Pandemic may produce ‘surge’ of private equity purchases in medicine, radiology expert warns
With physician and hospital groups left hobbled by the COVID pandemic, healthcare may witness a “surge” of private equity entrants as investors gobble up troubled assets to extract a profit.
That’s according to a new opinion piece, published Wednesday in the Journal of the American College of Radiology. One expert is predicting this uptick, despite recent struggles for such investor-backed firms like Envision Healthcare—which employs hundreds of radiologists, and is currently contemplating bankruptcy. Quorum Health—a for-profit hospital chain funded by the same investment group, already filed for Chapter 11 last month, and it is likely similar actions will follow.
“Despite the above events, the widespread upheaval in the U.S. healthcare may lead to a surge of purchases by [private equity] firms of distressed hospitals and other healthcare firms,” Frank Lexa, MD, MBA, chief medical officer of the ACR’s Radiology Leadership Institute, wrote May 27. “The post-COVID landscape may see more, rather than less P.E. activity,” he added.
While many providers may be seeking such capital to help weather the crisis, Lexa expressed concern that private equity does not always have physicians’ and patients’ best interests in mind. Envision and its owner KKR, for one, has enacted physician furloughs and salary reductions “as a way to offset losses in their non-COVID healthcare revenue streams.” And KKR’s proposed bankruptcy plan would saddle Envision and its docs with more than $7 billion in leveraged buyout debt, Lexa noted.
The private equity business model, he wrote, often relies on the “heavy use of debt financing,” and a quicker turnaround time of five years or less to extract value for investors.
“The restrictive nature of the P.E. business model demands an abundance of short-term profits for success. That, in turn, makes it unlikely that an investment firm in this class would consider the use of alternate longer-term strategies—including solutions that would avoid hurting physicians and other employees, particularly in the middle of a crisis,” Lexa and his co-author, son Frank James Lexa with Cornell University, wrote Wednesday.
“In good times, investors can do quite well for themselves, but in a stress test like this pandemic, key stakeholders, including patients, physicians, other providers, and their communities, can be significant losers,” the writers added later.
You can read the entire pre-proof opinion piece in JACR here.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.