Private equity infusion: A question of balance of growth vs. control for doctors

More private investor money is being pumped into the health care sector, but the jury is out on whether physicians will reap rewards from changes.

By Katherine Vogt, AMNews staff. Oct. 23/30, 2006.

For the last few years, a growing pool of private equity investment money has been pouring into health care firms, swelling these enterprises until they are big enough to crest in rewards for investors.

The dollars have streamed into biotech, pharmaceutical, device and equipment companies as well as into hospitals, ambulatory surgery centers and even physician networks, providing relief for businesses that were thirsty for capital to grow and expand.

But implications for physicians are murky. Certainly some physician-led enterprises have benefited from the financial infusions. Yet those physicians may also be losing some control of their businesses as the private equity investors gain a stake. And, the increased leveraging of those enterprises may spell more risk for the physicians who have to make the businesses financially successful.

The same possible benefits and risks may be true for other health care companies that receive private equity infusions. Observers say physicians who do business with those companies may see anything from no change to drastic transformations with the investment strategy.

Though definitions vary, in broad terms private equity investment means a capital investment into a company by a private group of investors. This could mean anything from a large-scale buyout of a public company to take it private, such as the $33 billion offer that the hospital giant HCA accepted last summer, to smaller capital infusions into private enterprises, to companies selling off divisions. In such an example, Emdeon Corp., formerly WebMD Corp., announced Sept. 26 that it agreed to sell 52% of its business services division -- which provides claims clearinghouse services to physicians and hospitals -- to General Atlantic LLC, a private equity firm, for $1.2 billion in cash.