Perhaps the biggest story in health care is the rise of private equity investment. I have been reading about this for some time now, and I can’t stop. Private equity (PE) firms have consolidated huge numbers of gastroenterology and dermatology practices nationwide, and since 2017, orthopedic and spine practices.1 Dental buy-ups are rising so fast that I wonder if private dental offices will even exist in the next decade.
So where is chiropractic going to end up within this explosive trend? Do PE firms want our practices?
I wasn’t paying much attention to this until Jim, a patient of mine, told me the story of a recent visit to his dentist.
“I’ve seen Doctor V. for years, but he sold his practice to some bigger group. Now, Doc V. isn’t there much, so I see one of the new dentists, and they came up with all kinds of stuff I’m not sure I need.”
Jim went on the say that on his last visit, the staff wanted to take some “fancy circular X-rays” and offered a tooth whitening procedure that he declined. He noticed that the office now treats sleep apnea, and sells high-tech ultrasonic toothbrushes.
My initial reaction was that the office might simply be “modernizing” and giving patients more services. But I became curious, and have concluded that PE is one of the most important trends since the managed care carnival started in the late 1980s.
Managed care might have been an honest attempt to control health costs, but for-profit corporations ended up taking over most of it. These days, it appears that PE unabashedly intends to control most of the health care in this country and increase profits for those who invest.
How It Works
PE looks for busy, large group practices in many specialties, with high net incomes, that are undervalued. These investment groups (e.g., Goldman Sachs) also look for owners who are ready to retire, or just getting weighed down dealing with the complexities of practice.
PE firms have compelling arguments to convince doctors to sell their practices. They offer stock and/or a lot of money, with the choice for doctor-owners to stay on as employees or leave with the spoils. The PE corporation promises to increase productivity by implementing its more efficient methods, improving staff benefits, expanding services, and cutting unnecessary costs.
In a prospective financial piece about why orthopedic clinics should sell to PE, the stock angle was promoted. The firm said that they propose to buy practice groups that can be resold within 2-3 years, after being “packaged” with other ortho groups to make giant regional or national corporations. This gives the giant group strong negotiating advantages with insurance companies.2
But What About the Patient?
PE says that larger practice corporations will result in improved “quality” in health care delivery (whatever that means). Yet there are plenty of critics. One article mentioned a study that showed two years after PE bought three medical specialties in one city, average charges per claim were 20% higher than at practices not owned by PE.3
Yashaswini Singh and her team at Johns Hopkins published a study in JAMA Health Forum (September 2022) that tied PE takeovers to an average increase of $71 per medical claim and a “9% increase in lengthy, more costly patient visits.”4
Not the Only Criticism
Another criticism of PE is “revenue maximization,” resulting in doctors and staff working harder, longer hours, and transferring procedures done by skilled technicians to lesser-trained, but cheaper staff personnel.
A 2015 case, referred to as the “National Spine and Pain Center” lawsuit, revealed that a PE firm owning 40 offices over five states had a “corporate culture in which money trumps the provision of appropriate patient care.” The firm made the mistake of charging Medicare $1,100 for “unnecessary and often worthless” back braces. The case was settled by the PE corporation for $3.3 million.5
The PT Example
Physical therapy has become a target for investment bankers, since there are some PT corporations of size. The largest consolidation of PT clinics seems to be Upstream, owned by PE firm Revelstoke, which has clinics in 28 states according to its website. It has about 1,200 owned or managed clinics and 7,400 employees.6
These are “pure play” PT clinics, as one article described them, meaning they don’t have pain clinics, chiropractors, massage therapists or other ancillary therapies. But a few PE firms are looking for profitable, integrated physical medicine clinics which include PT, pain management, and chiropractic.
Trive Capital, out of Dallas, is a firm that likes these practices, along with a dizzying array of PE investments unrelated to health care. Like most PE firms, it is not the product, but the return on investment, that matters.7
What About Chiropractic?
It should be pointed out that we are not talking about franchises, which have become more common in chiropractic. Even though I have found a few large franchises that have bought “company” clinics, it is rare compared to PT or other physical medicine integrated groups.
This is not a promising trend for owners of chiropractic offices. Mark Mandell, DC, in a February 2022 Dynamic Chiropractic article, noted that the only people that might buy a chiropractic practice are other chiropractors.8
Considering all the PE dollars out there, why aren’t the bucks coming our way? Is it because we are mostly “cottage” practices? Do we show enough profit to attract this kind of investment? VerticalIQ, a data-gathering company, says that the chiropractic profession has 39,000 offices, employing 146,000 employees, generating $16.3 billion, and has an average gross of $385,000 per year per office.9 That seems attractive to me.
I address my answers to these questions in part 2 of this article. Chiropractic may always be evolving, but in what direction? High student loans, public confusion of what we do, interdisciplinary development, and more will all determine this evolution, but private equity may or may not be a game changer.
Editor's Note: Dr. Hanks continues this discussion in the November issue.
References
- Yetter EJ, Snyder JA. “The Physician Sellers Guide To Private Equity Firms Investing In Orthopedics.” Focus Investment Banking white paper, April 2019.
- Meyer H. “More Orthopedic Physicians Sell Out to Private Equity Firms, Raising Alarms About Costs and Quality.” KKF Health News, Jan. 6, 2023.
- Schulte F. “Sick Profit: Investigating Private Equity’s Stealthy Takeover of Health Care Across Cities and Specialties.” Khn.org, Nov. 14, 2022.
- Ibid.
- Ibid.
- Upstream Rehabilitation: Urpt.com.
- Trive Capital: Trivecapital.com.
- Mandell M. “Why Isn’t My Chiropractic Clinic Worth a Million Dollars?” Dynamic Chiropractic, February 2022.
- Chiropractic Clinics: Industry Profile Report. Verticaliq.com/product/chiropractic-clinics
