Private equity-backed firms have financial stakes in 900 medical offices and other locations in the Philadelphia area, according to a new report by an advocacy group that opposes the spread of the profit-driven business model.

Physical therapy clinics, dentist offices and behavioral health centers ranked first. Regional facilities tally compiled by the Private Equity Stakeholder Project. The report comes at a time when private equity investments in health care are in the crosshairs of federal regulators and many lawmakers are convinced the results are harming patients and providers.

Delaware CountyCrozer Health is the highest-profile example of privately funded hospital ownership in the Philadelphia region. Two of its hospitals have closed and Crozer continues to struggle financially since the former PE owner loaded the system with debt in 2019. (Frequently connecting its demise with examples of private equity, the now-closed Hahnemann University Hospital was owned by an individual investor who borrowed money from private equity lenders.)

“The purpose of preparing this data was to begin to measure the participation of private capital in a city that already knew its risks. Michael Fenne, senior healthcare research coordinator for Chicago-based PESP, said several hospitals in Philadelphia and the surrounding area have already attracted public attention because of their private equity ownership.

Its research in the Philadelphia area found the largest number of PE-owned facilities in physical therapy (271), followed by behavioral health (98), dental services (86), and home health and hospices (85). All are popular with private equity due to the growth and fragmentation of their specialties, and many smaller providers are available for acquisition.

Access to private capital

Private equity fiascos make many headlines, but private equity firms control a relatively small portion of the overall healthcare market. Just 4% in terms of revenue, data company PitchBook estimates.

This is probably because hospitals 30 percent of US healthcare spendingThe largest share of the market, according to the latest federal accounting. And PE firms It has only 8% of private hospitals in the countryPESP says. That figure includes many rehabilitation and community hospitals, which collect far less revenue than large academic centers, which are often owned by nonprofits.

Nationwide, as well as in the Philadelphia region, PE-supported providers have the largest presence in home care, dental services and mental health/substance use disorder treatment, according to PitchBook. Businesses dealing with musculoskeletal problems, including physical therapy, are another important area of ​​PE.

This broad range of services, spread across many small provider locations, accounts for approximately 10% of healthcare spending nationally.

Local PE presence is difficult to capture

Advocacy groups like PESP and research by academics strive to bring some clarity to the opaque world of PE-supported healthcare.

Fenne warned. 900 site count This ratio is likely low in the region because private equity firms are not required to publicly disclose their holdings, making it difficult to measure PE’s presence in a geographic market. The report does not include, for example: PE assisted fertility clinics.

A study published this year in the journal Public Policy Health Affairs PE supported urology applications controls approximately 40% of the market in the Philadelphia area.

A JAMA Psychiatry study in July PE ownership found in 3.7% of mental health facilities in Pennsylvania and 14.3% of the state’s substance use disorder treatment centers. In New Jersey, the rate of mental health facilities is 4.3% and substance use is 9.2%.

It does not surprise the market that private capital is turning to these areas. University of PennsylvaniaMarissa King, professor of health management and policy at the Wharton School and one of the authors of the JAMA study.

“Demand for both mental health services and treatment for opioid use disorder is increasing,” King said during an episode of the program. Wharton Business Daily podcast. “There is a shortage of treatments, and it looks like private capital is taking advantage of some of those opportunities.”

The reach of privately funded medical practices is still growing. US Digestive Health, a gastroenterology practice based in Exton, recently announced: seven doctors added. Amulet Capital Partners LP of Greenwich, Conn., founded the group in 2019.

But there is also resistance to an investment model that raises money from pension funds, endowments and wealthy individuals to buy companies or company stock. The PE firm’s goal is to make a profit by selling companies, usually within 10 years. Even if an acquisition doesn’t go well, the PE firm can profit from dividends paid to investors, financed by the debt loaded into the company.

Last year, a Drexel Hill dermatologist He refused to sell his practice to a PE firmand Trinity Health Mid-Atlantic ended his relationship PE with a controlled radiology group.

Impact of private capital

Research shows that cases of financial collapse involving PE are high-profile, but the impact is not entirely negative.

Researchers at Penn’s Wharton School and others are looking into physical education ownership this year. Linked to worse patient outcomes and higher costs for patients and insurers. But when they reviewed 25 years of studies on the effects of private equity on healthcare, they also found evidence of efficiency gains for providers and reduced hospital readmission rates for patients.

This is also generally true Prices rise for consumers and insurers after a hospital chain buys an independent hospitalThat’s according to a new paper by researchers at Penn, Texas A&M University and elsewhere.

Politicians share academia’s interest in understanding the impact of private capital on healthcare.

Democratic U.S. Sen. Elizabeth Warren of Massachusetts has been pushing since 2019 for legislation that would prevent private equity from loading companies with enough debt to pay them millions and then walk away unscathed. That would guard against another debacle like the May bankruptcy of Steward Health Care, once the nation’s largest private hospital system.

Warren and other members of Congress this month Democrats Reintroduced the Stop Wall Street Loot Act of 2024. The proposal would make PE firms liable for the debts, legal decisions and liabilities of firms they control, such as pension funds.

In early March, federal regulators who oversee the healthcare industry and economic competition solicited public comment on the growing presence of private equity and other for-profit companies in healthcare. This is based on the FTC, the U.S. Department of Justice, and the U.S. Department of Health and Human Services.Research on the impact of corporate greed in healthcare.”

In May, the FTC and the Justice Department’s antitrust division opened an investigation into the use of serial acquisitions and consolidation strategies by PE firms and other companies in the economy. Rollups involve the acquisition of numerous smaller companies; This is a popular strategy among PE firms and others trying to build a significant business in healthcare or any other industry.

Ivy Rehab, the Philadelphia region’s largest physical therapy company by number of clinics, exemplifies this strategy. The company, backed by Waud Capital Partners and others, has made at least five acquisitions with 145 locations in the Philadelphia area.