Betting on ‘golden age’ of colonoscopy, invests private equity in Gastro Docs

Mariel needed a new gastroenterologist.

Just after returning to San Antonio, the 30-something sought out a doctor to manage his Crohn’s disease, an inflammatory bowel condition that was successfully managed with medication and lifelong observation – including regular colonoscopy.

Mariel booked an appointment and learned that she would hook up $ 1,100 for a colonoscopy – almost three times what she paid for the same test in another state. About three-quarters of the bill will be a “benefit fee” for office-in-house procedures at the colonoscopy clinic. (KHN agrees not to reveal Meryl’s last name because he is concerned that speaking may affect his doctor’s willingness to handle the medical condition.)

Preventive colonoscopies are covered under the Affordable Care Act without sharing patient costs, but not for patients with existing conditions such as Mariel. A 2019 study found that patients with inflammatory bowel disease, including Crohn’s disease, spend about 23 23,000 a year on healthcare. Drug treatment alone can cost several thousand dollars a year.

But shopping nearby proved frustrating. Although there are numerous gastroenterology offices in San Antonio, more than two dozen of them are controlled by the same private equity-backed group.

In 2018, Texas Digestive Disease Consultant, one of the largest independent gastroenterology practices in the country, announced an agreement with Chicago-based private equity firm Wood Capital to expand by providing management services to other physicians. At the time, the Dallas-based practice had 110 locations, mostly in Texas – including San Antonio. Today, its management group, the GI Alliance, operates in more than a dozen states, with more than 400 locations – and growing rapidly.

With market domination comes the business opportunity to set and maintain high pricing. “It’s the only game in town,” Mariel said.

Private equity, known for making profits from fast-turnaround investments in struggling businesses across many industries, has taken on a growing active interest in healthcare over the past decade. It has invested in gastroenterology practice to tap revenue potential to meet growing demand in recent years.

“We are in the golden age of old anus,” wrote an investment manager in 2017.

To run an increasingly complex business of running a practice and often, tired of the temptation of investors to sweet treat, more and more doctors have partnered or sold their practices with private equity funds. So investment managers now control the financial decisions of many medical offices that care for patients with digestive disorders. Early drivers with profits, patients may find that they pay much more – or less – for the same care.

The Centers for Disease Control and Prevention recently reduced the age at which healthy Americans are urged to start routine screening for colon cancer – ensuring that most will go through regular colonoscopy starting at age 45. And the population is aging, which means more people will need the system

For those 65 and older, pick up the Medicare tab. But even when a benign polyp is found during a routine screening, patients sometimes have an unexpected bill. And less-conscientious providers often find ways to bill for certain services, such as anesthesia monitoring outside the network.

Studies show that private equity investment in healthcare results in more staggering bills for patients and higher costs overall. Surprise billing is the practice of charging insured patients for out-of-network care received unknowingly, including in emergencies and otherwise in network facilities.

Prior to the federal ban on surprise billing this year, it was common for patients to be slapped with an expensive bill after being treated by an emergency room doctor employed by a private equity-owned stuffing service – a problem that policy experts said was not a mistake but rather A business model for a private equity company.

About 10% of the country’s 14,000 gastroenterologists were partners or employed by a private-equity-backed firm as of last fall, according to a report by Physician Growth Partners, which represents the group of independent physicians dealing with private equity.

In 2021, the number of private equity acquisitions in gastroenterology practice increased by 28% over the previous year, according to Spherex Global Insights and Fraser Healthcare.

Complex government regulations, technological innovations, and insurance industry practices have driven many gastroenterologists to sell shares of their practice, says veteran Suthrum, who runs a consulting firm for physician practice. Many physicians argue that the rate of payment is too low to keep pace with complex negotiations with insurers and other rising costs of conducting an independent practice.

Private equity typically buys a portion of the healthcare practice, then adjusts its activities to make it more profitable. It can go to cheap suppliers, shorten appointment windows, aggressively bill, or lay off employees, to name a few strategies – changes that save money on patient care.

In December, NBC News reported how a private equity-owned team practicing dermatology over-booked patients, lost test results and leaned on cheap labor from physician assistants and nurse practitioners who could miss complex diagnoses.

A study by the National Bureau of Economic Research last year found that when private equity owned a nursing home, patients were more likely to die in their first months and were more likely to be prescribed antipsychotic drugs – known to increase mortality. Old. A private equity-owned facility increases the taxpayer’s cost per procedure or service by about 11%.

Private equity has shown a great deal of interest in healthcare practices that perform high-volume procedures, especially those that have potential for growth.

“Many people need eye injections for macular edema, and many people need a colonoscopy, and many people need a skin biopsy,” said Dr. Zhen Zhu, a healthcare researcher at the University of Oregon Health and Science in Portland. Studied the role of private equity in healthcare. “And these are things that will increase in size as the population ages.”

Investors typically start by acquiring a well-performing practice, or group of exercises, in a geographic area – called a “platform practice,” Zhu said.

“It simply came to our notice then. It has some brand recognition, “said Zhu.” It has a good market. It can have multiple sites. It has a lot of patients who are already involved in that practice, and they buy it and have the opportunity to integrate. “

Attachments create larger groups with more power to negotiate rates with insurance companies and charge what they want. Only the possibility of capitalizing on the good name of a reputable practice can make it a valuable investment.

Zhu said these medical procedures are considered short- to medium-term investments, with investors taking an average of three to eight years before selling.

Suthrum says private equity firms are good at making their case to doctors, assuring them that they will let doctors prescribe drugs while traders do business.

Doctors think, “If I go to live, either I have to be sold to the hospital, or what is the alternative?” Suthrum said in an interview. “The alternative is private equity.”

This article has been adapted from one Recent episodes OfAn arm and a legA podcast on the cost of healthcare produced in partnership with KHN.

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