Health companies backed by private-equity firms have 900 locations in the Philadelphia region

Private-equity backed firms have a financial stake in 900 medical offices and other locations in the Philadelphia region, according to a new report from an advocacy group opposed to the spread of the profit-driven business model.

Physical therapy clinics, dental offices, and behavioral health centers topped the tally of regional facilities compiled by the Private Equity Stakeholder Project. Its report comes as private-equity investment in health care is in the crosshairs of federal regulators, with many lawmakers convinced that the results hurt patients and providers.

Delaware County’s Crozer Health is the highest-profile case of private-equity hospital ownership in the Philadelphia region. The Pennsylvania’s Attorney General took the unprecedented move of petitioning a court this week to give the state control of the health system, which has closed two of its hospitals since being loaded with debt in 2019 by its PE owner. (The now-closed Hahnemann University Hospital, whose demise is often lumped in with private equity examples, was owned by an individual investor who borrowed money from private equity lenders.)

“The goal in preparing this data was to begin to measure private equity’s involvement in a city that already knows its risks. A few hospitals in Philadelphia and the surrounding area have already seen public attention due to their private equity ownership,” said Michael Fenne, senior health-care research coordinator at Chicago-based PESP.

In the Philadelphia region, his research found the largest number of PE-owned sites in physical therapy (271), followed by behavioral health (98), dental services (86), and home health and hospice (85). All are popular with private equity because of their specialty’s growth and fragmentation, with many small providers available for acquisitions.

Private equity’s debacles grab lots of headlines, but PE firms control a relatively small slice of the overall health-care market — just 4% by revenue, according to an estimate from data company PitchBook.

That’s likely because hospitals account for 30 percent of U.S. health-care spending, the largest share of the market, according to the latest federal accounting. And PE firms own just 8% of the nation’s private hospitals, PESP says. Its tally includes many rehabilitation and community hospitals, which collect far less revenue than large academic centers typically owned by nonprofits.

Nationwide, as in the Philadelphia area, PE-backed providers have the largest presence in home care, dental services, and mental health/substance use disorder treatment, according to PitchBook. Businesses that deal with musculoskeletal problems, including physical therapy, are another top area for PE.

That vast range of services, spread across many small provider locations, accounts for about 10% of health-care spending nationally.

Advocacy groups like PESP and academics are pushing to bring some clarity to the opaque world of PE-backed health care.

Fenne warned that his count of 900 sites in the region is likely low because private-equity firms are not required to disclose their holdings to the public, making it hard to gauge PE’s presence in a geographic market. The report does not include, for example, PE-backed fertility clinics.

A study published this year in public policy journal Health Affairs showed that PE-backed urology practices control nearly 40% of the market in the Philadelphia region.

In July, a JAMA Psychiatry study found PE ownership for 3.7% of Pennsylvania’s mental health facilities and 14.3% of the state’s substance use disorder treatment sites. In New Jersey, the figure for mental health facilities is 4.3%, and for substance use it’s 9.2%.

Private equity’s move into those areas does not surprise the University of Pennsylvania’s Marissa King, a health management and policy professor at its Wharton School and one of the authors of the JAMA study.

“The demand for treatment has been increasing both for mental health services and opioid use disorder treatment,” King said on an episode of the Wharton Business Daily podcast. “There’s a dearth of treatment, and it seems like private equity is taking advantage of some of those opportunities.”

The reach of private-equity physician practices is still growing. U.S. Digestive Health, a gastroenterology practice based in Exton, recently announced that it was adding seven physicians. Amulet Capital Partners LP, of Greenwich, Conn., formed the group in 2019.

But there’s also resistance to an investment model that gathers money from pension funds, endowments, and wealthy individuals to buy companies or stakes in companies. The goal of the PE firm is to make a profit by selling the companies, typically within 10 years. Even when an acquisition doesn’t go well, the PE firm can profit from dividends paid to investors, funded by debt loaded onto the company.

In the past year, a Drexel Hill dermatologist declined to sell his practice to a PE firm, and Trinity Health Mid-Atlantic ended its relationship with a PE-controlled radiology group.

Cases of financial collapse involving PE are high profile, but the impact is not all negative, research shows.

Researchers at Penn’s Wharton School and others found this year that PE ownership is linked to worse patient outcomes and higher costs to patients and insurers. But in their review of 25 years of studies on private equity’s health-care impacts, they also found there’s evidence of efficiency gains for providers and lower hospital readmission rates for patients.

It’s also true generally that prices rise for consumers and insurers after a hospital chain acquires an independent hospital, according to a new paper by researchers at Penn, Texas A&M University, and elsewhere.

Politicians share academia’s interest in understanding private equity’s impact on health care.

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

This month Warren and other Congressional Democrats reintroduced the Stop Wall Street Looting Act of 2024. The proposal would make PE firms liable for the debts, legal judgments, and liabilities like pension funds of firms they control.

Federal regulators with oversight of the health-care industry and economic competition in early March asked for public comments on private equity and other for-profit corporations’ increasing presence in health care. It’s part of what the FTC, the U.S. Department of Justice, and the U.S. Department of Health and Human Services called an “inquiry on the impact of corporate greed in health care.”

In May, the FTC and the Justice Department’s antitrust division launched an inquiry into the use of serial acquisitions and roll-up strategies by PE firms and others across the economy. Roll-ups involve the acquisition of numerous small companies, a strategy popular with PE firms and others attempting to build a substantial business in health care or any other industry.

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