U.S. orthopedic market overview
The US orthopedic physician practice market is comprised of over 6,000 groups that provide an estimated 137 million patient visits annnually
- Orthopedic conditions generate more than 137 million visits to physicians’ offices, hospital outpatient clinics, and emergency departments annually(1)
- Total joint replacement (TJR) volume has risen continuously over recent years and is expected to continue to grow. By 2030 the number of primary total hip and knee replacements are expected to increase by approximately 171 percent and 189 percent, respectively
- The number of orthopedic surgeons per 100,000 people in the U.S. has increased from approximately 7 in 2008 to approximately 9 in 2016 as a result of the significant demand for orthopedic services
- Musculoskeletal disorders affect 50 percent of adults and are the most commonly reported medical conditions among those under 65. Among Americans 65 and older, approximately 69 percent report musculoskeletal conditions(2)
- Fueled by a loosening regulatory environment, lower cost per case, improved technology, patient preference, value based care initiatives, 23-hour stay programs, and significant improvements in anesthesia and post surgical pain management, a large number of orthopedic practices are moving towards the outpatient setting
- CMS’ 2020 Medicare payment rule has added knee replacement and repair procedures as approved services in the ASC, continuing the trend towards the outpatient setting
- The orthopedics industry has adopted the model of a “one-stop shop” as ancillaries including X-ray, MRI, physical therapy, durable medical equipment, sports medicine and walk-in clinics diversify revenue streams and improve patient care
Highly fragmented U.S. orthopedic practice market(3)
U.S. TJR procedure volume(4)
Density of orthopedic surgeons in the U.S.(5)
U.S. population overview(6)
(Numbers in millions)
Orthopedic physician practice M&A activity overview
Several factors are driving consolidation of orthopedic physician practices by both strategic healthcare organizations and private equity funds
- The orthopedic physician practice market is highly fragmented and is largely served by smaller, regional practices with five or less physicians
- Practices of all sizes are partnering with bigger organizations in order to expand service offerings, establish regional and national brand presence, bolster growth, and strengthen reimbursement rate negotiation leverage
- Private equity’s continued interest in orthopedics is expected to further accelerate M&A activity, driving strong valuations
- Major factors driving the interest of private equity investors in the sector include the increasing number of outpatient/ambulatory surgery procedures and the broadening array of ancillary service offerings in the sector
- Both financial and strategic players are expected to carry the momentum in deal volume in the coming year
Orthopedic physician practice M&A activity(7)
Deal activity since 2014
Deal activity by geography since 2014
Key drivers for orthopedic physician practice consolidation activity
Highly fragmented market
- The industry is highly fragmented and is largely served by smaller, regional practices with less than five physicians
- PE firms and strategic investors are executing roll-up strategies within the market
Potential for economies of scale
- Opportunity for investors to capitalize on economies of scale through consolidated management, billing and in-office services
- Larger organizations can serve a greater number of people and gain contract negotiation leverage
Service and ancillary expansion
- Opportunity for investors to increase revenue streams and service offerings
- By increasing the number of specialties provided, healthcare organizations can maintain multiple sources of revenue, making their companies more attractive to potential buyers
Accreditation/Referrals from authoritative sources
- Opportunity for PE firms and organizations to gain credibility in the industry
- Accreditation by organizations such as the Joint Commission, enhances firm reputation, attracting skilled staff, drawing more providers and nurses, and better positions firms to secure managed service provider agreements with health systems
Broaden customer base
- Opportunity for investors to expand their operational footprint
- By acquiring practices throughout the country, investors can increase their revenue sources and gain access to a wider customer pool
Footnotes
- UCSF Department of Orthopaedic Surgery
- United States Bone and Joint Initiative
- Active practices with at least 1 physician and main specialties of orthopedic surgery, pain management, physical medicine and rehabilitation, physical therapy or sports medicine, per Definitive Healthcare. Includes certain multi-specialty practices with orthopedic services.
- American Academy of Orthopaedic Surgeons
- Merrit Hawkings
- U.S. Census Bureau
- Capital IQ, Company websites, Press releases, Irving Lewin, Pitchbook.
