Physician turnover increases after private-equity investors sell their practice ownership stake

Private equity ownership of medical groups likely leads to higher rates of physician turnover, according to new research published Friday. 

Practices have become an attractive target in recent years, with PE investors acquiring about 1,000 such entities between 2010 and 2020. Typically, private equity seeks a return after three to seven years, “exiting” ownership for a profit. 

Harvard University researchers aimed to understand the ramifications of such selloffs, sharing their findings in JAMA Health Forum. Their sample included 1,215 radiologists and other specialists. Physicians working in practices sold by private equity owners were 16.5 percentage points likelier to work elsewhere within two years after the sale. They also had 10.1 percentage-point higher odds of joining a large practice (with greater than 120 docs) upon leaving. 

“The increase in physician turnover and consolidation following PE exits has important implications for patients, physicians, investors, and physician markets, including disruption for practices and patients and likely for increases in costs of care,” Leemore Dafny, PhD, a professor with the Harvard Business School, and co-authors wrote Feb. 14. 

Researchers utilized data from the Centers for Medicare & Medicaid Services’ doctor files spanning 2014 to 2020. They used a “case-control” approach comparing employment changes for physicians at PE-exiting practices (sold 2016-2018) with those at similar practices not sold by private equity owners. Dafny and colleagues matched the two groups based on specialty, hospital referral region, practice size and time period. The final tally included 405 physicians at 70 PE-exiting practices and 810 matched controls. 

Private equity-backed practices examined typically employed over 20 physicians (65%) and were in the South (52%). Dermatology was the leading specialty with 216 physicians (30%) departing from practices after PE exits, followed by family medicine with 94 (13%). The radiology numbers were small in the study, incorporating two PE-exited practice sites with six locations. Among those, 12 radiologists or about 2% left within two years of a private equity sale, a number similar to the turnover rate at the non-PE comparison group. About 74% (0r 54/70) of the PE-exiting practices were sold to another private equity firm, representing 65% of physicians (265/405). 

“Given the small number of radiologists in the sample, we cannot say anything specific about this group of physicians,” Dafny said by email.

The authors did not attempt to learn why physician turnover is higher after a PE exit, but they speculated on potential reasons. Physicians may have found it less rewarding to stay after a private equity sale, possibly because the expected return from any equity stakes is typically lower. Practices sold by PE also tend to have fewer assets and more liabilities, reducing investment in practice activities and “heightening the risk of subsequent instability.” 

“Relatedly, once the first PE-ownership group has realized the returns from picking low-hanging fruit, the next owners may lean on physicians to engage in margin-boosting activities that could undermine physicians’ autonomy and morale,” the authors noted. “Physicians may want to consider these possibilities before involving PE in their practice.”

Along with practice leaders, Dafny and colleagues also believe the study has implications for policymakers analyzing private equity ownership’s impact on imaging. 

“The finding that physicians in PE-exiting practices were 10.1 percentage points likelier than controls to leave for large physician practices suggests PE investment in physician markets facilitates consolidation of physician markets not only when practices are acquired and rolled up but also when they are sold,” the authors added. “In light of research showing that physician consolidation tends to yield higher prices with no improvement in quality, this effect is important to incorporate when considering costs and benefits of PE involvement in physician markets.”