The Healthcare Breakdown: Financial Engineering and its Impact on Specialty Clinics and Dialysis Industry

Ben H.

Hatched by Ben H.

Oct 17, 2023

4 min read


The Healthcare Breakdown: Financial Engineering and its Impact on Specialty Clinics and Dialysis Industry


In the ever-changing landscape of healthcare, financial engineering plays a crucial role in the success and profitability of specialty clinics and dialysis centers. This article aims to delve into the reasons behind private equity (PE) firms targeting specialty clinics and the effects of acquisitions on the dialysis industry. By examining these interconnected aspects, we can gain a deeper understanding of the challenges faced by healthcare providers and the impact it has on patient care.

Private Equity's Interest in Specialty Clinics:

One of the primary reasons why PE firms are drawn to specialty clinics is the complex regulatory environment and the challenges faced in delivering care. With individual and population dynamics at play, physicians find it increasingly difficult to navigate the reimbursement landscape, especially with value-based contracts. The Centers for Medicare and Medicaid Services (CMS) falls short in adequately reimbursing doctors, leading to financial strains. Additionally, commercial plans often disregard out-of-network physicians, resulting in a 40% reduction in payments. PE buyouts offer relief from these burdens and provide physicians with a substantial payout, making it an appealing option.

Financial Engineering in Physician Practice Acquisitions:

When a PE firm acquires a physician practice, direct employment of doctors is prohibited due to Corporate Practice of Medicine laws. To work around this, a management service organization (MSO) is set up with a master service agreement (MSA) with the practice. The MSO takes care of various operational aspects, while ensuring that the doctor retains autonomy in practicing medicine. The overarching strategy for PE firms is to buy practices within the same specialty and consolidate them onto a single platform. This approach allows for economies of scale, leading to higher EBITDA and increased leverage across contracts.

Dialysis Industry and Acquisitions:

In the dialysis industry, the dominance of just two companies, DaVita Kidney Care and Fresenius Medical Care, is a result of their aggressive acquisition strategy. Among the 7,500 dialysis centers in America, these two companies control around 5,000, highlighting their market power. The acquisitions have led to a 200% increase in the use of an anemia shot called EPO, despite no change in patient conditions. This demonstrates how ownership changes can influence treatment decisions, potentially raising concerns about patient care.

Effects of Acquisitions on Dialysis Patients:

The Duke University economists' study revealed a significant decrease of 9.5% in patients receiving kidney transplants or being listed for transplants after the acquisition of independent clinics by DaVita or Fresenius. This decrease can be attributed to the fact that if a patient receives a kidney transplant, they no longer require dialysis. Consequently, DaVita and Fresenius lose a customer, impacting their profitability. This raises questions about the motivations behind these acquisitions and the potential consequences for patients' access to life-saving treatments.

The Role of Health Insurance in Dialysis Centers:

Commercial health insurance pays DaVita and Fresenius four times more than what Medicare pays for the first 30 months of a patient's dialysis treatment. This significant difference in reimbursement rates fuels the financial success of these companies. Additionally, the American Kidney Fund's involvement in the dialysis industry adds another layer of complexity. The fund pays insurance premiums for patients, allowing them to remain on commercial insurance for as long as possible. Interestingly, DaVita and Fresenius supply 80% of the American Kidney Fund's budget, creating a potential conflict of interest.

Actionable Advice:

  • 1. Advocate for fair reimbursement rates: Physicians and healthcare providers should actively participate in policy discussions to ensure that reimbursement rates align with the complexity and costs involved in delivering quality care. This can help alleviate financial strains and improve patient outcomes.
  • 2. Promote transparency in ownership changes: It is crucial to monitor and assess the impact of acquisitions on patient care. Transparency in ownership changes can help identify any potential conflicts of interest and ensure that decisions are made in the best interest of patients.
  • 3. Support alternative treatment options: Encouraging research and development in alternative treatment options for kidney diseases can reduce reliance on dialysis and provide patients with more choices. This can help mitigate the negative impact of acquisitions on patients' access to kidney transplants.


Financial engineering plays a significant role in shaping the healthcare landscape, particularly in specialty clinics and the dialysis industry. The pursuit of profitability and increased EBITDA drives PE firms to acquire physician practices, leading to both positive and negative consequences. By understanding the complexities and interconnectedness of these issues, we can work towards creating a healthcare system that prioritizes patient care while ensuring sustainable financial models.

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