Docs say ‘broken promises’ could slow private equity-linked deals

Modern Healthcare – Thursday, May 29, 2025
By Alex Kacik

Private equity-backed companies promise to ease physicians’ administrative workloads, but doctors say many of those pledges have fallen short.

Specialists are increasingly joining management services organizations, which are often funded by corporate investors such as private equity companies. Part of the sales pitch typically includes a competitive compensation package, as well as a commitment to take purchasing, billing, regulatory, technology and other day-to-day administrative tasks off physicians’ hands.

However, some doctors continue running into bureaucratic hurdles within those employment models, potentially limiting long-term revenue and patients’ access to care. These administrative headaches have slowed momentum in management services organization-led acquisitions, causing some physicians to turn to other employers, doctors said.

“We were promised a lot of things. They tell you, ‘We are going to come in and give you all the infrastructure you need to take your practice to the next level,’” said Dr. Adrienne Towsen, an orthopedic surgeon in Pennsylvania who previously worked for a private equity-backed physician practice management company. “They have the best smoke-and-mirrors show in the country.”

Private equity-linked investment in physician groups has grown exponentially since 2012, a 2024 Health Affairs study by University of California, Berkeley researchers shows. A significant portion of those dollars supports management services organizations, which are designed to provide physician practices with the administrative infrastructure, scale and financial expertise to reduce costs and boost revenue.

Doctors are often drawn to financially attractive deals that can allow them to retire or move on from ownership, help them manage day-to-day operations outside of clinical care, improve contract negotiations with insurers and cover medical liability costs, among other reasons. Management services organizations say these types of employment arrangements differ from red tape-heavy, slow, health system-led models.

But that’s not always the case, advisers and doctors said.

For example, some management services organizations have forced physicians to run an equipment purchase proposal through several committees before inking a contract, said David Davidson, a healthcare lawyer at law firm Dickinson Wright.

“There can be some growing pains in these deals because a physician can’t just tell a manager to replace an outdated piece of equipment. Sometimes there are a lot of layers of approval and hoops to jump through,” he said. “That can come as somewhat of a surprise.”

Any expanding organization is bound to involve more people in administrative decisions, said Dr. Paul Berggreen, a gastroenterologist at Arizona Digestive Health and president of the American Independent Medical Practice Association. The association advocates for physicians operating under management services organizations as an alternative to health system and insurer employment models.

A large management services organization likely has existing contracts with certain vendors that may offer discounts for bulk purchases. This dynamic can lead to some back and forth on purchase proposals, Berggreen said.

“The bigger you get as an organization, the more people who have a voice,” he said. “But from a clinical standpoint, physicians are still very much autonomous in the management services organization model.”

A spokesperson for the American Investment Council, an association that represents private equity companies, said in a statement private equity firms provide essential funding and management services that reduce paperwork and allow clinicians to prioritize patient care. The spokesperson noted a 2019 Medicare Payment Advisory Commission report said private equity physician group owners can consolidate back-office services, which can lower related costs and potentially improve clinical workflow.

The line between clinical and administrative decisions is not always clear, physicians say. That intersection is top of mind for the American Medical Association.

Next month, the AMA plans to review an amended policy proposal on corporate investors, including management services organizations. The proposed language says, “Physicians and the corporate entity should explicitly identify the types of clinical and business decisions that should remain in the ultimate control of the physician, including approving the selection of medical equipment and medical supplies.”

There is a direct correlation between equipment purchasing and patient care, said Dr. James Toussaint, an orthopedic surgeon in Gainesville, Florida, and member of the Coalition for Patient-Centered Care. The coalition is pushing back against private equity investment in physician practices.

“When a private equity-backed management services organization rolls up physician practices, they are going to add layers of administration between the doctor and their patient,” said Toussaint, who previously worked for a private equity-backed management services organization. “That administration is inherently going to be inefficient. The reality is, private equity is focused on profits and not patient outcomes.”

Administrative bureaucracy can lead to delays in patient care and revenue losses as patients choose other providers or physicians get burnt out, said Jack Dillon, executive director of the Association for Independent Medicine, which opposes private equity-linked physician group deals.

Growing concerns over management services organization-led employment models could tilt the scales in favor of health systems, large independent practices and insurers that are looking to hire more doctors, experts said.

A spokesperson for the American Hospital Association said in a statement financial stability and relief from administrative burdens drive physicians’ choice to work for hospitals or health systems.

Many management services organizations have tried to revamp their operating models to better incorporate physicians in decision-making processes, said Wells Beckett, a healthcare lawyer at law firm McDermott Will & Emery.

“There are obviously some squeaky wheels out there, but there are a number of platforms that have gotten it right,” he said. “Physicians are much more discerning in finding a partnership that fits their practice.”

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