When Capital Meets Care: Examining the Role of Private Equity in Oncology

In this episode of Breaking Down Health Care, John Hennessy, MBA, and Dr Michael Kolodziej, MD, explore the complex and evolving role of private equity in health care, weighing its potential to drive innovation and efficiency against concerns about profit-driven motives, regulatory scrutiny, and long-term impact on clinical practice.

John Hennessy, MBA: Hi, I am John Hennessy. I'm back here again with my colleague Dr Michael Kolodziej. We're back for our series called Breaking Down Health Care. I have been around for quite a while in oncology. I'm currently a consultant with Valuate Health Consultancy, and Mike does a lot of things, one of which is working with Canopy, which is a PRO vendor, and just completed an arrangement with Texas Oncology, which I saw got a lot of press. I think that's a fantastic opportunity for both organizations to do better.

Today we're going to talk about private equity and the impact of private equity in health care. Mike, you and I started out in an organization that was funded by private equity. In my experience, at least in that organization, it was a positive influence, and we did things that might not have been possible if the individual practices had not been able to work together to solve some of the challenges that exist in oncology.

Michael Kolodziej, MD: The old saying that you have to spend money to make money is certainly applicable here. When we were at US Oncology together, the company was at a point where they needed an infusion of capital. The equity market stepped forward, funded the organization, allowed the organization to explore some opportunities, and US Oncology came out of it a lot stronger.

Welsh Carson, which was the private equity firm at the time, made a little money on that deal. That's the way the private equity world works. This is not unique to health care. I think we have a sensitivity about health care because we think health care should be above it all. It's a noble calling and all that stuff, but there's money involved and I would say the US Oncology experience was generally a positive one.

Now, I will tell you, John, that I've spoken to people who were higher up the food chain than we were, and they didn't have such a positive view of that experience. Not in any way, shape, or form. That's a very telling statement because one of the risks of private equity getting involved in health care is that they will put their thumb on the organization because they do intend to make a return on their investment.

Hennessy: One of the things we have in our notes here is to talk about the influence that private equity has. My experience was that while there were certainly positive influences in terms of purchasing and idea generation, a lot of the execution was really up to the practices themselves.

We knew practices that were very aggressive and very innovative and others that were on the other end of the spectrum. It's a bell curve; it happens in a lot of spaces. Is that private equity's role or is it able to, as Brent James used to say, move the curve entirely? Maybe not influence each practice along the way but maybe get all practices to move in a particular direction—or not—whether it's from a revenue standpoint, a purchasing standpoint, things like that.

Dr Kolodziej: In the post I discussed the fact that I think private equity, specifically in health care, comes in 2 flavors. One is taking an organization from good to great, which is what you're describing, and then there's the other end of the spectrum, which is taking a distressed organization and getting every last check that you possibly can. It's that latter one that's created a lot of turbulence lately. It's been written up extensively in The Wall Street Journal and The New York Times: hospital chains that were purchased by private equity, seedy real estate deals were made to generate revenue and give back to the equity partners, and all kinds of influence regarding physician productivity, billing, coding, and all this other stuff. That whole mix is problematic.

In fact, I will point out that clearly that sort of behavior is what's getting the attention of the government, who does not like this nonsense going on at all, and is considering legislation to require transparency and set guardrails on appropriate behavior. That legislation is at the state level as well as the federal level.

The good-to-great is exactly what you said: increased efficiency, back-office functions. It does look at productivity and staffing—there’s no doubt. I think when the experience is good, it's a good experience, and when it's bad, we call it retrenchment, and a lot of people lose their jobs. If an organization goes into a relationship with a private equity company, they should have open eyes, because private equity companies are not altruistic organizations. They exist to generate revenue and a return on investment, and that is what they're all about.

Hennessy: I agree. Freakonomics had an episode not long ago talking about the influence of private equity in veterinary medicine, of all places, and described—as you do—that there are certainly cases where things get better and cases where you see what they called a "pump and dump:" get what you can out of it and move on to the next challenge.

One thing we've seen with private equity is, depending on what side you're on, higher rates. The managed care negotiations may be more sophisticated, or the market strength may be differentiated from just a solo practice. I'm hearing a lot about the No Surprises Act. The private equity-funded disputes tend to be resolved in favor of the provider.

There is an element here that, certainly, the organizations can do better. Is there a challenge to convert that to value for payers, for employers, for patients?

Dr Kolodziej: I would say the answer is yes, in the sense that, in the good-to-great model, you can enhance the services that a practice offers. For example, you and I both know that one of US Oncology's big selling points was the fact that they allowed the practice to diversify and offer a more comprehensive suite of clinical services. It was good financially for the practice—no doubt about it—but I also felt that it was good for the patient because it facilitated comprehensive cancer care in a very positive way.

This is one of those things where, when you see one deal, you see one deal. When you were talking about the higher rates, I was thinking about how there was a really big deal last year about a case in Texas where a bunch of anesthesiologists were purchased into a large group funded by private equity, and that was monopolistic behavior. I'm not sure if it's been settled yet, it's been in the court for a while, but there's the risk of that happening.

The flip side is OneOncology, which has been acquired by a consortium of a private equity company and a drug distributor. Their goal is to succeed in the same fashion as the US Oncology model—to grow their size, scale, and scope. I would say that, in retrospect, I think US Oncology has provided very good clinical care and has clearly been a leader in value-based care around the country. Far more pluses than minuses, in my opinion.

Hennessy: It's interesting you bring up value-based care. The network just reported solid results in the first measuring period for the Enhancing Oncology Model. Clearly, if you want to participate, you need some deep pockets, and that's not something that physician practices are good at. In fact, generally speaking, physician practices zero out the balance sheet every year, so you don't retain earnings to participate in something like that.

Dr Kolodziej: I think that's part of it and the other part, of course, is that it's very hard for a single practice to invest in the kind of analytical skill that's required to even make sense of some of the data that you get from the government. This harkens back to our discussion about whether solo practice oncology has a future. I think you and I both agree—if it has a future, it's pretty limited.

Hennessy: It certainly puts you at that far end of the bell curve and I don't know how you can advance yourself much.

In theory, we're talking about private equity here, but you nodded to the fact that OneOncology has a distributor as a partner. US Oncology is partnered with McKesson, the small Integrated Oncology Network with Cardinal. Is there any difference between private equity ownership and anybody else who's making an investment in oncology that makes that different, or is it more the same than not?

Dr Kolodziej: I can't believe you stopped there. We've got the insurance companies—Optum has the largest number of physicians in its employment of any organization in America and is building their oncology book of business. Hospitals, especially hospital chains, have been acquiring physician practices.

Is it different? Yeah, I think the math is probably different, but if you're the doctor or the practice administrator, how different is it? I'm not sure it's very different. Those organizations are generally not in it for charity work. I'm not going to say anything about their not-for-profit status. We'll leave that aside for another time.

Hennessy: The interest level that exists in these practices is interesting, but there are some that have managed to maintain a degree of independence. Some of our colleagues have done that.

Are they missing the boat, or is there something about that sense that you can control your own destiny and maybe take a different track? Or is this sort of a slippery slope that's going to be hard to resist at some point?

Dr Kolodziej: The temptation always exists, but I think the issue is that one advantage that we, as oncologists, our oncology practices, our oncology groups, have in dealing with private equity is they don't really understand our business very well. Maybe if they did, they would invest in us, but I think it's very different than a service like ophthalmology, dermatology, or radiology.

We have a very complicated business, and I would say that that functions as a check on what can and cannot be done to influence the way care is being delivered. I think that's a good thing.

There was a letter to a major journal, and somebody called me—and this guy from Harvard says, "Everything is going to hell in a handbasket because private equity is taking over everything." I said, "These private equity arrangements are all very different. There are management service agreements, and there's practice ownership, and that influences tremendously how the private equity partners impact the way care is being delivered. I think it's a big mistake to just lump them all together."

I will say that I don't think there's any way we're going back. There's a lot of money in health care, and as long as there's a lot of money in health care, people can invest money and will be interested in it. We can expect this to continue. I do expect the government to put in some restrictions on what's permitted and what's not.

Hennessy: Thanks for listening into our conversation today. We look forward to more conversations throughout the rest of 2025. Have a nice afternoon.