Editor’s Note
This article is part of “Ethics & Health Systems Change,” an ongoing, periodic Health Affairs Forefront symposium on the ethical implications of developments in the business of health care. Articles will consider the ethical implications of developments in the health system such as changing ownership structures, corporate and private equity investment, shifting regulatory requirements, and industry responses to social and political change. The symposium will include both solicited and over-the-transom articles; we invite readers to submit articles for the symposium through our submission portal and check the “Ethics and Health Systems Change” box on the form.
Over the past decade, private equity (PE) ownership of physician practices and health care delivery systems in the United States has increased substantially. It is widely acknowledged that the trend toward short-term, profit-driven ownership challenges physician autonomy and raises ethical questions for physicians and patients. However, current discussions must more adequately recognize the effect of these trends on medical trainees. As medical students, we provide a perspective as future stakeholders amid a rapidly evolving landscape. In this Forefront article, we review PE’s involvement in health care, its impact on physicians and patients, the persistent professional and ethical challenges that directly affect medical trainees of all levels, and advocate for policy changes to protect trainees and address the underlying incentives that cause physicians to sell to PE.
Background
The Medicare Payment Advisory Commission defines PE activity as that “where investors buy an equity stake in companies or other financial assets that are not traded on public stock or bond exchanges.” Both private physician practices and health care systems are targets of PE acquisition, with distinct implications for trainees. In 2021 alone, PE firms spent more than $200 billion on health care acquisitions; they have spent a total of $1 trillion on such acquisitions over the past decade. As of 2019, PE entities accounted for 65 percent of physician practice acquisitions. At least 386 hospitals, comprising 30 percent of for-profit hospitals in the US, are now owned by PE firms.
PE firms employ various strategies to maximize profits when investing in health care organizations. These tactics often involve minimizing expenses by merging multiple practices, laying off staff, cutting services, and relying on less qualified, cheaper providers; and maximizing revenue by emphasizing elective procedures, ancillary services, and internal referrals. Because PE firms are privately held, their business activities lack transparency to the public. PE investors’ short-term profit motives drive them to disregard the potential negative consequences of their actions on physicians, patients, and medical trainees.
PE’s influence on health care has raised significant concerns among physicians. Nearly 60 percent of physicians report reduced autonomy as a major negative impact, with 70 percent citing pressure to see more patients. The focus on revenue generation has led to increased burnout, declining professional satisfaction, and a potential deterrent to entering the medical field amid growing shortages of physicians and other health care providers. Moreover, studies have shown that PE-owned health care institutions are associated with poorer patient outcomes, including increased hospital-acquired adverse events. Physicians face conflicting imperatives: maximize patient volume and billable procedures or prioritize holistic, patient-centered care. This profit-driven approach contributes to patient mistrust. Such situations also contribute to moral distress, defined as the emotional dissonance experienced when one knows the ethically correct action but is unable to take it due to systemic constraints or hierarchical pressures. The hierarchical nature of medical training especially exacerbates this issue, leaving trainees with limited power to challenge unethical practices.
Impact On Medical Training
The takeover of training hospitals by PE negatively affects medical trainees of all levels by prioritizing short-term profit incentives over medical training. PE’s efforts to increase short-term profits through any means are incompatible with the educational mission of graduate medical education (GME). The education of future physicians requires time for teaching/mentoring and is thus inherently inefficient for revenue generation. Residents may be pressured to switch their practice patterns from evidence-based medical practices to profit-maximizing ones. Sometimes medical residents may be replaced altogether by non-physicians to bypass regulations and to mitigate the direct and indirect costs associated with medical education (for example, recruiting budgets and aforementioned practice inefficiencies).
Completing residency in a PE-owned hospital system may also affect loan forgiveness. Residents and fellows training in a nonprofit university-based program who are officially employees of an affiliated for-profit hospital or health system are excluded from the Public Service Loan Forgiveness program, even if they work at a nonprofit clinical site. These crucial details are often unavailable or obfuscated during the match process. Furthermore, ownership can certainly change during residency, creating additional challenges for trainees.
Sudden transitions in hospital ownership, leadership, and faculty normalize a precedent of academic instability severely detrimental to medical training. Young physicians often uproot their lives to begin residency training with the expectation of a stable position for the next three to seven years. Changes in faculty, which are common after a PE takeover, can disrupt relationships and teaching arcs between mentors and trainees; new faculty may also not be familiar with Accreditation Council for Graduate Medical Education/institutional requirements for trainee supervision. There are also multiple examples of resident relocation after the abrupt closing of residencies associated with PE, negatively affecting training, individual finances, and psychological and emotional well-being.
The closure of Hahnemann University Hospital in 2019, following its acquisition by the PE firm American Academic Health System, left more than 550 resident physicians with neither a job nor a means to complete their training. These residents had to find new positions in an already competitive residency market. The uncertainty was particularly concerning for those on J-1 visas, who faced potential immigration issues. Although the American Medical Association (AMA) and other organizations stepped in to provide legal support and grants to help offset relocation expenses, the significant logistical and professional challenges faced by the displaced physicians cannot be overstated.
Similarly, Summa Health System’s contract dispute with a PE staffing group had a substantial impact on its residency program. The departure of emergency medicine faculty due to this dispute resulted in residents losing essential mentorship and guidance, ultimately leading to the program losing its accreditation in 2017. At Crozer Health in 2024, the financial strategies of the owning PE firm resulted in operational challenges; these included the closure of one hospital and risks to accreditation of the general surgery residency program due to insufficient surgical volume.
With an ever-growing physician shortage projected to reach up to 86,000 by 2036, PE’s threats to medical trainees’ ability to complete their training are of great concern.
The Way Forward
Current PE practices threaten the fabric of our health care system, not only affecting patients and physicians but also the future of the medical profession: its trainees. In November 2022, the AMA published The Impact of Private Equity on Medical Training, a report highlighting policy and recommendations relevant to curbing the negative impacts of PE on medical education. Overall, these resolutions sought to safeguard GME learning environments and trainee interests, especially during institutional closures or transitions. But despite significant concerns, many stakeholders have not implemented policies to address the impact of PE on GME, and few associations representing residents and physicians have released policy statements on the issue. Matters are complicated further by potential conflicts of interest involving PE-associated physicians and leadership.
In light of the continued growth of PE and new data on adverse patient outcomes, we call for an additional commitment by policy makers. Reactive policy to ease the burden that PE imposes on trainees is not enough; proactive policies that counteract the incentives that lead physicians and health care systems to sell their businesses to PE in the first place are required. For example, congressional proposals such as the Stop Wall Street Looting Act (S 3022 and HR 5648) would end the carried interest tax loophole, increase transparency, and share liability of portfolio companies with PE firms’ general partners. However, these proposals did not pass and have not been reintroduced since 2021. Many states have passed laws banning the corporate practice of medicine. While this is a welcome step, it does not adequately address the underlying incentives that lead to the proliferation of PE takeover. Furthermore, many statutes are written broadly enough that PE firms can still take a minority stake in a practice or structure deals through management services organizations and still significantly influence the business’ direction.
Making physician-owned practices easier to run could ease the rise in PE buyouts. Physician-owned solo and small-group practices often struggle to deal with the increasing bureaucratic burden associated with owning and running a private practice. Small practices that lack negotiating leverage suffer as payers implement increasingly complex obstacle courses for providers to receive continually dwindling reimbursement. Physicians faced with the choice between continuing an increasingly unsustainable small business and the unattractive option of hospital employment turn to PE as a salvage option.
To address this, Indiana passed a tax credit in 2023 for independent physician-owned practices. Further regulation simplifying and standardizing payer processes for reimbursement (that is, prior authorization reform, protections for practices unfairly denied payment) would also reduce administrative burden and thus the cost of doing business for private practice physicians.
Furthermore, retiring physicians may struggle to find successors for their practice especially when the next generation of physicians are saddled with student debt and lack training in the business of medicine. Student debt forgiveness and including practice management in medical education could address these issues. Additionally, boosting Medicare payments (especially to primary care) would make independent practices more sustainable. Lastly, combatting the pervasive use of non-compete agreements in physician employment would increase physician negotiating power in potential PE acquisition deals; physicians would not be forced to choose between working for a PE-acquired company and uprooting their families due to the geographical practice restrictions imposed by non-compete agreements.
Fundamentally, the short-term, profit-driven goals of PE are at odds with the best interests of medical trainees of all levels. Medical trainees have minimal negotiating power in these matters that intimately affect them; it is up to policy makers to be our voice. Certainly, continued research and data collection on PE, its tactics, and downstream effects on trainees is necessary. But responding to this imminent crisis requires not only taking steps to study/ameliorate the side effects of PE restructuring on trainees, but also addressing the underlying incentives that lead health care systems and physician-owned practices to seek out PE in the first place.
Authors’ Note
The views/opinions endorsed by this article do not represent the views of the American Medical Association (AMA) nor of the medical schools with which the authors are affiliated. The authors would like to acknowledge Yashaswini Singh, PhD, assistant professor of health services, policy, and practice at the Brown School of Public Health, for her input during the drafting process.
