel become paramount to success in any situation regarding producers (the surgeons) and investors (the [private equity] firm), with all decisions based on what is best for the ultimate customer (the patient). 

Eric Eskioglu, MD. Neurosurgeon, Executive Vice President and Chief Medical Officer at Novant Health (Winston-Salem, N.C.): In the last three years we have seen complete disruption with innovation and transformation of primary care practices with large [private equity] firm investments. Groups like City Block, Iora Health, One Medical, Privia Health and Village MD have shown that there are multiple unique models to operate and thrive in the primary care arena. Currently, this cycle seems to be maturing. 

Logically, the next investment for [private equity] firms will be even more lucrative for [specialties] like orthopedics and spine surgery. I expect total transformation and innovation away from the neolithic hospital employment and independent practice models. The competition in the [private equity] space for these groups will be fierce due to the smaller number of practicing orthopedic surgeons and neurosurgeons. Every day over 10,000 people turn 65 in this country. This creates a tremendous demand for orthopedic and spine surgeries in order for people to remain active later in life. The current environment is very ripe for disruption with operational losses accelerating in many provider health systems. They will in turn try to cut costs, and this may include the reversing of hospital physician employment trends for the last 10 years. Exciting, innovative times with [private equity], which will benefit both patients and surgeons tremendously!

Issada Thongtrangan, MD. Spine Surgeon at Microspine (Scottsdale, Ariz.): The concerns I have as an independent spine surgeon on private equity acquisition are related to loss of business and clinical autonomy, income reduction and the uncertainty presented in future equity events with changes in ownership.

The first goal of the investor is to make a profit. They can't care less about the physicians, let alone patients' care. To deliver quality care, I have to spend time understanding each individual and their problems. I doubt that I will have time for each of my patients as we (an employee) have to make up the number for our "boss" (private equity). The only upside is that private equity has the power to negotiate the payer contract at a better rate and may be able to lower the practice's expenses without lowering our supply quality.

The practice's surgeon and partners need to have a clear picture of their goals both individually and collectively before going through the checklist of the pros and cons of selling a portion of equity contained in their privately held practice.

In my opinion, I am not certain that private equity is good for spine practice.

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