Skip to main content


Back to Annual Report 2023

Looking Beyond Private Equity

There has been headline-grabbing discourse around the ramifications of private equity’s involvement in healthcare. This has included academic papers around the impact of private equity on the cost and quality of physician practices, regulatory scrutiny on private equity acquisition, and several high-profile bankruptcies of private equity-backed provider businesses. However, this public discourse is quick to forget that many of the companies that are leading examples of innovation and cost reduction in healthcare were private equity-backed, such as agilon or Oak Street Health.

This overly broad attack on PE-backed healthcare continues despite recognition of the capital and support that independent practices require to grow and thrive in the face of hospital consolidation. This is particularly prevalent in oncology, where hospital profits have been dramatically buoyed by the expansion of Medicare’s 340B drug discount program, which is now drawing long overdue bipartisan scrutiny. Therefore, it would be wise for the public debate to look beyond the source of capital and evaluate the true drivers of outcomes in private equity deals: the capital structure, investment thesis, and physician employment model.

Capital Structure:

The private equity “buyout” model is synonymous with leverage, a financial construct whereby a significant portion of the upfront acquisition price is financed with debt to increase equity returns. The most dangerous perils associated with private equity transactions are associated with patients and caregivers left behind when a private equity-backed company enters bankruptcy because it cannot meet its debt obligations. Also insidious are short-term tactics that companies may take to increase earnings and cash flow, such as staffing reductions, price increases, or restraining of investment, which are often associated with private equity-backed companies but are more indicative of highly levered companies looking for financial arbitrage as opposed to durable platform growth.

Contrary to popular belief, private equity and growth equity have been instrumental in the success of OneOncology and many other healthcare companies. One key difference is that these companies, including agilon and Oak Street highlighted above, were funded predominantly with equity capital, where the only path to strong returns was meaningful growth in revenue, earnings, and platform scale — all investments that require a long-term perspective and additional capital.

Investment Thesis:

This growth mindset leads into the next key differentiator among private equity-backed deals: the investment thesis. OneOncology was founded based on the thesis that community oncology delivered meaningful improvements in cost and quality relative to hospital-based care, but independent practices required capital and enhanced capabilities to survive and grow.

As opposed to a focus on growth, value creation levers such as rate increases, cost reductions, and “multiple arbitrage” — aggregating physicians at lower acquisition multiples than a consolidated company would be valued at — are the primary drivers of the negative impacts to cost, quality, and access that some too quickly associate with all private equity-backed transactions.

These investment priorities may be more challenging to identify upfront, but rather than regulating private equity transactions in healthcare, it may be worth evaluating the benefits of regulations around the extent of capital investments or Research & Development spending post-acquisition for private equity-backed companies.

Under OneOncology’s model, and many other companies that have received investment from private equity firms, practices remain fully independent but gain access to growth capital, back-office efficiencies, and specialized expertise.

Physician Employment Model:

A third key variable to evaluate is the physician employment model of private equity-backed companies. Employment models where physicians sell the equity stake in their practice as well as a meaningful share of their earnings run counter to the benefits of independent practice that physician-enablement companies such as OneOncology, agilon, and many other PE-backed organizations promote. Moreover, when physician practices sell a large percentage of their earnings in a private equity transaction it becomes challenging to make growth-oriented investments, including recruitment of new physicians, leading to some of the perils noted in prior sections.

On the contrary, under OneOncology’s model, and many other companies that have received investment from private equity firms, practices remain fully independent but gain access to growth capital, back-office efficiencies, and specialized expertise, particularly in areas strongly supported by public and government coalitions, including clinical quality, analytics, and value-based care.

In conclusion, it is critical to acknowledge the negative ramifications of actions taken by private equity-backed healthcare companies. However, painting a broad brush to vilify all forms of private equity and constrain the capital that these firms can deploy in the healthcare sector would cut off the positive impact that OneOncology and numerous other mission-driven companies create by keeping physicians independent, growing access, reducing cost, and improving quality and patient outcomes. Restrictions would further advantage monopolistic health systems that have no dearth of capital or appetite to continue acquiring independent physician practices and driving up cost for all consumers.