While private equity funding can support the growth of practices and enhance efficiency, some surgeons see potential drawbacks, including negative influence on research and conflict between partners.
Three surgeons recently spoke with Becker's about the pros and cons of private equity in the spine and orthopedic surgery industries.
Editor's note: These responses were lightly edited for clarity and length.
Question: What are the pros and cons of private equity in the spine and/or orthopedic industries?
Jonathan Clabeaux, MD. Orthopedic Surgeon at Virginia Mason Franciscan Health (Tacoma, Wash.): Private equity investment in the spine and orthopedic industries can have both advantages and disadvantages. It's important to note that the impact of private equity can vary based on specific circumstances, individual companies and market conditions. Private equity investors may bring in experienced professionals with strong operational expertise. This can lead to improved efficiency, streamlined processes and better management practices, ultimately enhancing the overall performance of the group. Private equity can play an active role in maintaining the private practice and helping physicians avoid hospital system employment. The overhead costs for private groups have skyrocketed over the past few years and private equity could mitigate some of those costs.
Downside: Private equity investors often have a relatively short investment horizon, typically around three to seven years. This short-term focus may lead to decisions that prioritize immediate financial gains over long-term sustainability of the practice. Physicians may also lose control of their practice in a private equity situation.
John Loeser, MD. Professor of Neurological Surgery at the University of Washington (Seattle): This a difficult issue without a clear-cut solution at the present time. There is no question that the source of funding can influence the types of studies done, their reliability and the conclusions that people draw from them. This is particularly true in the spinal surgery/low back pain area. Unfortunately, there is very little funding from impartial government or professional agencies. This means that the device manufacturers are the sources of money, and they attract the people who use the devices, many of whom have biases based upon their source of funds or political beliefs. Then the agencies that fund such surgeries try to minimize expenses by not approving new technology. There are also questions of what outcomes are meaningful, and to whom. Like most of American medicine, the intrusion of unbridled capitalism has been a disaster and has led to our inability to base our decisions on reliable data. This is not a new problem, as it has existed since the dawn of modern medicine. Until we rationalize healthcare in this country, I do not think that we can clarify meaningful research strategies. In general, those who undertake clinical studies all-to-often fail to recognize the role of non-specific treatment effects, including placebos.
Michael McKee, MD. Professor and Chair of the Department of Orthopedic Surgery at the University of Arizona College of Medicine (Phoenix): In my department, I have both hospital-employed and private practice physicians. Some of the latter are in groups that have been backed or financed by private equity. In my opinion, there are some definite advantages to private equity for orthopedic practices. This includes the ability to expand a practice by taking advantage of the economies of scale, promoting innovation, standardizing processes and procedures [and] eliminating costly and inefficient variability or outliers. [There is also] a focus on modern patient-related outcomes and the ability of the surgeons involved to increase their equity in the practice.
However, there are some drawbacks to private equity. This would include a potential loss of control of the practice (depending on the contract signed), a focus on the "bottom line" rather than patient care and the curtailing of treatment of patients who are not "profitable," particularly those with multiple medical comorbidities, complex orthopedic problems, revision cases, infection, etc. Certainly, there are some groups of patients that have been clearly shown in the orthopedic literature to have costs which far exceed any potential reimbursement. They tend to gravitate away from private practice groups (especially those backed by private equity) toward public institutions (safety net hospitals).
Lastly, in many situations the private equity contract can favor established "partners" in a group by offering attractive equity buyouts often at the expense of the junior members of the group, creating significant conflict. Obviously, private equity, in general, is not conducive with the running of a publicly funded institution such as our department, but having private practice groups as partners in a "balanced" faculty in a university department has become a mainstay of many universities in 2024.