Looking to maintain independence, growth potential for your physician practice? Options for selling, partnering in a consolidating market

The healthcare industry continues to consolidate. In the first half of 2018 alone, proposed megadeals were announced between Cigna and Express Scripts, CVS and Aetna, Walmart and Humana, and Optum and DaVita.1 The total price tag of healthcare mergers and acquisitions last year was expected to surpass $5 trillion.2

There is little indication of a deal slowdown anytime soon: Roughly half of healthcare executives surveyed recently by Capitol One expected 2019 M&A activity to continue at a similar rate as the previous year.3 Consolidation has been a constant for acute care hospitals, a segment that has experienced 1,500 mergers since the late 1990s and nearly 700 in the last decade alone.4

Physician practices, too, have been a top acquisition target in recent years, especially by hospitals and health systems themselves: One-third of all physicians in the United States are now hospital employees, and fewer than half own their own practices.5 Primary care physicians, in particular, have been much-coveted acquisition targets for hospitals and health systems: In the decade leading up to 2016, the rate of primary care physicians employed by hospitals increased from 28 percent to 44 percent.6

Managed care organizations also are fueling M&A activity. William Blair research shows that Optum, a division of UnitedHealth Group, Inc., is now the largest employer of physicians in the United States with more than 50,000. To put that into perspective, the Minnesota-based MCO’s payroll is “more than two-and-a-half times the size of the employed physician group at the largest provider-owned medical organization in the United States (Kaiser’s Permanente Medical Groups, with roughly 19,200 total physicians) and roughly five times the No. 2 provider/employer (the Veterans Health Administration, with roughly 11,000 employed physicians), according to William Blair.”7

Managing patients, integrating care

The Affordable Care Act (ACA) was signed into law on March 23, 2010, setting in motion the largest overhaul of the nation’s healthcare system in generations. The comprehensive legislation, which fundamentally altered the delivery and payment of healthcare services, attempted to expand healthcare access to millions of uninsured Americans, in part, by promoting initiatives that ultimately advantage scale and integration across the spectrum of care.

Along with promoting the growth of managed care organizations and physician hospital employment, the ACA included specific carrots and sticks to accelerate the provider transition from the fee-for-service to the value-based care reimbursement model. The ACA also attempted to “bend the cost curve” of national healthcare spending, which is expected to reach $6 trillion by 2027, according to the Centers for Medicare and Medicaid Services.8 Specifically, ACA cost-shifting efforts now mean many patients pay more — sometimes much more — out of pocket for healthcare than they have in the past: A recent study by the Henry J. Kaiser Family Foundation indicates that deductibles for employer-based plans have more than doubled during the past decade.9

“Currently, 85 percent of covered workers have a deductible in their plan, up from 81 percent last year and 59 percent a decade ago,” Kaiser foundation research shows. “The average single deductible now stands at $1,573 for those workers who have one, similar to last year’s $1,505 average but up sharply from $735 in 2008.”

With individuals now paying double or more for their healthcare than they did 10 years ago, they’re acting more like modern consumers than yesterday’s patients, who likely paid little attention to what an insurance company paid for a doctor or hospital visit. In a bid to lower costs and increase convenience, providers also are responding to this cost-shifting by offering consumer-focused services like walk-in clinics and telemedicine alternatives.

The rise of the MSO model

Given this complex confluence of events in healthcare, larger, well-capitalized health systems that are integrated across the spectrum of care are emerging as the clear favorite, especially as reimbursement rates remain flat and government payers become a larger percentage of every doctor’s payer mix.

In fact, according to a 2018 Premier Inc. survey of healthcare executives, the “strongest drivers of merger and acquisition (M&A) activity are linked to the need to integrate and better manage care across the continuum and meet consumers where they want to be seen.”10 Still, not every physician wants to work for a hospital, health system, managed care organization or retailer, which is why the management service organization 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. This model can allow physician practices to compete in today’s hypercompetitive market for patient volume and provide demonstrable growth opportunities and an avenue by which to remain independent.
Interested in learning more about the options for selling or strategic partnering your practice in a consolidating market? 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 and 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.


[1] “The 4 biggest health care mega-mergers of the past yea+r—and how they could impact you,” Advisory Board (Aug. 28, 2018)

[2] Ibid.

[3] “Healthcare industry optimism reaches new heights,” Capitol One Commercial Banking (2019)

[4] “Examining the Impact of Health Care Consolidation,”U.S. House of Representatives testimony, Martin Gaynor, E.J. Barone University Professor of Economics and Health Policy Heinz College, Carnegie Mellon University (Feb. 14, 2018)

[5] Ibid.

[6] Ibid.

[7] “Healthcare Mosiac,” William Blair equity research (Aug. 28, 2018)

[8] “NHE Fact Sheet,” Centers for Medicare and Medicaid Services (accessed 2019)

[9] “Premiums for Employer-Sponsored Family Health Coverage Rise 5% to Average $19,616; Single Premiums Rise 3% to $6,896,” Henry J. Kaiser Family Foundation (Oct. 3, 2018)

[10] “Premier Inc. C-Suite Survey: Clinical Integration and Consumer Satisfaction Driving M&A Activity Among Healthcare Providers” (2018)

Leave a comment

Merritt Healthcare Advisors

Top 10 Investment Bank | Axial Q2 2023

© 2024 Merritt Healthcare Advisors. All Rights Reserved . |  Website by Evolve Healthcare Marketing

Merritt principals are licensed investment banking agents of Burch & Company, Inc. (“BCI”), 4151 N. Mulberry Dr., Ste. 235, Kansas City, MO 64116 member FINRA/SIPC. All services requiring a securities license are performed through BCI. BCI and Merritt are unaffiliated entities. Testimonials presented may not be representative of the experience of other clients and are not indicative of future performance or success.