Insight

Gastroenterology physician practice M&A overview

KPMG Corporate Finance LLC’s 2019 healthcare practice year in review

Walter Olshanski

Walter Olshanski

Managing Director, KPMG Corporate Finance LLC

+1 646-874-4878


U.S. gastroenterology market overview

Strong sector tailwinds and expansion dynamics present major growth opportunity for GI practices in the U.S.

  • Gastroenterology (“GI”) is the second largest sub-specialty of internal medicine, 21 percent of the U.S. population are treated by more than 2,100 physician practices and ~13,500 physicians.1
  • GI diseases are responsible for three million hospital admissions, 144,300 cancer-related deaths and 97,700 deaths from non-malignant GI diseases.
  • Gastroesophageal reflux disease (“GERD”) affects more than 15 percent of Americans.2
  • Over 25 million people in the U.S. have gallstones and nearly one million new cases of gallstone disease are diagnosed every year.2
  • 75% of Americans over the age of 45 have hemorrhoids.2
  • Colorectal cancer is expected to cause approximately 51,020 deaths in 2019.3
  • Aging U.S. demographics are another factor driving the increase in GI disease prevalence and procedures.
  • GI practices are positioned to benefit from the increasing incidence of GI related problems and technological advancements in the industry such as endoscopic imaging technology.
  • GI cases comprise ~29% of all ambulatory surgery center volume and that trend is expected to continue as payors remained focused on the hospital costs 4

Number of GERD cases in the U.S.5

Number of adults suffering from IBD in the U.S.5


 

U.S. population overview6

Highly fragmented U.S. gastroenterology practice market7


 

Gastroenterology physician practice M&A activity overview

Several factors are driving consolidation of gastroenterology physician practices by both strategic healthcare organizations and private equity funds.

  • The gastroenterology physician practice market is highly fragmented with only a few multi-state providers across the U.S.
    • There are 2,100+ gastroenterology physician practices in the U.S. and 94% of those practices are comprised of less than 10 physicians.1
  • Given the positive reimbursement environment and opportunities for diverse revenue streams, gastroenterology M&A activity has ramped up over the last few years.
    • The positive industry outlook has attracted private equity activity in the space and those platform investments continue to actively expand through add-on acquisitions
    • The momentum in deal volume is expected to continue in the coming years as the independent practices consolidate for the benefits of scale


Gastroenterology physician practice M&A activity 2
 

Deal activity since 2016

Deal activity by geography since 2016


 


Key factors driving consolidation activity in the sector


Fragmented market
The specialty is highly fragmented and is largely served by smaller practices, which can be rolled up to form larger entities with favorable scalability. 


Favorable macro trends
Rising prevalence of GI related conditions, stable to increasing reimbursement rates and favorable payor mix present significant growth opportunities.


Diverse revenue streams

Increasing the number of specialties provided and maintaining multiple sources of revenue, makes the organizations more attractive for potential buyers.


Regulatory environment

MACRA demands higher quality reporting from GI organizations, and in order to meet these requirements it becomes imperative for smaller practices to merge.


Centralizing back office functions

Combining back office functions including IT, RCM, accounting, HR, etc. helps practices achieve economies of scale.


For more information on healthcare industry trends, recent transactions, and subsector M&A activity download the newsletter. 


 

Footnotes

Association of American Medical Colleges (excludes teaching, research, admin & other)

National Institute of Diabetes and Digestive and Kidney Diseases

American Cancer Society

VMG Health

GlobalData. IBD cases represent Crohns Disease and Ulcerative colitis case

U.S. Census Bureau

Practices with main specialty of Gastroenterology per Definitive Healthcare


 

 

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KPMG Corporate Finance LLC’s investment bankers have extensive Healthcare transaction and industry experience, which enables them to understand the industry-specific issues and challenges facing our clients.