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Navigating the growing interest of private equity in pediatrics

My overall feeling is that independent practices cannot survive in isolation, nor can they single-handedly drive the transformation needed for value-based care, population health, or to ensure that the most vulnerable have the primary care access they need. We do require financial partners and investment. However, it’s crucial to ensure that we align with the right partners who share a vision that will continuously improve pediatrics for the long term.

During my tenure in the health care investment domain, I’ve learned valuable lessons about the integration of private investment in pediatric innovation and entrepreneurship. My journey began with a vision for pediatric telemedicine focused on primary care. Seeking investors to support a pediatric-centric SaaS approach, I aimed to improve pediatric care. Despite presenting a robust business case, the reality of investor involvement, including a private equity company along with angel investors, revealed complexities I hadn’t anticipated. Funding is fantastic, but not everyone shares the same vision on how, why, or where to use this funding. Private equity investors, though great people with good intentions, often see the world quite differently than a pediatrician might.

Seeking objective insights

Recognizing my experience is limited and potentially biased, I consulted ChatGPT on the implications of private equity’s foray into pediatrics. Here’s the distilled insight: Private equity’s role in pediatrics, and health care at large, raises several concerns:

Profit-driven motives. The primary aim of PE firms is substantial financial returns over a short period, a stark contrast to pediatrics’ mission of long-term, patient-centered care. The pressure for quick profits could undermine the quality of care in a field where preventive care and sustained health outcomes are paramount.

Cost-cutting measures. To maximize profitability, PE-owned practices may resort to cost-cutting that could diminish patient care quality, potentially through staff reductions, abbreviated patient interactions, or curtailed essential pediatric services.

High-profit service focus. A shift toward more profitable services may not align with pediatric patients’ best interests, sidelining crucial preventive care and chronic condition management for more remunerative procedures.

Loss of physician autonomy. With PE involvement, practice management changes are common, and physicians may find their clinical decision-making compromised by financial directives.

Rising health care costs. PE models could inflate care costs, transferring the burden to patients, insurers, and the health care system.

Short-term involvement. The PE investment ethos, centered on swift turnover and profit, contradicts the essence of pediatric care’s need for enduring patient commitment.

Impersonal care approach. The corporatized nature of PE may depersonalize health care, reducing patients to revenue streams rather than individuals with unique health needs.

Ethical considerations. The commodification of health care, especially in a vulnerable field like pediatrics, carries profound ethical implications.

While PE can inject capital and business savvy potentially beneficial in certain contexts, it’s imperative to weigh these potential drawbacks, especially in a delicate field like pediatrics. The goal must be to balance financial motives with the imperative of providing patient-focused, high-quality pediatric care.

Personal viewpoints

My take on these subjects is straightforward. Pediatrics, with its need for sustained patient relationships, continuity, and long-term care strategies, doesn’t align well with the rapid return expectation prevalent among many PE investors. The complexities in pediatric care require a nuanced investment approach, one that is often at odds with the standard PE model. Here are my reasons for caution:

Profit-driven. The real problem is not profit itself but the speed at which profit is expected. In pediatrics, profit is driven by relationships, continuity, and trust. There is plenty of profit to be had if we can redirect patients back to their primary care providers (PCPs) rather than to random providers, urgent cares, and specialists.

Cost-cutting. There may be an overreliance on cutting staff to drive margins. This short-term balance sheet assistance ultimately drags down the bottom line as people leave when they receive or deliver poor care. There is often no evaluation of the impact these decisions have on those on the front lines.

High-profit drivers. In fee-for-service (FFS) primary care, there is a focus on volume and attracting commercial payments. This often leads to practices moving to affluent areas, pushing productivity, and neglecting the neediest and most complex patients. It also entails reducing newborn and inpatient rounds, which can harm relationships, trust, and continuity.

Loss of physician autonomy. This is a significant issue, especially when doctors are removed from the continual care of their patients and are relegated to centralized call centers and telehealth services. Physicians become mere “box checkers” without a say in which boxes are most important, leading to burnout and decreased quality of care for patients.

Rising health care costs. In FFS models, more tests are ordered, patients are steered towards favoring certain services, and there is a tendency to defer to more expensive specialists and pharmacies. Referring patients to “affiliated” ancillary services also contributes to higher costs.

Short-term involvement. This is the least understood and most challenging aspect. PE firms may purchase a practice and, if it doesn’t work out, close it quickly—adhering to a “fail fast” philosophy without concern for the gap left in the community. They focus on their earnings from the sale rather than the consequences of the sale.

Impersonal care. In pediatrics, impersonal care is a significant issue for both parents and patients. The introduction of centralized services, phone trees, and complex “cost-cutting” measures can destroy a practice’s morale and lead to substantial dissatisfaction among families.

Ethical considerations. There are ongoing debates about the ethical dilemmas associated with limiting appointments for Medicaid patients, abandoning areas in great need, and moving complex cases out of the practice, among other issues.

Summary advice

Pediatricians contemplating partnerships with private equity (PE) must undertake comprehensive due diligence on potential investors. This is as critical as the scrutiny your practice will be subjected to. Examine their track record in health care investments, grasp their approach to pediatric care, and evaluate their commitment to the long-term success of your practice and the well-being of your patients. Engage with peers who have navigated PE acquisitions to understand the full spectrum of implications following such transitions.

Proceed with caution, equipped with meticulous research. Only then can pediatricians make informed decisions that align with the ethos of their practice and the needs of their patient population.

The sustainability of independent practices is a complex issue. In the current health care landscape, where reliance on insurers and hospitals is increasing, cohesive financial partnerships and investments become imperative. Such alliances must be more than monetary; they must be with partners who are invested in the future of pediatric primary care, understand its unique challenges, and are committed to its long-term enhancement.

Ultimately, while financial collaboration is necessary, the synergy of shared vision and values with our partners will advance pediatric care and ensure that even the most vulnerable communities receive the primary care they deserve.

Mick Connors is a pediatric emergency physician.

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