Physician practice M&A: What you need to know about partnering with PE sponsors
The healthcare services industry is rapidly evolving as providers seek to provide better outcomes, lower costs and create a better patient experience.
Government mandates are creating uncertainty for traditional reimbursement mechanisms (i.e., fee for service) and market realities pertaining to expected budgetary issues are pushing nonprofit, private, and for-profit entities to move toward a value-based care scheme. As a result, it’s not surprising that large national payors and health systems have experienced significant consolidation for almost a decade since the implementation of the Affordable Care Act. That leaves independent physician practices at a crossroads as they face the reality that future changes may impact their traditional way of doing business. Independent physician practices must determine how to compete in an increasingly consolidated payor and health system market, and in many cases, are partnering with investors across the country.
Physician practice groups in nearly every specialty are being approached by local health systems (strategic entities) and private investors or private equity (PE) sponsors (financial entities) to provide strategic options for shareholders. Besides providing a monetization event for shareholders, there are other reasons for independent physician groups to pursue a strategic option other than remaining independent. As practices join other entities they’re able to realize cost savings, command more respect when negotiating with payors, expand service offerings, and move into to new geographies. Key themes contributing to PE sponsors’ interest in physician practices include:
Noncyclical business model
There is a low correlation between physician practice revenue and economic trends.
There is a growing aging population and focus on patient treatment in lower-cost outpatient settings.
The highly fragmented nature of physician practices is favorable to the "platform and add-on" strategy PE sponsors typically utilize.