Concerns about private equity's growing influence in radiology
The rapid expansion of private equity (PE) in the healthcare sector has become an area of increasing interest and scrutiny, particularly within the field of radiology. Melissa A. Davis, MD, MBA, vice chair of medical informatics and associate professor at Yale University’s Department of Radiology and Biomedical Imaging, recently published research examining the extent of private equity’s penetration in radiology, revealing significant trends and potential implications for the industry.
"We wanted to understand what private equity penetration looks like in radiology. And what we found is that there's been an exponential growth of private equity within radiology," Davis said. "We've also found that it's very concentrated in certain parts of the country, typically in areas that may not have as much access to care as other parts. What we were trying to expose was that private equity is here within radiology, and we really need to start asking questions about how does that impact the way that we function as radiologists?"
Davis elaborated on the subject in this video interview with Radiology Business at the Radiological Society of North America (RSNA) 2024 meeting.
She said the trend of private practices being bought up is not restricted to PE firms, but also is seen with hospital systems buying and consolidating these practices.
Exponential growth and regional disparities
Davis’ research highlights the substantial increase in private equity-backed acquisitions of radiology practices in recent years. However, this expansion is not uniform across the country.
"It really is geographical. There are some areas where it's 70% penetration and there are some areas where it's more like 20-30% penetration. So, it depends on which region of the country that you're looking at. We found that the Midwest tends to have more penetration than in the coastal cities," she said.
Often the areas chosen by private equity are locations where they do not face a lot of competition.
The financial incentives behind private equity investment
The broader trend of private ownership in medicine is shifting, with many independent practices being acquired by either hospital systems or private equity firms. Davis noted that private equity firms see healthcare as a stable investment opportunity, even amid declining reimbursement rates. The consolidation of smaller practices into larger entities allows for potential economies of scale, enabling greater bargaining power in reimbursement negotiations and operational efficiencies.
Davis said part of the reason private equity is acquiring practices is to amass larger networks that can better withstand financial pressures.
"As reimbursements drop, we're going to continue to see smaller practices generally struggle with making sure that they have enough income to be sustainable. And I think that's why a lot of smaller practices that have been around for a while tend to want to be bought out," Davis explained.
Pros and cons of private equity in radiology
Private equity investments often bring significant capital to radiology practices, allowing for upgrades in technology, such as PACS and artificial intelligence tools. This financial infusion can enable practices to provide better services and improve operational efficiency. She said some PE-acquired practices have been able to hire additional staff to help make things run more smoothly.
However, concerns arise regarding the decision-making processes in PE-backed practices.
“One of the biggest concerns is transparency,” Davis pointed out. “Who controls the decisions—radiologists or financial stakeholders? Are we prioritizing patient care, or are we prioritizing revenue generation?”
She also noted that changes in practice ownership structures could influence work culture and productivity.
"One of the things that we find anecdotally is that as radiologists start to see themselves as employees as opposed to owners, the work ethic changes. And so in general, where are we going to go from a productivity standpoint when that happens?," Davis said.
Private equity's impact on underserved areas
One critical issue is the impact of private equity ownership on radiology access in underserved regions. Practices in rural or lower-income areas may not generate high returns on investment, making them less attractive to private equity firms. This raises concerns about potential closures or reductions in services, exacerbating existing healthcare disparities.
"If I own my own practice, I don't feel like I would be able to turn those patients away no matter what the bottom line is. And I think a lot of small practices operate in deficits often to make sure that they cover that population. The question is whether a PE company would be willing to do the same, or would they at least be willing to treat those patients knowing that there's some balance when they have revenue coming in from other aspects?" Davis asks.
She said there is just not enough data right now to know the answer. But this is part of overarching concerns across healthcare as private practices have been dramatically reduced in the past decade as PE and health systems continue to consolidate them. Nearly 80% of physicians now work for hospitals or other corporate entities.
Private equity might have real estate and other business considerations
Davis said it is also important to keep in mind that PE purchases of healthcare entities might be driven by other financial motivations, including real estate investments. Davis drew comparisons to the dental industry, where PE-backed acquisitions have sometimes focused on property ownership rather than long-term patient care.
“I’d be interested to see how many of these practices remain open long-term, versus being closed for other financial interests,” Davis said.
Dave Fornell has covered healthcare for more than 17 years, with a focus in cardiology and radiology. Fornell is a 5-time winner of a Jesse H. Neal Award, the most prestigious editorial honors in the field of specialized journalism. The wins included best technical content, best use of social media and best COVID-19 coverage. Fornell was also a three-time Neal finalist for best range of work by a single author. He produces more than 100 editorial videos each year, most of them interviews with key opinion leaders in medicine. He also writes technical articles, covers key trends, conducts video hospital site visits, and is very involved with social media. E-mail: dfornell@innovatehealthcare.com