Mitigating the headwinds in private practice with scale

Is the MSO model the future for independent medical practices?

We’ve reached a tipping point in U.S. healthcare reimbursements.

The Health Care Payment & Learning Action Network, a public-private partnership with the U.S. Dept. of Health and Human Services, estimates that more than one-third of all healthcare payments were tied to value rather than volume in 2017, a 50 percent increase to two years prior.[1] While last year’s official results are still being tabulated, based on this historic rate of growth, the U.S. healthcare system’s value-based payment model likely has already surpassed fee-for-service as the dominant form of healthcare payment in this country.

Given this new reality, many independent physician practice and ambulatory surgery center owners are now scrambling to make the technology investments necessary to participate in these programs. There’s only one problem: Without scale, they’re quickly finding out that the numbers simply don’t add up when it comes to recouping the investment in these systems — at least not as a standalone practice or facility.

Even more, the federal government is requiring physicians to electronically gather and report clinical data that may require yet additional investments in consultants and training. These outlays are perhaps in addition to what physician practices already invested in electronic health records systems, a decade-long $36 billion federal initiative that has forced hospitals and health systems to take substantial write-downs because of cost overruns and other unanticipated expenses.[2]

Looking ahead

There’s little indication of a slowdown in technology adoption in healthcare — at least not anytime soon. Speaking at a 2019 HIMSS conference, Centers for Medicare and Medicaid Services Administrator Seema Verma sketched out a vision for the future of healthcare where data and technology “underpin the entire move to innovative payment mechanisms in healthcare.”[3]

“Without effective, open data sharing, providers cannot keep patients healthy,” Verma said in prepared remarks. “Without data to track patient progress or understand quality, insurance companies cannot tie payment to outcomes.”

In almost all cases, creating scale among individual providers is the primary strategy for mitigating the technological headwinds posed by value-based payment programs. It’s also what will continue to drive merger and acquisition activity in healthcare for the foreseeable future, according to a 2018 Premier Inc. survey of healthcare executives.[4]

“Healthcare providers are increasingly feeling pressure to form coordinated, high-value networks with aligned payment models, care delivery practices and financing capabilities,” Premier Vice President Joe Damore said in a statement. “As they work to establish connections with providers outside the hospital to eliminate duplicative services and improve care for patients, some health systems are merging and acquiring other providers.”

Still, not every physician wants to work for a hospital, health system, managed care organization or retailer, which is why the management service organization (MSO) model is emerging as the top choice for physicians who want to modernize their practices while remaining independent.

Typically backed by a private equity firm, MSOs can create economies of scale — leading to more acquisitions, access to ancillaries and, if sufficient scale is reached, an increase in reimbursement rates. For private equity firms, these entities are optimal for consolidating the fragmented constellation of physician practices, with the end goal of selling to established, integrated operators, larger group practices or hospital systems. As doctors are the revenue generators of these businesses, private equity firms develop ownership structures so physicians remain engaged and active in day-to-day operations in order to grow the business and sell it, typically in three to seven years.

Interested in learning more about how an MSO can allow your practice or facility to compete in today’s hypercompetitive market for patient volume and provide demonstrable growth opportunities and an avenue by which to remain independent? Let’s talk. Merritt Healthcare Advisors is the industry’s leading healthcare advisory firm focused exclusively on representing owners of healthcare businesses, surgical facilities and practices that are considering a strategic transaction, whether it is partnering with another group, selling an interest in their business or growing their business through acquisitions. We offer:

  • M&A expertise: We leverage our investment banking background, and as registered securities brokers, we have both the experience and the qualifications required to manage this extremely complex process.
  • Practice as well as outpatient surgery center focus: As the only firm with actual “owners” experience, we have unique knowledge that comes from owning, developing and managing our own facilities. This insight enables us to best understand and present your business.
  • Unmatched experience: Our leadership team has more than a century of combined experience working in healthcare and has successfully completed over $2b in transactions on behalf of our clients.
  • Proven process: Positive outcomes are the result of a deep understanding of your business, transactional expertise, knowledge of the Seller and Buyer communities and the ability to most effectively package, market and manage the sales process.
  • Exceptional results: By eliminating risk for the owners, effectively positioning your organization, creating the most effective marketing piece, validating our projections and the integrity of the offering, creating the most competitive environment for your business and then understanding how to push potential buyers to agree to the terms of the deal we want, we make a significant impact on the financial and non-financial outcomes of your sale.

To schedule a complimentary consultation or to learn more, call (914) 556-6266.


[1] http://hcp-lan.org/workproducts/apm-infographic-2018.pdf

[2] https://www.beckershospitalreview.com/finance/8-hospitals-finances-hurt-by-ehr-costs.html

[3] https://www.cms.gov/newsroom/press-releases/speech-remarks-administrator-seema-verma-2019-himss-conference

[4] https://www.premierinc.com/newsroom/press-releases/premier-inc-c-suite-survey-clinical-integration-and-consumer-satisfaction-driving-m-a-activity-among-healthcare-providers

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