The 18 physician shareholders at Beacon Orthopaedics in Cincinnati decided last year they needed an outside investor to help them grow and compete more effectively in the rapidly consolidating healthcare market.
After interviewing about 15 private equity firms, the Beacon orthopedists selected Denver-based Revelstoke Capital Partners to help them launch a management services organization that takes over the business functions of the practice. That structure sidesteps rules in most states barring nonphysicians from formally owning medical practices.
The MSO, which started in July, will serve as the foundation for a new network of orthopedic groups across the region and perhaps even nationally that would share management, billing, staffing, credentialing, accounting, and other services. The 26-physician group says it’s already in talks with more than a dozen other orthopedic practices interested in joining the MSO.
Orthopedists, along with gastroenterologists and urologists, are among the newest targets in the rush of private equity firms investing in physician specialty groups over the past few years. These firms are attracted to specialties that promise rich revenue from ambulatory surgery centers, lab, imaging and other ancillary services. The trend is already far along in dermatology, ophthalmology and dentistry.
Other orthopedic and gastroenterology groups acquired by private equity firms over the past two years include the Phoenix-based Core Institute, the Orthopaedic Institute in Gainesville, Fla., Atlanta Gastroenterology Associates, and Texas Digestive Disease Consultants in Dallas-Fort Worth.
The proliferation of these deals has raised alarm about whether ownership of physician practices by investors eyeing a 400% return on their cash investment within a few years will affect overall healthcare spending and quality of care. It’s set off an emotional debate within medicine about potential pressure to provide unnecessary care and loss of professional autonomy.
“It’s appropriate to be wary of new people coming in and gobbling up practices,” said Dr. Arash Mostaghimi, co-author of a recent JAMA Dermatology study on private equity acquisitions of dermatology practices. “If you promote care that’s focused only on money, humanity is lost,” he continued. “But there’s a lot to be gained from good business practices and consolidation that produce better, more efficient care. Probably both things will happen.”