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How much private capital can the private practice sector tolerate?

More and more investors are taking an interest in medical practices. What is positive on the one hand, because it increases the degree of digitization, is on the other hand to be observed with a certain skepticism. What path do we want to take for (basic) medical care in Germany?

Finding THE topic for Quo Vadis Digital Health in April was difficult – as is actually always the case when there is too much choice. And the decision may even surprise one or the other. I was actually occupied with many topics this month, in fact it felt like it had topics for three. But what kept pushing its way back into my mind’s carousel was the research of a team of reporters from NDR and Bayrischer Rundfunk. According to this research, more than 500 ophthalmologist practices are now owned by international financial investors. A number that has tripled within three years. An ophthalmologist is quoted there with the striking statement “Gewerbe Augenheilkunde”.

The reason why this report keeps finding its way into my thoughts is simple: I don’t know whether I think investor involvement is good or bad. My imaginary pro list includes arguments like “We need capital, lack of investor engagement is one of the reasons why the U.S. or Asia are ahead as regions.” And then I wonder how I, as a doctor, would feel if my controller in charge admonished me with the words “Admir, you had too few heart attack patients this month” to do better next month.

The pros and cons are thus, of course, presented in a very striking and clearly abbreviated way. But the question of whether and to what extent we want private capital in healthcare is, in my view, a very crucial one, because it determines the direction in which we want to move in the future.

Why private capital is good

Let’s leave human medicine for a moment and look at veterinary medicine. Because that’s where private investors have long since seen the writing on the wall. From large, international clinic chains to smaller limited liability companies that specifically buy up regional veterinary practices, it’s all here. And no one finds this objectionable, after all, there is a lot of music playing in the pet market anyway. Much more crucial is however: There is no solidarity community, which comes up for the costs. Accordingly, the investors’ commitment is viewed positively: The mostly rural practices have access to much better equipment due to the purchasing power of the community, the “back office” can be organized on a higher level, which provides relief, and the veterinarians exchange entrepreneurial risk for a good salary as well as a discount for the customer base – if they have negotiated accordingly.

But investor involvement also shows economic benefits in human medicine. The aforementioned report cites a study conducted by the IGES Institute on behalf of the Association of Statutory Health Insurance Physicians in Bavaria (KVB). The researchers analyzed data from medical practices in seven different specialties in Bavaria from 2018 and 2019 and came to the conclusion: practices owned by financial investors have a ten percent higher billed fee per treatment case than an individual practice – with the same patient characteristics. According to the study, the higher fees are “solely due to the characteristic of ownership.” The authors thus see the results as evidence for the thesis that practices owned by financial investors are more strongly aligned with economic motives.

Why private capital is bad

And that is precisely the counterargument. Because what is positive from a monetary point of view can sometimes be questionable from an ethical point of view. The image of the controller immediately comes to mind. In a veterinary practice, it may still be ethically justifiable if the veterinarian is admonished to increase the castration rate again in the coming month. In human medicine, such number-driven optimizations are out of the question. It doesn’t matter whether, in the opinion of the controlling department, there were too few heart attack patients, knee and hip operations or dental implants in one month. In medicine, the principle should be: Every non-treated patient is a good patient, as long as he or she is healthy.

What is also disturbing: In Germany, it is actually clearly and strictly regulated who is allowed to open a practice and who is allowed to invest. Without a license to practice medicine, I cannot simply open or operate a practice in Germany – but I can as an investor through the back door. In my view, there is a need for improvement here and, above all, clear, uniform rules need to be created.

Yes, no, maybe?

By the way, I’m not the only one who is still undecided on the question of investors – this is shown by a small, non-representative survey I started here on LinkedIn. I asked whether the digitization or professionalization of the established sector needs international investors. 23 percent were of the opinion “Locusts? No thanks!”, 28 percent say there is a high capital requirement for international connection, which again 28 percent agree with, but do not want to cover the requirement with investor money and 21 percent say health only works as a community effort.

Does the digitization/professionalization of the established sector need international investors?
Philipp Köbe, a freelance lecturer and management consultant in the healthcare sector, wrote an interesting article about this on the kma-Entscheiderblog and also surveyed his network on LinkedIn and Twitter – with very different results. On LinkedIn, he asked which players should offer healthcare services financed by solidarity. Private companies, say 40 percent, only nonprofit companies, also say 40 percent, and 20 percent find only government companies. On Twitter, his question was, “Should there be private for-profit companies in health care?” The clear answer from 75.9 percent of participants: no! Only 24.1 voted yes.

What does this have to do with digitization?

The question about the source of capital is also so exciting at this point in time because there is still a lot of room for improvement, especially in the private practice sector when it comes to digitization. If you walk into a dental practice and are handed a tablet at reception instead of a sheet of paper to fill out, you can almost certainly assume that an investor has a hand in this. So the differences in the level of digitization and equipment are already clear to see. And we are familiar with this from the inpatient sector, where digitization only really gained momentum with the funding from the KHZG.

To reiterate, it won’t work without capital. However, the question of where the capital comes from will determine the future direction of travel. And that’s why I think a few rules of the game need to be laid down here by the official side. The private sector is certainly not a viable option. As with the clinics, there is also a need for non-profit and state institutions among the private practices – for example, in the form of regional medical care centers. A digital stimulus package analogous to the KHZG would also be conceivable, which would reduce support from private investors. After all, they naturally look at the specialties that are particularly attractive from an economic point of view. On the other hand, it would be bad for the quality of care if there were a disproportionately large number of practices for dentistry and ophthalmology in a region.

In our search for answers, we can also look around again in markets that have already undergone certain transformation steps. Take the U.S., for example: According to the Physicians Advocacy Institute, almost 70 percent of all physicians there are now employed – either by a hospital or by a corporation, which primarily includes organizations financed by investors and private equity. What’s interesting is that this trend in the U.S. is red-hot. In January 2019, the ratio of employed physicians was “only” 62.2 percent; in July 2020, it was already 65.8 – until the big jump to 69.3 percent in January 2021.

Do we want a similar development in Germany? If the answer is “no,” we must now look for (financially strong) alternatives. What the medical profession wants, I can only try to interpret on the basis of the available figures. According to the German Medical Association, a total of 409,121 physicians were employed at the end of 2020 – the majority of them (211,904) employed in the hospital sector. The National Association of Statutory Health Insurance Physicians (KBV) calculates that contractual medical care is made up of 180,581 physicians and psychotherapists. Of these, 20,746 are employed in practices, 21,885 are employed in an MVZ or other facilities, 9,222 are “authorized”, i.e. work in a clinic, for example, and have a special permit for the provision of contract medical care, and there are 1,405 partner physicians who work in what used to be called a group practice in an oversupplied area.

For those who could not do the math so quickly: That leaves 127,323 entrepreneurially active physicians in Germany. So I am not going out on a limb when I say that the majority of physicians prefer to be employed. So if we want to continue to provide high-quality care in the countryside, we have to find solutions – and private investors as operators of doctors’ practices are one option.