The Global Wealth Chains of Private‐Equity‐Run Physician Practices

Bůžek, Richard; Scheuplein, Christoph Article — Published Version The Global Wealth Chains of Private‐Equity‐Run Physician Practices Tijdschrift voor economische en sociale geografie Provided in Cooperation with: John Wiley & Sons Suggested Citation: Bůžek, Richard; Scheuplein, Christoph (2022) : The Global Wealth Chains of Private‐Equity‐Run Physician Practices, Tijdschrift voor economische en sociale geografie, ISSN 1467-9663, Wiley, Hoboken, NJ, Vol. 113, Iss. 4, pp. 331-347, https://doi.org/10.1111/tesg.12519 This Version is available at: https://hdl.handle.net/10419/265066 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ Tijdschrift voor Economische en Sociale Geografie – 2022, DOI:10.1111/tesg.12519, Vol. 113, No. 4, pp. 331–347. © 2022 The Authors. Tijdschrift voor Economische en Sociale Geografie published by John Wiley & Sons Ltd on behalf of Royal Dutch Geographical Society / Koninklijk Nederlands Aardrijkskundig Genootschap. THE GLOBAL WEALTH CHAINS OF PRIVATEEQUITYRUN PHYSICIAN PRACTICES RICHARD BŮŽEK* & CHRISTOPH SCHEUPLEIN** * Institute of Geography,Westfälische WilhelmsUniversität Münster, Münster, Germany. Email: [email protected] (Corresponding author) ** Institute for Work and Technology,Westphalian University of Applied Sciences, Gelsenkirchen, Germany. Received: November 2021; accepted April 2022 ABSTRACT Currently, numerous physician practices in industrial and emerging countries are being taken over by private equity firms and integrated into novel physician corporations. This involves private equity firms producing a global wealth chain (GWC) between their investors and the target asset, using offshore financial centres to facilitate taxavoiding reflux of capital. Moreover, they are opening up ambulatory health care as an asset for capital investment by overcoming previous market barriers to ambulatory health care via a legal construct. In this paper, we trace the spatial links of these financeside and sectorspecific corporate chains based on a capital flow analysis of private equity takeovers of Medical Care Centres (MCCs) in Bavaria, Germany. With our heuristics of a doublelayered GWC, which enables the extraction of value from the German health system, we contribute to the emerging GWC debate that aims to conceptualise the complex and often opaque spatialisations of financialisation processes. Key words: private equity; global wealth chains; health care; offshore financial centre; Germany; financialisation INTRODUCTION The health care sector in many countries is increasingly influenced by financial actors, motives and mechanisms (Hunter & Murray2019; Bain & Company 2021). For example, this entails the commodification and assetisation of pharmaceuticals (Zeller 2008; Birch2017; Klinge et al.2020), the privatisation and marketisation of medical public institutions (André & Hermann2009), the provision of financial resources for public health care institutions (Cordilha 2021) and the acquisition of care homes by investment funds (Horton 2022). For care homes, one can trace the strategies of financialisation, e.g. debtfinancing (leveraging), reduced staffing levels, assetstripping, and the farreaching consequences, for example the negative impacts on clients’ wellbeing, intensified exploitation of care workers and corporate insolvencies (August 2021; Strauss2021; Horton2022). For several years, processes of financialisation have also expanded to ambulatory health care, mostly through the acquisition of US physician practices by financial investors (Casalino et al.2019; Zhu et al.2020). The same process is also unfolding in Europe, for example in Germany (Scheuplein et al. 2019; Bobsin2021). Here, ambulatory health care has to date been run by independent physicians operating in a profitdriven but strictly regulated environment for medical treatment. The new buyers are often private equity firms (PEF), which recently discovered the health care sector as an investment field (Bos & Boselie2018). Although private equity prefers investments in big corporations, this special market for This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited. RICHARD BŮŽEK & CHRISTOPH SCHEUPLEIN 332 © 2022 The Authors. Tijdschrift voor Economische en Sociale Geografie published by John Wiley & Sons Ltd on behalf of Royal Dutch Geographical Society / Koninklijk Nederlands Aardrijkskundig Genootschap. ambulatory health care has been opened up as an investment opportunity through the creation of corporate physician chains. In this paper, we investigate the organisational and legal changes that enable private equity to take over medical practices. In these takeovers, different locations pertaining to the regulation of financial instruments, physician activities and taxation have to be linked. The development of ambulatory health care as a profitable asset thus involves a spatial dimension in which capital and legal titles circulate. This paper aims to unveil the geographies of the financialisation of physician practices, which are often neglected in public debates on takeovers by financial investors (Knieps2021). Here, the regulatory approaches of private equity’s corporate activities and profitmaximizing strategies must be foregrounded (Bryan et al.2017). This process is examined using the example of Bavaria, the largest German federal state by area. Conceptually, we mobilize two strands of literature. First, we ground literature from business economics on private equity in financialisation approaches from political economy (cf. Erturk et al.2008; Mader et al.2020) to outline why private equity is active in this complex field. Second, to investigate how physician practices are produced as an investment field for private equity, we draw on the emerging debate on global wealth chains (GWCs) (Seabrooke & Wigan2017) in (geographical) political economy. The GWC approach analyses the transactions of capital between multiple locations and demonstrates the financial incentives for these locational choices. The GWC lens helps unveil the strategic production of relational spaces through which financial investors capitalise on legal ambiguities (Christensen et al.2020; Grasten et al.2021). With private equity as a particular actor, we provide an empirical example of how abstract tendencies of politicaleconomic shifts towards financialisation concretely unfold in the highly regulated German health care sector. We bring the literature on private equity research and the emerging debate on GWCs into fruitful dialogue to provide a geographical analysis of the transnational private equity business model and contribute a case study from the health care sector as an additional empirical application of the GWC framework. Our theoretical contribution is dedicated to the latter. We show that a GWC, which unlocks the health sector as a source of wealth, is based on a doublelayered structure. This specific GWC consists of global flows of intangible capital (financial layer) and an operational structure of value creation (sectorspecific layer), located in diversely regulated functional spaces. Thus, with our model of the doublelayered GWC, we contribute a new heuristic to understand the complex spatial reorganisation processes of corporate financialisation in highly regulated sectors. In the following, we first describe the investment type of the PEF as a form of the financialisation of the economy and introduce the concept of the GWC. Based on an overview of our empirical data and a reconstruction of capital flows, we outline how a global wealth chain in ambulatory health care is constituted functionally and geographically. We then delineate the concrete spatial structure of this GWC in ambulatory health care by showing where the diverse functions are located along the chain. In conclusion, we discuss further research implications. SPATIALISING FINANCIALISATION: THE PRIVATE EQUITY BUSINESS MODEL AND ITS GLOBAL WEALTH CHAIN Financialisation can be described as ‘the increasing dominance of financial actors, markets, practices, measurements, and narratives, at various scales, resulting in a structural transformation of economies, firms (including financial institutions), states, and households’ (Aalbers 2019, p. 3). According to van der Zwan (2014), financialisation can be understood as a macroeconomic phenomenon (Krippner 2012), as the intervention of asset owners in corporate governance (Lazonick2014; Klinge et al.2021) or as the incorporation of diverse spheres of social reproduction, for example housing, education, health care or retirement provision by financial industry actors (Langley2008). The process of the construction of a GWC of privateequityrun physician practices we describe in this paper is located at the GWCS OF PRIVATEEQUITYRUN PHYSICIAN PRACTICES 333 © 2022 The Authors. Tijdschrift voor Economische en Sociale Geografie published by John Wiley & Sons Ltd on behalf of Royal Dutch Geographical Society / Koninklijk Nederlands Aardrijkskundig Genootschap. intersection of the second and third levels of financialisation, that is corporate restructuring in health care by a specific actor, the PEF. From the variety of other aspects discussed in the political economy debate on financialisation, we refer to value extraction (Lapavitsas2013), corporate acquisition as speculation (Fine2013) and the assetisation of usevalues (Birch & Muniesa2020). Financialisation and the (geographical) proliferation of the private equity business model – The special investment field for PEFs is the market for corporate control in which they acquire established companies – in contrast to venture capitalists – with the aim of a profitable resale (Cumming 2012; Wright et al. 2018). Financial investors usually seek to obtain a majority stake in a company to enforce their operational and strategical goals. PEFs raise most capital through closedend funds. Investors in these funds pay a fee to the private equity managers for fund management. Otherwise, the fund investors remain passive and uninvolved in corporate governance. Most of the profit is generated by income during the holding period of the company – partly through direct profit withdrawals. Through the resale price, this flows back to the fund investors. Several techniques of ‘financial engineering’ like leveraging are employed in order to maximise returns and financial flows from the portfolio companies to their financial owners (Appelbaum & Batt2014). The private equity business model can thus be interpreted as a form of value extraction, which is regarded the main characteristic of financialised accumulation (Lapavitsas 2013). Private equity funds are set up for 10 years (Talmor & Vasvari 2011, p. 321). Companies are held on average for 5– 6 years (Scheuplein 2022). As many companies pass through a second or third sale to a financial investor, overall private equity ownership may last considerably longer (Scheuplein 2020a). We have so far described the functioning of private equity within a single national economy. However, a twofold spread of this business model is important. First, the model emerging in capital marketoriented financial systems (US, UK) was copied into bankbased financial systems (e.g. Germany). Second, private equity investments can now include several countries, which take on different functions for the fundraising and investment of capital. This is based on the specific forms within which financialisation has evolved over the past decades: 1. The private equity business model is rooted in the US capital marketoriented financial system, where the institutional settings for both the accrual of capital (e.g. through capitalbased pension schemes) and acquisition of companies through leveraged buyouts have been facilitated (Appelbaum & Batt 2014). By the time of the global financial crisis of 2008/09, private equity had become established in many more countries, although the expansion process was greatly influenced by the various national institutional backgrounds (Andres et al.2012). Accordingly, in Germany, the business model evolved very slowly. It was only policy interventions from the 1990s onwards, aiming to align Germany more closely with the capital marketoriented financial system, which caused the first private equity boom (Jowett & Jowett2011). In recent years, private equity funds have globally set records for the number of acquisitions, volumes of fundraised capital and generated returns (Preqin2020). This trend is also reflected in increasing private equity business activity in Germany (Scheuplein 2020b). 2. Political shifts towards financial deregulation and the privatization of public assets since the 1980s have created new opportunities for capital investment (Epstein2005), supporting the rise of private equity as a financial innovation. Novel investment fields, for example in public infrastructures, and new techniques of capital investment led to socalled alternative investment funds (Gospel et al. 2014). Apart from private equity, real estate investment trusts and hedge funds are particularly relevant here (Fernandez & Aalbers 2016). These investment funds acquire capital from institutional investors, that is pension funds, insurance companies and asset managers (Rutterford & Hannah 2017). On the one hand, the increasing volumes of monetary assets administered by institutional investors are a result of neoliberal policies of privatisation and deregulation, on the other hand, they constitute an efficacious instrument for the further expansion of such policies. In any RICHARD BŮŽEK & CHRISTOPH SCHEUPLEIN 334 © 2022 The Authors. Tijdschrift voor Economische en Sociale Geografie published by John Wiley & Sons Ltd on behalf of Royal Dutch Geographical Society / Koninklijk Nederlands Aardrijkskundig Genootschap. case, institutional investors have increasingly turned to alternative asset classes such as private equity (Preqin 2020), also encouraged by decreases in investable assets, for example due to corporate buybacks in public markets (Lazonick 2014) and monetary policies of quantitative easing, which have led to lowinterest rates and increased competition for investment spheres (Mader et al.2020). As private equity employs a fundbased approach, these capital flows between increasing monetary assets and new international investment fields – among other financial intermediaries, nonfinancial corporations and sovereign wealth funds (Palan et al.2010; Zucman2015) – contributed to the rise of offshore financial centres (OFCs). These spaces offer regulative jurisdictions where tax on investment earnings is minimised, the regulation of investment vehicles is lean and the anonymity of fund investors is protected (Shaxson2011; Seabrooke & Wigan2017). Furthermore, OFCs are beneficial to ease fundraising or accelerated and cheap company formation (Clark et al.2015, p. 238). Offshore financial centres are external to the conventionally established financial market authorities in industrialised countries and are particularly supported by actors from the UK and the US. While the affiliation of states as OFCs and their ranking is controversial (GarciaBernado et al.2017), it is significant in the context of the present research field that a number of OFCs are subject to British sovereignty as crown colonies or overseas territories. Consequently, private equity is not only established in many developed and emerging markets, but private equity transactions have become a transnational operation. To understand the geographical implications of this quantitative and institutional expansion of private equity, we consider debates in economic geography, which conceptualise the spatial distribution and flow of (financial) value and embed the geography of private equity operations within the GWC framework. Global wealth chains – Economic geography provides a broad set of concepts to delineate value creation as a spatially expansive relation between producers and service providers (Coe & Yeung 2015). These approaches identify different characteristics of goods and competences of the actors involved (Gereffi et al. 2005) or the institutional context of particular locations (Coe et al. 2008) as causing the characteristics of production chains. The funding of these production chains is, in turn, connected with global financial networks, which include financial services (banks, insurance companies, asset managers) and advanced business services such as accountancy, law firms and business consultancies (Coe et al.2014). Yet, money capital not only circulates in processes of production but can generally act as capital and be traded as ‘commodity sui generis’ (Harvey 1982). This ‘doublelife of capital’ (Bryan et al. 2017, p. 59) constitutes the abstract foundation of the process of financialisation, which is associated with the empowerment of finance visàvis the sphere of production. Hence, financial actors have increasingly gained power also in commodity chains, allowing them to influence the strategies of manufacturing enterprises and their supply chains (Palpacuer2008; Froud et al.2014). Against the backdrop of rising monetary assets, the polarisation of incomes and economic globalisation, ever more sophisticated financial strategies of quantitative significance have been developed for the wealthy classes. Financial chains in this sense refer ‘to the ways in which firms, financial institutions, states and households in a financialised economy are interconnected through […] channels of value transfer’ (Sokol & Pataccini2020, p. 409). Financial or investment chains relate to credit– debt relations (ibid.), the impact of private equity strategies of value extraction on tenants and urban displacement (Janoschka et al.2020) and ‘the multiplicity of actors and relations linked to a[n investment] project, and the flow and distribution of value among those actors’ (Cotula & Blackmore2014, p. 1). Arjaliès et al.(2017) scrutinise the sets of intermediaries in the asset management industry that establish the links between savers and the investment fields of their capital. From this perspective, global financial networks are not merely understood as simple intermediation of commodity flows or as valueproducing activity, but also as GWCS OF PRIVATEEQUITYRUN PHYSICIAN PRACTICES 335 © 2022 The Authors. Tijdschrift voor Economische en Sociale Geografie published by John Wiley & Sons Ltd on behalf of Royal Dutch Geographical Society / Koninklijk Nederlands Aardrijkskundig Genootschap. construction by the financial industry that allows profit appropriation from manufacturing and services (Dörry2016). A complex network of financial corporations is established at onshore and offshore locations to exploit the diversity of fiscal and tax laws within these jurisdictions, that is to separate the generated profit from the asset and minimise the transparency of beneficiaries, and avoid national taxation (Wójcik2013). This ‘dark side’ of financial networks is particularly discussed in the emerging global wealth chain approach (Seabrooke & Wigan 2014, 2017). ‘GWCs are defined as transacted forms of capital operating multijurisdictionally for the purposes of wealth creation and protection’ (Seabrooke & Wigan 2017, p. 2). Global wealth chains connect different institutional contexts in different spaces to fiscally optimise investments for the financiers’ benefit. This involves the differentiated exploitation of tax reductions in favour of investors, investment managers and assets, for example corporations (Christensen et al.2020). While much of the value produced within global value chains is redistributed in favour of capital owners (Quentin & Campling2018), global wealth chains ensure that realised profits are retransferred to the asset owners at minimum loss. From this perspective, the financial flows of commodity chains primarily relate to the creation of value, whereas the global wealth chain moves capital between the owners of wealth and the sites of investment. In other words, whereas value chains stress the spatialities of value creation (and capture) in production, wealth chains highlight the efforts by financial intermediaries to link the sites of value creation/extraction with sites of wealth proliferation by linking multiple jurisdictions to exploit ‘legal affordances’ of market access and profit maximization (Garsten et al.2021). Hence, the logics of the GWC’s stations and conjunctions follow utterly different requirements in the institutional contexts than in commodity chains. Necessarily reverse structures and tensions occur ‘between the location of value creation and the geographical allocation of profits and wealth’ (Seabrooke & Wigan2017, p. 2). The analysis of GWCs must thus always refer to the ‘doublelife of capital’ as both fluid money capital and as a productive asset (Bryan et al.2017, p. 59) and highlight its intersections and transitions. GWC analyses are thus ‘an analytical tool to disentangle the complex ownership structures that are designed to minimise tax liabilities and accelerate profit rates’ (McKenzie & Atkinson 2020, p. 25), thereby unveiling the arrangements of value extraction and wealth circulation and distribution through opaque transnational networks of (offshore) parent companies (ibid. p. 28). The GWC approach attempts to open ‘the black box of strategies of capital expansion’ (ibid. p. 35). The GWC research agenda is ‘to establish taxonomies of wealth chains and specify, via thick descriptions, the role of wealth chains in the evolution of global capital flows’ (Seabrooke & Wigan 2014, p. 261). Several case studies thus investigate financial centres as elements of the wealth chain (Sharman2017; GarciaBernardo et al.2017), concrete investment fields or corporations (Wigan 2021), the professional actors and their strategies (Bryan et al.2017; Christensen et al. 2020; Grasten et al. 2021; Ajdadic et al.2021) and the opportunities for policy intervention (Morgan2021). We contribute to this strand of research with the description of the GWC of private equity in the investment sphere of ambulatory health care. We start in the investment field itself, asking which (corporate) organisational and legal changes are used to transform physician practices into an appropriate asset for private equity investment. DATA AND METHOD To investigate how physician practices are transformed into financial assets for private equity, we traced the specific GWC created by the new financial owners. To this end, we used a data set from the Association of Statutory Health Insurance Physicians (ASHIP) in Bavaria (‘Kassenärztliche Vereinigung Bayerns’) which included all 606 Medical Care Centres in their territory approved by March 2020. The federal state of Bavaria is identical to the district of the ASHIP of Bavaria, which is the largest German ASHIP RICHARD BŮŽEK & CHRISTOPH SCHEUPLEIN 336 © 2022 The Authors. Tijdschrift voor Economische en Sociale Geografie published by John Wiley & Sons Ltd on behalf of Royal Dutch Geographical Society / Koninklijk Nederlands Aardrijkskundig Genootschap. by area and population (15.8% of the population) and also has the most MCCs in Germany (KBV2021, p. 6). As the population of MCCs otherwise shows no irregularities, the region is highly representative of the situation in Germany. For each MCC, we collected the locations of the medical practices (including branch practices) and the number of employees, accessing the MARKUS database by Bureau van Dijk and the homepages of the MCCs. Additionally, the legal operator of each MCC was identified. Taking up Christophers’ (2011) call to ‘follow the money’ compared to GCC analyses, the legal structure was investigated all the way up to an ‘ultimate owner’. For us, the ultimate owner of the privateequityled medical chains is the fund, which in turn is controlled by the PEF. The owners of the fund, that is mainly institutional investors such as pension funds, insurance companies and family offices, have no influence on the corporate strategy. Given the multiplicity of fund investors and the difficulties in identifying them, this part of the GWC cannot be presented here. The corporate structure of nonfinancial ownership types tends to follow the rather mundane ownership structure of German ambulatory health care providers. However, for private equity owners, a spatially expansive and opaque investment chain was traced. This means that we could identify a fund location for each physician chain. Sometimes, there is a whole chain of fund companies located in different OFCs in order to pursue different advantages (e.g. Delaware, the Cayman Islands, Luxembourg). In these cases, we listed the OFC with the highest degree of transparency (e.g. Cayman Islands instead of Luxembourg). We also drew on the MARKUS database by Bureau van Dijk and on already identified ownership structures of privateequityled physician chains from our own preliminary studies (Scheuplein et al. 2019). Information on the privateequityowned MCCs was added regarding country of origin, foci of investment fields and fund volumes. This capital flow approach was also carried out for those PEFs that had purchased MCCs in Bavaria and had already exited from the investment. Based on the analysis of 17 privateequityrun physician chains in Bavaria (Section 4), we deduced a model of a sectorspecific GWC for privateequity buyouts in German ambulatory health care, which contributes to the GWC framework. INTEGRATING BAVARIAN AMBULATORY HEALTH CARE IN GWCS Private equity takeovers of Bavarian MCCs – By March 2020, with 60 Medical Care Centres owned by PEFs, financial investors had established themselves as significant owners holding approximately 10 per cent of Bavarian MCCs (Scheuplein & Bůžek 2021). Other ownership types are physicians, who operate 47 per cent of the 606 MCCs in the area of ASHIP Bavaria, public corporations (19%), other private operators (18%) and nonprofit organisations (6%) (ibid.). This relatively recent entry of private equity into the German system of ambulatory health care has sparked debate in German health policy (Knieps2021). Critics view the new physician chains in the hand of profitmaximising financial owners as threatening patients’ wellbeing and the funds of the German statutory health insurance (KolominskyRabas 2021). The hefty critique of private equity as an operator of physician practices must be understood against the backdrop of the governance of German ambulatory health care, which is – similar to other realms of the German health care system – characterised by a complex constellation of state, market and associations (Gerlinger2021). While mechanisms of market and competition like private outofpocket treatments were implemented during the 1990s and 2000s (Gerlinger2021), the marketbased governance of German ambulatory health care remains severely limited. This is due to the continuing strict nature of legal regulations regarding the funding of ambulatory health care facilities, their compensation and quantity as well as the professional ethics of medicine as a fundamental principle of physicians. Accordingly, the German sector of ambulatory health care has traditionally been protected from access by external capital GWCS OF PRIVATEEQUITYRUN PHYSICIAN PRACTICES 337 © 2022 The Authors. Tijdschrift voor Economische en Sociale Geografie published by John Wiley & Sons Ltd on behalf of Royal Dutch Geographical Society / Koninklijk Nederlands Aardrijkskundig Genootschap. through the strict regulation of social legislation. Initially, physicians were only permitted to apply to the ASHIP to set up practice, that is for permission to conduct ambulatory medical activities. In 2004, the organisational form of the Medical Care Centre (Medizinisches Versorgungszentrum), which had a predecessor in the ‘polyclinics’ of the former German Democratic Republic (Janura2018), was approved. With this organisational form, the legislator aimed to blur the traditionally strict boundaries between the ambulatory and inpatient sectors, allowing (specialised) physician competences to be bundled into one physician’s practice (Knieps & Amelung 2010). The number of MCCs has steadily evolved but still accounts for just 4 per cent of physician practices in Germany (KBV2022). The distinct characteristic of MCCs is that they can also be purchased by other institutions – apart from physicians – such as hospitals. As these hospitals – the parent companies of the MCCs – can be acquired by private investors, investors indirectly gain access to ambulatory health care. However, it was several years until private equity investors actively turned towards this sector. Although the first takeover in the territory of ASHIP Bavaria occurred as early as 2008, it was 2011 before private equity ownership of MCCs reached double figures. Since 2015, MCCs are no longer obliged to include different types of medical specialists, paving the way for the buyouts of dental offices (where generally only one type of medical specialist is represented). In 2016, there were 25 MCCs and ever since a constant increase of MCC takeovers has been registered. Yet, the stark increase of private equity takeovers of Bavarian MCCs cannot simply be understood as a causal consequence of the 2015 shift in MCC legislation allowing the construction of integrated physician chains. Rather, the takeover activity has been strongly influenced by the demand side, that is the market for private equity acquisitions. A high influx of capital to the funds of PEFs has increased the ‘firepower’ of financial investors and scarcened the supply on the market for corporate control or raised the prices for portfolio companies. In Germany a ‘sellers’ market’ has also been diagnosed (Garbs2017), forcing PEFs to open up new investment fields (such as health care), which were previously considered too complex and strictly regulated. As soon as the knowhow for takeovers in a special investment field was developed, a learning curve was initiated among the PEFs concerned, followed by the flocking behaviour of competitors. Thus, the health care market was discovered as a ‘golden opportunity’ (McKinsey2017), explaining the recent boom. Consequently, although creating legal access for private equity buyouts to ambulatory health care was a crucial precondition, the takeover boom was triggered by the private equity business model itself. However, the takeovers of physician practices/MCCs in Bavaria – the location where medical services are actually provided and physician chains are built up – constitute but one end of the corporate structure that private equity creates to transform German ambulatory health care into a viable financial asset. In line with our capital flow approach, we traced the geographically expanding ownership structure installed by financial investors and connected the emerging investment field of physician practices with the funds of investment capital. In the following, we analyse this specific corporate structure using the GWC approach. GWC links: Connecting the Caymans with Bavaria – Having described the background of MCC takeovers by private equity in Bavaria, we turn to an indepth analysis of the GWC that emerged with private equity in German ambulatory health care. As the private equity investment cycle is about the acquisition, restructuring and profitable resale of companies, it is relevant that PEFs aim to develop integrated physician chains with their buyandbuild strategy. Accordingly, this study focuses less on single MCCs as main actors, but rather on ownership groups as constructions of operating companies and MCCs. The private equity owners thus create physician chains, each of which has one holding as a strategic centre and one particular medical specialisation. The distinctive nature of the physician chains RICHARD BŮŽEK & CHRISTOPH SCHEUPLEIN 338 © 2022 The Authors. Tijdschrift voor Economische en Sociale Geografie published by John Wiley & Sons Ltd on behalf of Royal Dutch Geographical Society / Koninklijk Nederlands Aardrijkskundig Genootschap. in such holding structures also means that a PEF may be involved in constructing two or more integrated physician chains simultaneously. In our analysis, out of 60 individual privateequityowned MCCs, we identified 17 privateequityled ownership groups active in Bavaria. Physician chains that focus on one medical speciality actively dominate. This type covered the overwhelming shares of MCCs, practice locations and employees at the privateequityled MCCs in Bavaria in March 2020 (Table1). In contrast, MCCs operated by laboratory chains and by hospital groups are less represented. The number of locations and employees appears small, but it should be noted that each of these chains is also active in other German regions. Of the chains operating in Bavaria in 2020, six only entered the ambulatory care market in Germany between 2018 and 2020, and five groups entered between 2013 and 2017. The chains are thus still very young and some only started acquiring MCCs a few months before the time of observation. Another six chains entered the market before 2013 (the oldest is 2007), and all of these chains went through at least one secondary buyout by 2020 (see further below). For each of these groups, we identified a specific doublelayered structure, distinguishing between a ‘sectorspecific layer’ and a ‘financial layer’ of the GWC (see Figure1). Related to the takeover processes discussed above, we first focus on the sectorspecific layer, that is the sophisticated structure that is established by sectorexternal private financiers to gain legal access to ambulatory health care due to the aforementioned regulatory barriers. In our investigation of ownership groups, we found a functional separation between MCCs and headquarters in all 17 physician chains. In each case, there were two corporate units responsible for governing the MCCs: a medical unit holding the formal licence for the MCC (operating company) and a separate acquiring company carrying out the management functions. These companies were usually spatially separate and always involved different personnel. There were examples of other companies being located above the acquiring company, for example to allow differentiated credit Table 1. Privateequityled medical chains in Bavaria*, March 2020. Professional field Number of chains and examples MCCs** Locations** Employees** Special medical area (including ophthalmology, radiology, reproductive medicine, general medicine) 12 chains, e.g. OberScharrer (Veonet), Sanoptis, Meine Radiologie, Sanecum 39 (65%) 109 (74%) 1930 (80%) Laboratory medicine, cytostatics Three chains, e.g. Synlab, Amedes 13 (22%) 30 (20%) 380 (16%) Hospital companies with ambulatory supplement Two chains: Ameos, Schön Klinik 8 (13%) 9 (6%) 110 (5%) Sum 17 privateequityled chains 60 (100%) 148 (100%) 2420 (100%) *In the area of the Association of Statutory Health Insurance Physicians of Bavaria. **Share of MCCs, locations and employees per professional field of all privateequityled MCC chains. Source: the authors, based on MARKUS/Bureau van Dijk and internet research. GWCS OF PRIVATEEQUITYRUN PHYSICIAN PRACTICES 345 © 2022 The Authors. 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