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In Arizona, cardiologist owners of one private practice are entertaining three offers from private equity buyers. They're one of many entering this type of arrangement to be thrown a potential lifeline from the financial challenges of private practice.

One of the partners, wishing to remain anonymous, said of a potential private equity deal for his group: "It's going to happen. The question is when, how, and what price."

These are not new questions, and other specialty practices have been asking them for years, saddled with increasing competition, Medicare payment cuts, inflation, and other problems.

What's special is that cardiology is the big one. Marriages between private equity and cardiovascular medicine are still a fairly new phenomenon and have the potential to have an impact on larger swaths of the population. More than 20 million Americans have heart disease. This is the leading cause of death in the U.S. and costs the country upward of for healthcare and lost productivity, according to the CDC.

The stakes are high in cardiology and there are many unknowns. Though private equity entered healthcare long ago, it is not clear whether these deals fundamentally change the clinical practice of medicine, cardiovascular or otherwise.

The challenge of answering this question may be related to nondisclosure agreements that limit evidence gathering. 乌鸦传媒 reached out to physicians currently in private equity-backed practices, as well as others who left to work in hospitals or other practices. All declined to be interviewed, except for the Arizona cardiologist with unsigned offers.

"The big thing of the evaluation process is, who do we want to go with and who's least likely to screw us," he said. "The fear is that the financial guys from MIT and Harvard come in who don't know a lick about what it's like talking to a 90-year-old about a procedure. The fear is they're going to take what we have and turn it into something else, when we built the practice on trust and being there for people, even at night."

What Private Equity Promises Cardiologists

Here's how private equity firms typically operate. They take a large stake in an organization, invest in boosting market share and revenue, take actions to decrease costs, and ultimately sell the practice to generate returns for investors.

For years, private equity has been drawn to certain specialties, such as dermatology and gastroenterology, for their value and future earning potential.

Only recently has cardiology caught the attention of private equity firms. Accelerated deal-making in the last 2 years has brought the total number of private equity firms investing in the cardiology sector to approximately 12 today.

"We're starting to see activity take hold. It's very early innings on this consolidation ... In the next 3 to 4 years, we'll see private equity firms partner in different practices of different size and scale," said Eric Major, managing director at investment firm Provident Healthcare Partners, who spoke at a virtual meeting hosted by the American Society of Nuclear Cardiology (ASNC).

Cardiology's attractiveness is due in part to an aging population that all but guarantees growing healthcare needs. It also tracks with the rise of ambulatory surgery centers, which have an expanding list of cardiac procedures -- implantable electronic device implants, diagnostic catheterizations, and percutaneous coronary intervention -- that are now reimbursed by Medicare.

For private equity investors, cardiology also presents opportunities in the shift toward , which rewards healthcare providers with incentive payments for providing higher-quality care to patients.

"I think it's exciting to think [that] we're finally entering a world where we can start logistically talking about the total cost of care, and the way that advanced imaging can favorably impact the total cost of care," said Tim Attebery, DSc, MBA, CEO of Cardiovascular Associates of America, the management entity formed by private equity firm Webster Equity Partners in 2021. Attebery was previously CEO of the American College of Cardiology.

"Instead of arguing about what to pay for a cardiac test, let's leverage the good information about cardiac cath to show that we can reduce the number of diagnostic errors, that we can actually save on the total cost of care. And to do that, private equity platforms are going to need to invest significantly into data collection, to be able to demonstrate them across the network, and then turn that into value-based care and risk-based care arrangements," Attebery said during the ASNC meeting.

Otherwise, smaller practices will find it difficult to transition into value-based care without the data that's needed, Major suggested.

A. George Basu, MD, of Houston Cardiovascular Associates, shared his group's experience being approached by private equity in 2019. Just over a year into the official start of the new arrangement with Ares Management, he says his practice has a PET CT program on the horizon that should be up and running in the next few months.

"Historically, especially when we were a little smaller, we would have a SPECT scan like you know, likely a false positive study. The patient would go to the cath lab, totally normal coronaries, and that ends up costing the system more," Basu said. "[When] you go to a much more functional study like a PET with the component of CT giving you flow, you're getting physiologic, anatomic information that is going to be much more cost-effective for the healthcare system."

Most cardiology practices are signing 5- to 7-year terms with private equity, after which the physician owners stand to earn more based on valuation of the practice, the Arizona cardiologist said. "It works for both sides. The physicians stay on and maintain equity in the future."

"That's very different from what used to happen, which was hospitals and large groups buying you out, and that's the end of it. That's the evaluation and there's no future in that," he told 乌鸦传媒.

Because of state law restrictions against the corporate practice of medicine, private equity arrangements have to be carefully structured so that the firm does not acquire the private practice outright. They instead buy a majority interest and leave physician owners with a minority interest in the form of equity in the partnership investment platform.

Besides the prospect of a large payout and fancy new equipment, private equity may also promise physicians a less stressful, upgraded experience of private practice. The firms can handle a lot of the unglamorous administrative work that physicians dread doing themselves. Human resources, contract negotiation, collections -- all that can be taken over by the firm. Private equity may also bring in capital to fund new ancillary services like ambulatory surgery centers, and the money it has could help practices mitigate any future risks.

"You Have to Go in With Your Eyes Open"

The American College of Physicians acknowledges the financial incentives that may drive clinicians to private equity -- attributable in part to the difficulties of the COVID-19 pandemic -- but the group nevertheless raised caution in 2021 about the long-term implications of these arrangements.

Investors' interests in generating robust profits quickly may compete with long-term investments in safety and quality.

Famously, the large hospital chain HCA was , and then went on to a record-breaking $4.35 billion initial public offering in March 2011. In 2015, HCA agreed to pay $215 million to settle a alleging that it concealed poor growth prospects and didn't disclose that it was under federal investigation for performing unnecessary cardiac procedures.

Additionally, workplace environments may change as staff at private equity-backed practices have reportedly been subject to firings on short notice and aggressive non-compete clauses.

A common refrain is that not all private equity companies are created equal.

"The criticism is when [private equity firms] start thinking they want to come change all our processes, they become just like [the hospital buyers]," the Arizona cardiologist said. "They cannot change processes that have a human element in the business. When they do that, they lose the physicians."

Even companies with the best intentions may cause problems out of sheer inexperience.

"There's a lot of private equity firms that we run into that are interested in cardiology that don't really know what they're doing, they don't have experience partnering with physicians," Major said. "If you do the deal with an investor that maybe tells you all the things you want to hear but doesn't have a track record and tries to throw some big price in front of you, those are the deals that you should probably run away from."

"Part of your consideration as a physician is making sure you align with the right organization with the right team that you view is going to allow your practice to grow and culturally aligns with your organization," he emphasized.

Physicians are left to their own devices to figure out what is and is not a good deal for themselves and their patients. Professional societies like ACC and ASNC do not take a position on the best path for cardiologists, and cardiology fellowship directors told 乌鸦传媒 they had little knowledge on private equity to offer.

The Arizona cardiologist urged interested fellow physicians to call upon friends and people they trained with for more information before transacting.

The most anecdotes may come from the red states of the South and Southwest -- namely Texas, Florida, and Arizona -- where private equity's drum beats loudest due to geographic considerations. Private equity firms stand to gain more investing in markets with less regulation (e.g., certificate of need laws) on new ambulatory surgery centers, office-based labs, and other money-makers.

Attebery's last piece of advice is that there's no going back once private equity enters the picture.

"You go in and it's a permanent decision and you have to go in with your eyes open," he warned. "You don't go in with an unwind, there's no prenuptial [like] 'We'll just unwind this thing in 3 years.' If you're not happy, you will have to leave the area, whatever that non-compete definition is."

All the more reason for practices like the Arizona group juggling three offers to be wary of the risks associated with dancing with private equity.

"If we could do it without private equity, we would. Unfortunately we just can't with the current economic climate," the Arizona partner cardiologist said.

Correction: This story previously misspelled the name of Eric Major. The error has been corrected.

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