The Rise of Private Equity in Physician Practices: Opportunities and Risks

Private equity investment in physician practices has surged in recent years, reshaping the landscape of healthcare delivery across the United States. As private equity firms seek to consolidate fragmented medical markets and drive profitability, physicians and healthcare organizations face both promising opportunities and significant legal and operational risks. Understanding the implications of private equity ownership is essential for providers, investors, and legal professionals navigating this evolving terrain.

The healthcare law attorneys at Daniels, Porco & Lusardi, LLP can help you navigate the risks and opportunities of private equity investors. Schedule a consultation to learn how we can help in your practice.  

What Is Private Equity in Healthcare?

Private equity involves investment firms acquiring ownership stakes in businesses with the goal of increasing value and generating returns. In healthcare, these firms typically target high-revenue specialties such as dermatology, ophthalmology, orthopedics, and gastroenterology. 

These acquisitions often involve roll-up strategies, where multiple practices are consolidated under a single management entity to streamline operations and enhance bargaining power with payers.

Opportunities for Physician Practices

Private equity offers several potential benefits for physician groups, especially those seeking growth, operational support, or succession planning:

• Infusion of Capital: Private equity firms provide immediate financial resources that can be used for expansion, technology upgrades, or facility improvements.
• Operational Efficiency: Centralized management services, including billing, HR, and compliance, can reduce administrative burdens and improve practice performance.
• Market Expansion: Consolidation allows practices to enter new geographic markets and increase patient volume through strategic acquisitions.
• Exit Strategy: For aging physicians or founders, private equity investment can offer a structured exit plan with favorable financial terms.

Legal and Compliance Risks

Despite the appeal, private equity transactions in healthcare raise complex legal and regulatory concerns. Physician practices must carefully evaluate the following risks:

• Corporate Practice of Medicine (CPOM): Many states prohibit non-physicians from owning or controlling medical practices. Private equity firms must structure deals to comply with CPOM laws, often using management service organizations (MSOs) to separate clinical and administrative functions. 
• Anti-Kickback and Stark Law Violations: Financial arrangements between private equity backed entities and referring providers must be scrutinized to avoid triggering federal fraud and abuse laws.
• Licensure and Scope of Practice: Changes in ownership or operational control may impact licensure requirements, especially in multi-state acquisitions.
• Data Privacy and HIPAA Compliance: Private equity firms must ensure that centralized data systems and third-party vendors maintain strict compliance with patient privacy regulations. 

Impact on Patient Care and Physician Autonomy

Critics argue that private equity’s profit-driven model may compromise clinical decision-making and patient outcomes. Common concerns include:

• Pressure to Increase Volume: Physicians may face incentives to see more patients or perform more procedures, potentially affecting quality of care.
• Reduced Autonomy: Clinical decisions may be influenced by non-clinical executives focused on financial metrics.
• Staffing Changes: Cost-cutting measures may lead to reduced support staff or changes in care delivery models.

However, proponents contend that private equity practices can maintain high standards of care while benefiting from improved infrastructure and resources.

Due Diligence and Legal Considerations

Before entering a private equity transaction, physician groups should conduct thorough due diligence and seek legal counsel experienced in healthcare mergers and acquisitions. Key considerations include:

• Valuation and Deal Structure: Understand how the practice is valued and whether the deal involves equity rollover, earn-outs, or other contingent payments.
• Governance Rights: Clarify decision-making authority, board representation, and clinical oversight post-acquisition.
• Employment Agreements: Review compensation models, non-compete clauses, and termination provisions for all providers.
• Compliance Audits: Conduct pre-transaction audits to identify potential liabilities and ensure regulatory compliance.

Learn How to Navigate Private Equity in Physician Practices

Private equity investment in physician practices presents a dynamic mix of opportunity and risk. While it can offer financial stability and operational support, it also introduces complex legal challenges and potential shifts in clinical culture. Physicians, legal advisors, and healthcare executives must approach these transactions with strategic foresight, regulatory awareness, and a commitment to preserving patient-centered care.

Let the experienced healthcare lawyers at Daniels, Porco & Lusardi, LLP review your case. Contact us today for a consultation.