The Future of Physician Practices: AI, Consolidation, and Private Equity Insights

Zak Eisenberg is the Vice President of Merritt Healthcare Advisors, which provides investment banking services to healthcare services organizations. In his role, he manages the strategic development and execution of ASC, surgical hospital, and physician practice transactions. Zak specializes in sourcing and analyzing transactions and capital and negotiating and structuring investments. Previously, he was a Biofund Venture Analyst at New Orleans Bioinnovation Center, a biotech and life science-focused venture capital firm, and led the analysis team at a renewable energy-focused private equity firm.

Here’s a glimpse of what you’ll learn:

• [5:34] Key micro and macro trends in the healthcare space
• [8:37] The shift toward physician practice consolidation
• [14:35] How physician alignment and expectations for compensation and equity have evolved
• [20:23] AI’s impact on private equity and other strategic buyer trends
• [24:34] Leveraging AI to reduce healthcare costs and improve patient care

In this episode…

Physician practices face increasing pressure from rising costs, shifting regulations, and evolving patient expectations. While independent practices struggle with financial stability, private equity-backed consolidations often lead to misaligned incentives and physician dissatisfaction. How can healthcare providers and investors balance financial growth with patient care?

According to healthcare transaction consultants Zak Eisenberg, John Nantz, and Barry Tanner, shifting compensation models impact physician motivation. Healthcare practices should structure these deals to align long-term physician incentives with practice growth. This requires clear communication and strategic planning to prevent physicians from feeling disengaged or undervalued in private equity-backed models.

In part one of the Transaction Healthcare webinar, moderator Kayla Marty hosts Zak Eisenberg, John Nantz, and Barry Tanner to discuss the financial and operational trends in physician practice management. Together, they share emerging technological and regulatory healthcare trends, the shift toward physician practice consolidation, and how AI can reduce healthcare costs and improve patient care.

Resources mentioned in this episode:

• Zak Eisenberg on LinkedIn
• Merritt Healthcare Advisors
• Merritt Healthcare Advisors email: contactus@merrittadvisory.com
• John Nantz on LinkedIn 
• Redwood Advisors 
• Barry Tanner on LinkedIn
• Kayla Marty on LinkedIn
• McGuireWoods

Quotable Moments:

• “The practice of medicine has become really challenging, very complex, not only from a clinical view but also from the business view.”
• “Where you don’t want to be right now is the health system bucket. That’s a really, really tough category.”
• “AI is going to transform every industry, but the way it will transform healthcare will be good for all of us.”
• “The expectation around investments in technology, in AI, the investments in overall process-oriented resources is shifting.”
• “No one has to suffer the same amount of pain to be able to grow the practice.”

Action Steps:

1. Align physician compensation with long-term growth: Structuring incentives that balance cash compensation with equity can keep physicians engaged and invested in success. When physicians see a clear path to financial and professional growth, they remain motivated to contribute to the practice’s expansion.
2. Leverage AI to enhance operational efficiency: AI-driven tools can automate administrative tasks, such as documentation and diagnostics, freeing up physicians to focus on patient care. By reducing burnout and improving accuracy, AI integration can lead to better healthcare outcomes and increased provider satisfaction.
3. Evaluate private equity partnerships beyond financial gains: Physicians should consider how a private equity partnership will impact autonomy, culture, and long-term stability before selling. Ensuring alignment between investors and practitioners can prevent post-transaction disengagement and create a more sustainable business model.
4. Prepare for shifting site-of-care trends: As more procedures move from hospitals to outpatient settings and at-home care, practices must adapt to stay competitive. Investing in ambulatory surgery centers or telehealth solutions can help capture this growing market and provide more patient-centric care.
5. Stay informed about emerging buyers in the healthcare space: Beyond private equity, strategic buyers such as family offices and public companies are entering healthcare transactions. Understanding the differences in investment approaches can help physicians and business owners make informed decisions about future partnerships.

Sponsor for this episode…

This episode is brought to you by Merritt Healthcare Advisors.

Merritt Healthcare Advisors is an investment bank with a unique focus on healthcare providers and their businesses.

Merritt leverages the healthcare industry expertise of its owner-operators, clinicians, investors, and advisors to develop surgical facilities that perform safe, efficient, and cost-effective procedures.

To learn more, visit https://merritthealthcare.com/.

Episode Transcript

Intro  0:04  

Hello and welcome to Transaction Healthcare. I’m Zak Eisenberg, Vice President at Merritt Healthcare Advisors. Merritt Healthcare Advisors is an investment bank with a unique focus on healthcare providers and their businesses. Transaction Healthcare is a podcast focused on addressing questions and concerns at the intersection of healthcare transactions and business.

Zak Eisenberg 0:25

Zak Eisenberg here, this is a special episode from a webinar we delivered. It was so interesting that we wanted to share this part of it with you on the podcast. It’s brought to you by Merritt Healthcare Advisors. We’re a healthcare focused investment bank. We don’t work on anything else, mostly with provider businesses. Usually, we’re working with physician entrepreneurs, helping them to raise capital or sell their business, or sometimes helping them to buy other practices or invest in other types of ancillary service lines. Everyone

John Nantz  0:57  

welcome. This is the third kind of annual webinar that my firm, Redwood Growth Partners has done in partnership with Merritt. Zak Eisenberg is the representative from Merritt. We are really glad we’ve got a good attendance with us today. We’ve got a great some great panelists. I think this is going to be a really rich conversation. We appreciate you guys being here. We’re going to have time for Q and A, so we’ll spend about 45 minutes having a conversation, and then we’ll open it up for Q and A. So just so everyone kind of knows the plan, we’re going to do some introductions. I’ll start. Name is John Nantz. I’m the founding partner at Redwood advisors and redwood Growth Partners. We’re kind of consulting investing firm that works in the outpatient health care services space. We’ve got some deals in Orthopedic Urgent Care, indo, bariatric and possibly autism. So really excited to be on here and speak from that perspective. And I’ll kick it around to Zak, Thanks,

Zak Eisenberg  1:56  

John. And yeah, it’s amazing that this is already the third year, I feel like doing these annual check ins is very therapeutic, so we can see what’s happening in the market and just give people a good update and have a great conversation. So good to see Kayla and Barry on here. I know Barry’s done this one before as well. Zak Eisenberg a partner with Merritt. We’re a full service investment bank focused on health care in the lower middle market, we work mostly with physicians. Unique thing about us is that our owners and operators of the business are also owners and operators in the health care space as providers. We’ve also worked as investors. So with that, I’ll give it over to Kayla for an intro.

Kayla Marty  2:44  

Yeah. Thank you so much, Zak, and thank you, John for having us. This is our first time attending the annual session, so we’ll really enjoy being with you. My name is Kayla Marty. I’m going to be moderating the session today, and I’m a partner in our health care group here at mcguirewood, the McGuireWoods team has worked with all of the panelists, so we’re delighted to be here, but we are a national firm that works on a lot of healthcare transactions, both on the hardcore transactional side, as well as diligence, preparing for sale in anything really that anybody needs that touches health care. So I’ll be like I said, moderating, but also contributing a number of things during the conversation. But Barry, do you want to go ahead and introduce yourself before we get started, too?

Barry Tanner  3:31  

Yeah. Thanks. Kayla. Barry Tanner, here, I’ve been in the health care space for a long time. I started out in public accounting, but quickly moved into health care. I’m currently serving as interim chief executive officer for a large multi site pain management slash rehab company, largely based out of California. Prior to that, I served as chief executive officer of integrated oncology network, which is a large multi disciplinary, multi site cancer care company based out of Nashville, but operating in I think, about 14 different states. That company was recently acquired by Cardinal Health back in December of 24 so I’ve been in the space a long time, mostly in provider based businesses for many years, and I feel like there’s so much going on in that space that this should be a pretty lively conversation that probably a lot of different opinions, which I’m anxious to hear, but pretty active space right now.

John Nantz  4:39  

Great, and I think Kayla is going to moderate us. So Kayla, we’ll, we’ll let you kick us off and moderate the chat here.

Kayla Marty  4:47  

Yeah, absolutely. So the first topic that we’re going to talk a little bit about today is just key trends to know in the physician practice and then healthcare space generally. So I know a lot of you. On the call are involved in traditional ppm, but also may have investments elsewhere. So Barry, if it’s okay, I will hit a couple for you. But first, let’s let Zak help us frame up some of the questions. Zak, if you can just talk a little bit about key trends and some of the changes you’re seeing, and then Barry, if you could just speak a little bit to the shift in thinking around physician practice that we’ve seen of all, let’s say, in the last five years.

Zak Eisenberg  5:34  

Sure. So I’ll start at a very high max level, and I’ll bring it down to the micro, which I think Barry will be able to speak much better to than than I will. So at at a very high level, as everyone knows, we’ve changed administrations here in the States. But there are also some other major macro trends, some of which have been going on for years. Some of them are brand new just in the last couple of years, and then really only start to come to the for in the past, you know, 12 to 18 months. So of course, the Trump administration is probably the first on everyone’s mind. There are lots of things to talk about there from a regulatory perspective, etc. And Kayla, I’m sure you could speak to that much better than the rest of us. Outside of that, I think you still have the same high level macro trends that are impacting health care, not just in the US, but in other countries as well. Demographics are king in this space. We have a population here in the states that is growing, but it’s also growing older and it’s growing sicker, which is driving lots of need for more health care. On top of that, we have the double whammy trend of a dive in revenue for independent physician practices and increasing costs, which is driving consolidation, mainly from financial sponsors in the space, but also from health systems. And I’m sure any independent physician who’s on listening in right now will agree with this, and I’d say the newer trends are more I’d say first and foremost, technology driven AI is obviously made a huge jump into the public mind in the last couple of years with chat GPT, but it’s also starting to impact health care. Absolutely, I just spoke with physician the other day, who’s using, who’s using AI image recognition technology intraoperatively to help them identify potential issues during colonoscopies, for example. And so you’re starting to see this make its way into every part of practice, I’d say. But also across the board, it’s impacting how investors are viewing the landscape, how they’re thinking about position practice management, how they’re thinking about the practices of the future, as well as where they should be placed in their bets right now. And so one thing we’re we’ll talk about tonight is just how the physician practice space, so PPM physician practice management space, and also health care facilities overall, has seen a slight slow down compared to, say, the last five years, though, I will say, coming into this here, versus last year, and really the last 18 months, there’s been a slight uptick in the number of transactions, but I think from a physician perspective, someone’s sitting in an independent practice. I think Kayla said it right there. There is a mental shift that’s occurring right now. And with that, I’ll, I’ll pass over to Barry to talk more to that. Thanks, Zak, yeah,

Barry Tanner  8:37  

I do think there’s a shift going on. I think, you know, maybe it starts with the fact that something that you said, Zak, is that there still is a need to consolidate. The practice of medicine has become really challenging, very complex, not only from a clinical view, but also from the Business View. It’s just gotten more more and more challenges. It’s tough for to bill, it’s tougher to collect, it’s tougher to hire staff, tougher to provide benefits. I mean, it’s just gotten harder and harder, and in my view, smaller practices have a hard time remaining independent and being able to access the technology and the human capital and the other expensive items that they need to really compete effectively in today’s marketplace. And so that leads to the concept of consolidation. Why? Because the cost of those personnel, the cost of that technology, the expertise that are going to be needed to negotiate with payers and move and move the practice forward can be spread across a much larger head count of providers, and that’s the key. No one has to suffer the same amount of pain to be able to grow the practice. There’s always pain. Campaign in these consolidations, there’s always trade offs, there’s always some degree of lost autonomy, but it’s a balancing act, and that’s why this consolidation is taking place. I will say also that I think private equity is unfairly been given a bad name over the last few years, not that in certain circumstances, they haven’t earned it. I don’t mean that, but I mean in general terms, I think there aren’t a lot of people who are willing to invest in provider based businesses beyond health care, beyond private equity. And I think I take my hat off to private equity, they’ve been willing to take the risk. But here’s the thing, I think they have struggled a lot over the past few years. And whole times we’ve seen within portfolios have become much longer, largely because the alignment isn’t quite right. People have still struggled with, how do we how do we incentivize physicians for growth in a financially oriented transaction, and I think to me, that is the key, if you’re about to sell your practice or partner with private equity, all of the language and All of the conversations are largely driven around the financial piece of the transaction. It’s super important. There’s no doubt about it. But there’s this misconception, I think, that that creeps into the transaction, that the physician somehow are being paid for all of the work that they’ve done in the past. They’re getting rewarded for historical performance. The fact of the matter is that that may be a yardstick for what the practice is worth, but any money that changes hands is an investment in the next five to 10 years. What the what the investors are saying is that, based upon your historical track record, we think, with the right technology and the right human resources and the right access to capital, that you can take this practice, or we can take this practice and double it in size and make it even more efficient than what you’ve demonstrated in the past. So yes, money changes hands, but what seems to be getting lost in the transaction is that this is a go forward, future looking Partnership, which is where all the returns lie, and therein lies the rub, compensation and com, cash, compensation versus equity. And how do you combine the two? And can, how do, how do you help the physicians keep the their eye on the ball toward growth when you’ve gotten all of this, this money that you’re not used to getting, and so I think I really strongly believe that private equity investing in health care can, it holds the potential to be really positive, but it’s been struggling mightily, I think, over the past few years, because the physicians become or feel disconnected to the practice. They they feel like they’re not in charge anymore, that somehow private equity is driving the ship. And in my view, it’s exactly the opposite these the investment is purely 100% to support the physicians and the growth. And if we could keep it, I really think if we could keep our eye on the ball in terms of growth and that this, this investment is all about growth, and, you know, delivering quality care, or helping to facilitate the delivery of quality care. That’s what it’s all about, and so that, that’s my sense of where we’re at right now.

Kayla Marty  13:49  

Absolutely, Barry and I like a couple of specific things that you talked about, that we talked about in our session prior to this, and John, maybe I can jump off on those to you a little bit. There’s two things that Barry keyed in on. One is physician alignment and the evolving nature of physician alignment, and the second is the various different buyers that are involved in the conversation that maybe haven’t always been involved in the conversation. So can you speak to those two things, John, like the way that you view physician expectations changing specifically around compensation versus equity, as well as some of maybe the more unusual or newer emerging buyers that have come to the market that the audience may be interested in hearing about.

John Nantz  14:35  

Yeah, sure. I mean, I might let Zak speak to the second one, because he’s got a more broad view, but in terms of the buyer landscape, but I happy to talk about the compensation perspective, and maybe I’ll add one other macro trend, if that’s okay, and then jump to the comp piece, which is the other thing that’s, you know, adding to Zak’s point of we have an aging population. We have from. Metrics, you know, less healthy population on average, and so you’re seeing an increase in health expenditures at the aggregate level, which you know, for the industry, is a positive, although, as a country, I think we want to try to find a way to do to do better there the other thing, the other, another big macro trend that I think is really relevant for people on this conversation is site of care. And if you look at the continuum of care, the intensity levels, you’ve got the hospital, you’ve got ambulatory surgery centers, you’ve got the physician’s office, and then you have the home. And what you’re basically seeing is you’re literally seeing almost like volume shifting right from the more intensive acute settings to the right. And it’s actually each one is, is actually like moving volume to the right. And so, you know, the average number of hospital days, the average American today, I think it spends 50% as many days in the hospital as they did in 1980 so we’re actually spending less time in the hospital, but we have two times as many doctors per capita. So that’s, like, a really good statistic that everyone, a lot of people, find really surprising. But we’re actually getting good at moving people out of the hospital. And, you know, people who work in the space can can surmise why. You know, instead of having open heart surgery, you go into your cardiology office and get a stint, right? So, you know, the the intensity of the procedures are going down, and we’re able to do a lot of stuff in less intensive settings. Another example is dialysis, where you used to go in and have to go to the View Center, and now we have a lot of technologies where people are doing this at home, so that. And I think that’s a positive trend. And I think for a lot of people in this conversation that aren’t working in hospitals or working in the physician clinic or ambulatory surgery center space, that’s a good thing, right? And I think that’s where the growth is you, where you don’t want to be right now is the health system bucket. That’s that’s a really, really tough category, but we’re in a category that I think has more, more positive opportunity in terms of the Comp stuff is gets, this gets really, really, really complicated. And I think I don’t know if anyone’s like, figured out the specific formula. I think there’s a generational lens to this as well, which is, if you look across like Gen X baby boomers, you tended to have more entrepreneurial, more equity oriented, more kind of wealth creation. And as you get younger and younger, you see people that are putting a higher value on quality of life, you’re seeing putting more value on financial security. And so that profile psychologically, that, per those types of folks value cash compensation more, right? And so you’re starting to see that difference. And so I think you know it, and I think that’s this is something that people are trying to figure out in some of these deals, and let you know, let’s just be candid on what’s happening behind the scenes. Sometimes when these income models get a little bit off, what you see is you see a drastic decrease in physician productivity post transaction, because, and it’s a really tough thing, because you’ve got the wealth effect and the income effect, if you go back to economics, because I’ve just given you some money. I’ve given you potentially millions of dollars, as in a single drop. So you’ve got wealth effect, which typically makes people work less, and I’m paying you less for how much you produce. So unfortunately, I don’t know if we had enough economically trained people in the industry, because that was a big surprise to people, that productivity dropped post transaction, right? And I think now, I mean, it really shouldn’t have been a huge shocker. And I think now Kayla, we’re trying to figure out to Barry’s point, how do we dial that in? And I think probably the biggest lever that I’ve seen in companies where I’ve worked, both as a consultant and then in my own investments, is, I mean, the win here is, can you actually create more value, you know, so that you can grow the pie and actually get income replacement and potentially income growth post transaction? Can you get your physicians back on a path with technology, with better pricing, with value based arrangements, where you can say, yeah, you used to make 700,000 now you’re making 575 but I want to put you on a path to making 850 right? And that gets physicians excited, but it’s easier said than done.

Kayla Marty  19:13  

That’s yeah, maybe if I can just jump off on that and go back to you, because I think this dovetails really nicely with the increase in unique buyers, the expectation around compensation versus equity, the expectation around investments in technology and AI, the investments in overall process oriented resources. I think it is giving opportunities for two things. One is existing founder led businesses exiting, in some instances, to strategic buyers. And the other is the successful exit of private equity to more public style, strategic buyers in the market. Because those these different elements are kind. Compatible. Can you speak a little bit to the new and emerging two things, new and emerging trends in AI and technology and other overall innovation, and then how that may come together with particular buyers, specifically larger PE funds that have those resources, or larger strategic buyers?

Zak Eisenberg  20:23  

Yeah, it’s a great question. Kayla, and just as Barry and John were talking through their their views, I was thinking about something Barry said, which is that private equity gets a bad rap. I think also the term private equity is not really well understood in the physician community and just generally in the broad, I’d say, general populace. So I used to work in venture capital and in private equity. Private Equity is used, I think, especially in general nomenclature, as a catch all bucket for any kind of financial investor. And there are lots of types of financial investors. And Kayla to your point, there are many new types of financial investors who have entered the health care market and the physician practice market in particular, in the past few years than there were, say, 10 years ago. So you have more family offices, for example. And there’s a big difference between a family office or a what we think of as patient capital investor and what is truly a private equity or gtlp model, where you have to create returns for limited partners in your fund, and those private equity firms that have those short term drivers for economic returns, think about investments quite differently than a family office or Even a long term investor who’s working with limited partners, who might have more like a 15 to 20 year time horizon, and we’re seeing many more of those types of investors entering healthcare, because healthcare is a very long view industry, the trends like we were Talking about are generational and they’re demographic driven, and so you’re not it. I, at least from my perspective, I often gravitate, on behalf of our clients to financial sponsors or investors who think in longer terms, because health care is a long term, a long term issue for the patient, right? Often they’re with the practice for a long time, maybe decades. And the second is that the trends that are impacting health care are not trends that are going to resolve in five years. They’re going to take a long time to resolve. So the and the other point I wanted to make about just buyers in general, which could be a public company or a strategic it could be a health system or a hospital, or it could be a financial sponsor, right? These are the very large categories. If you’re thinking about partnering as a physician entrepreneur or healthcare entrepreneur, there are bad actors in every single one of those buckets, and there are failures, because businesses fail across the board. It doesn’t matter what industry and health care is no different. So yes, there are many examples of, say, financial sponsors investing in health care and failing in spectacular section. To Barry’s point, some of them have not done well, but what I look at in this space that is intriguing to me about why it’s, I think, quite good for healthcare and particular provider businesses, to to be having so many financial sponsors coming into the space is because it allows for experimentation. And so what we’ve been talking about compensation. Compensation is one of the main ways where you’ve seen a divergence between winners and losers. The winners are the ones who have experimented well and have compensation models that are working and are actually driving physicians to grow their business care for patients and keep them incented and sticky with the business over the long term. And the ones that have lost have not done that. And Barry talked about that very eloquently earlier. The second trend, which relates to AI, is that you are seeing a overwhelming interest, and this is not just in the last few years. This is also over the last, say, 10 years, but it will accelerate with AI of, let’s say, broadly, Silicon Valley, just as a catch all, being very interested in delivery of care. And I think. With the advent of agents and augmentation of providers, like I was mentioning before, with the surgeon of using AI to care for patients, I think there’s an opportunity for America to really drive health care costs down while improving patient care, especially if you’re thinking about augmenting physicians and physician assistants and nurses and being able to improve their ability to focus on patient care, as opposed to say, taking notes, right? That’s one of the biggest areas where we’ve seen AI really jump into healthcare, because and Barry, again, probably talk to this better than anyone as a as a physician, but physicians and providers, I’d say, I think it’s fair to say, hate taking notes, right? It’s the bane of their existence. It’s lots and lots of time, but it’s very necessary for good patient care. So if there’s a way to take that off of their plate so they can focus on actually speaking to the patient and and spend more time looking the patient in the eye, I think that’s a win for everyone. So, yeah, I’ll just wrap by saying I think AI is going to transform every industry from from law to finance to health care. I think the ways that will transform health care will be good for all of us, because at the end of the day, we’re all patients at some point in our lives.

Outro 26:30

And that wraps up another episode of Transaction Healthcare. Hit the subscribe button to get notified when we release new conversations. And if you are someone interested in learning more about these topics. Visit us at Merrittadvisory.com or send us an email at contactus@Merrittadvisory.com.