Private equity firms are acquiring more physician practices. Which specialties are in highest demand?

As Congress considers efforts to rein them in, private equity firms are buying up more physician practices, according to a new study.

Private equity firms acquired 355 physician practices from 2013 to 2016, a number that jumped each year of the study, according to a research letter published today in JAMA. The number increased from 59 practices in 2013 to 136 practices in 2016.

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With approximately 18,000 group medical practices in the U.S., researchers said while private equity acquisitions increased across specialties during the study period, they still constituted a small proportion of practices. Those acquisitions continued in the years beyond those in the study period.

The 355 practices bought up included 1,426 sites and 5,714 physicians.

The majority of acquired practices (43.9%) were in the southern U.S., the study found. Practices acquired by private equity firms had several sites (a mean of four) and many physicians (a mean of 16.3 in each practice) with a mean of 6.2 physicians affiliated with each site.

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The study, which identified group practice acquisitions using the Irving Levin Associates Health Care M&A data set that includes information on healthcare mergers and acquisitions, also looked at which specialties private equity firms were most interested in.

The most commonly acquired medical groups from 2013 to 2016:

  • Anesthesiology practices (19.4%)
  • Multispecialty practices (19.4%)
  • Emergency medicine (12.1%)
  • Family practice (11.0%)
  • Dermatology (9.9%)

From 2015 to 2016 there was an increase in the number of acquired cardiology, ophthalmology, radiology, and obstetrics/gynecology practices, according to the research letter.

Industry reports suggest further growth in acquisitions in 2017 and 2018, particularly in ophthalmology, dermatology, urology, orthopedics, and gastroenterology.

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Within the acquired practices, anesthesiologists represented 33.1% of all physicians; emergency medicine specialists, 15.8%; family practitioners, 9%; and dermatologists, 5.8%.

That profile of practices with several sites and many doctors matches "private equity firms’ typical investment strategy of acquiring 'platform' practices with large community footprints and then growing value by recruiting additional physicians, acquiring smaller groups and expanding market reach," said the study authors Jane M. Zhu, M.D., of the division of general internal medicine and geriatrics at the Oregon Health & Science University in Portland; Lynn M. Hua, of the department of health care management at the Wharton School of the University of Pennsylvania, in Philadelphia; and Daniel Polsky, Ph.D., of the Carey Business School at Johns Hopkins University in Baltimore.

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They noted that more research is needed to understand the effect of the acquisitions to mitigate unintended consequences.

“Private equity firms expect greater than 20% annual returns and these financial incentives may conflict with the need for longer-term investments in practice stability, physician recruitment, quality, and safety,” wrote the researchers.

Ownership by private equity firms may create additional pressures to increase revenue streams (such as elective procedures and ancillary services), direct more referrals internally, and rely on lower-cost clinicians, the authors said.

A limitation of the study is that its data is based on publicly announced transitions and therefore may underestimate the total number of acquisitions, particularly of smaller practices, they said.