Practice Consolidation: Why It’s Not About Market Power

Zak EisenbergZak 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:

  • [0:35] Zak Eisenberg introduces his webinar panelists, who are experts in healthcare transactions
  • [8:35] Key regulatory changes in the healthcare M&A space
  • [13:53] How to navigate the shifting legal landscape in healthcare
  • [15:36] The impact of antitrust laws on physicians and healthcare providers
  • [21:18] What are the strategic benefits of practice consolidation?

In this episode…

Consolidating physician practices presents an opportunity to accelerate value-based care. Yet recent regulations have emerged in the M&A space, increasing market power and creating distortions. How can physicians and other healthcare providers navigate these legal regulations to maintain high standards of care?

The evolution and enforcement of antitrust laws at both the state and federal levels have led to skepticism around larger transactions, which are being heavily scrutinized. With each transaction, healthcare organizations must submit to a review process, during which they’re required to share their objectives for the consolidation. When navigating this examination during the sales process, it’s crucial to consider the broader value proposition, which includes improving patient experiences, outcomes, and access to more personalized care. These benefits should be relayed during the review summation to facilitate the transaction smoothly.

Welcome to the first episode of Transaction Healthcare, where Zak Eisenberg, the Vice President of Merritt Healthcare Advisors, hosts webinar panelists to talk about how to communicate the value of practice consolidation. Together, they discuss how to navigate the shifting legal landscape in healthcare transactions, the impact of antitrust laws on physicians and practitioners, and how organizations are navigating non-compete agreements.

Resources mentioned in this episode:

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

Episode Transcript

Zak Eisenberg  0:04 

Hello and welcome to Transaction Healthcare. I’m Zack 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. This is a special episode from a webinar we delivered. It was so interesting that we wanted to share this part with you on the podcast. So

John Nantz  0:35  

everyone, thank you guys. We appreciate you all being here. It’s hard to pick a time that works for everyone across the country. I can tell you, I just based on the list of attendees, I know we have people from California, Missouri, Kentucky, New York City, New Hampshire and Florida. So fully kind of representative group across the country. So thanks for those on the East Coast for joining us slightly late hour. We have a 75 minute conversation planned today about how can you maximize value? How can physician practice groups maximize value, we have a esteemed group of experts here, I’m gonna let them do introductions in a second. But suffice to say we’ve got some some real expertise on the line to talk about some really key trends. So our plan for the day is we’re going to do quick introductions. And in the bulk of the time is we’re going to be going through three key topics, to kind of give everyone kind of some inside baseball and some important things going on in the physician practice space. today. So Topic number one is we’re going to go through key trends to know in general and the physician practice in general healthcare space, for talking about you know, non compete changes Amazon moving into the space with one medical value based value based care, etc. So we’ll talk a bit about that, then we’ll talk about how best to position your practice to create value over the longer term. I know we have a lot of physician practice owners, managers, administrators, based on our participant list. So we’re gonna talk a little about how can you maximize value over the longer term, and we’ll have both Barry and bead have pretty unique and valuable perspectives will sort of give us some some insights on that. And the last thing is, and this is based on requests from the last version we did of the webinar, is how do you prepare for m&a and practice integration? So a lot of really like larger groups, you know, have fun kind of full time, corporate corporate development and integration teams. But if you’re slightly smaller scale, how do you even think about doing something like that, given what an important lever that can be for Korean guys, so we’re gonna hit that at the end. So the plan is, we’ll spend about 45 minutes in going through those topics. And then Zack, and I would like to spend about 10 to 15 minutes at the end doing q&a. So throughout, if you want to put questions in, you can type those in. And you can actually vote I believe in terms of you like a question, you can kind of upvote it, or you can answer questions, etc. So feel free to kind of engage throughout the the evening and Zach and I’ll be looking at that and kind of its offering kind of audience questions as we go. So that let’s do introductions. Zack, do you want introduce yourself first, and then we’ll come back around?

Zak Eisenberg  3:15  

Sure. I’m Zack Eisenberg up Mara partner with merit healthcare advisors where a healthcare focused investment bank, we don’t work on anything else, mostly with provider businesses. And usually we’re working with physician entrepreneurs, helping them to raise capital or sell their business or sometimes helping them also to buy other practices or invest in other types of ancillary service lines. And as John said, This is the second year where we’re co hosting events. It was a great turnout last year and excited for the conversation. I’m going to turn it over to Barry now to give an introduction for himself.

Barry Tanner  3:55  

Thanks. Hi, everyone. Barry Tanner. I am currently serving the CEO of integrated oncology network that is a private equity backed organization that is a multidisciplinary oncology provider doing business in 12 states around the US. We have a combination of specialties, as I said, multidisciplinary, from medical oncology, to radiation oncology, to urology, and then a number of surgical specialties as well. Prior to integrate an ecology network. I served for about 23 years as CEO of PGI solutions, also known as physicians of daska, before the name change, so I’ve been around the physician practice and facilities management space for a good portion of my career and I look forward to this evening’s discussion.

John Nantz  4:54  

Great. Thank you, Barry. Jeff, good to have you on the line. We’re gonna We’re just doing intros but we’ll We’ll do beat first and then come to you. So, just FYI, we’re coming out. Great to see you. Be Do you mind going? Sure.

Bede Broome  5:06  

Good evening, everyone. Beat broom and the managing director with the shirt health care partners. HP. My background. So I’m a physician scientist by training. MD PhD, did a PhD in Neuroscience at Caltech trained in Medicine at UCLA. After that, I was a consultant for many years, I was a partner at McKinsey there for close to 15 years, ran the transformation group within healthcare, doing operations work with health systems and health services for McKenzie. And then for the last several years, I’ve been an investor with hp. hp, we manage about 1,000,000,005. We only invest in health care, and we only invest in health care services. Relative to this conversation, we have a number of different physician platforms, including a large Gi Group, cardiovascular, women’s health and anesthesia.

John Nantz  6:01  

Awesome, thank you be great to have you on the line. Jeff,

Geoff Cockrell  6:06  

Jeff cockerel, a partner at McGuireWoods and chair co chair of firms private equity group, we have about 1100 lawyers, my group’s got about 120 Private Equity lawyers. Within that I do all healthcare, and that is largely limited to provide our services transaction. So I’ve worked on behalf of private equity funds and platforms in all the various different sub sectors of private equity healthcare investing that you see provident funds investing, so whether that’s cardiology, Gi, every manner, I’ve seen kind of every stripe, that those could take and work with a few folks on this call. So this will be a ton of fun. Great.

John Nantz  6:54  

Thank you, Jeff. I’ll do the final intro, and then we’ll jump into this. So John knots, I’m kind of the one of the hosts for the evening with Zach. I’m the founding partner of redwood advisors, we kind of have two different kind of an interesting role in this. I started my career at McKinsey actually crossed paths with with BT, he may not remember that but more junior junior consultant at the time. But but started at McKinsey, and then started Redwood advisors had done a lot of strategic value creation plans for very large health care groups. So you know, the largest OBGYN provider unified women’s care, National Veterinary associates, US Oral Surgery management, Aspen Dental, so sort of the number one player and women’s health, veterinary Oral Surgery and Dental. I’ve helped create value creation plans for them in the past. Now I’m actually working with smaller sized companies more as an investor to kind of help people get to that next rung of growth. So people who aren’t ready to maybe take on a full private equity deal, or maybe not the right scale. But do you want some help? And so actually, I’ve been partnering with Barry, who’s joining us on the call to talk to some of you and even some folks on this call about hey, can we be a good partner for you, as you kind of look to get to that next level before considering a deal with someone like a bead. So anyways, have expertise at that really, really large billion dollar plus revenue side, and then also starting to build expertise in that kind of really small, high growth, exciting side of physician practice management. So really excited to be on this call with everybody. Zach, do you mind? Maybe we kick it off? And do you want to facilitate Topic number one key trends in the space?

Zak Eisenberg  8:35

Yeah, yeah, let’s do it. Let’s do it. So and we were talking the other day, as a group about about this topic. There’s so much to talk about when you’re thinking about macro trends. And least for me, personally, I always like to think from that perspective, thinking about economic trends and trends that are lasting for years. And I think we all know there are several within healthcare, that have been going on for a long time. So the transition to capitated models, value based care is not new. That’s something that has continued to accelerate. There are other trends as well, though, which I think especially with the group that we have, on the line for everyone this evening, in this meeting, we can really talk about some of the tactical changes that changed in 2023. And that are changing into 2024. And I’d actually like to start with, with Jeff, one of the more I think, interesting and really sweeping changes that’s happening across the country is really a legal change at the state level. And there are a number of states that are implementing some pretty interesting changes specifically for healthcare, and m&a. And of course, I’m a banker. So everything everything’s a nail when you’re a hammer, but it does impact the rest of the important work that’s happening in healthcare in terms of consolidating care and really creating doing, I think meaningful delivery platforms for, for providing patients with great care and providing physicians with the ability to bring value for themselves. So with that, Jeff, maybe you want to just jump into that and I level and we can talk about that some more.

Geoff Cockrell  10:17  

Sure. One of the headwinds that we’ve been experiencing in the last 12 months has been an evolution in antitrust, both enforcement and process that you mentioned, the state level, but also the federal level, there’s been a lot of press and I think some of it a little skewed. That has been raising some questions around whether or not the consolidation of providers has created market power that has created some distortions in the market. And there have been some kind of high profile examples, and a little bit of chest beating from some of the regulators on the topic. But the net of that is that consolidation is getting a higher level of scrutiny. And that shows up both kind of in the process arena, and also in the substance arena, and where it’s hitting the process arena. And this is both federal for larger transactions. But interestingly, at a state level for much smaller transaction, because that regulators have been wanting to kind of take a breath and make sure that they’re comfortable, that consolidation that’s happening, is not creating market distortions. And what that has meaning in an increasing number of states is that a review process has been interjected into those kinds of consolidations. And those might be 60 days might be less, it might be more, but it really has thrown a little bit of a wrench process wise into those sale processes. And it’s definitely a factor that you need to build into your sequence. But kind of beyond the process element, there’s a lot more thought and care being given to the value proposition of consolidation in the first place. And what we’re advising kind of whether this is buyers or smaller players that are consolidating is to really give thought to the benefits of that consolidation. And there really are benefits, that I’ve never encountered a platform where the primary thesis is, we’ll be able to get market power and then get higher reimbursement. That’s not the case, every deal that I’ve seen, it’s really driving towards improving kind of patient experience improving outcomes, improving access. And so we’re really encouraging folks to think carefully about the bet the broader value proposition of that consolidation, in addition to as you mentioned, the need to be mindful of the kind of process which is,

Zak Eisenberg  12:58  

yeah, that those are those are some great points before we we bring in be buried in this conversation, there was another major legal topic. And I think this is just the 2023 and 24 are just very important years from a legal perspective, which is why we’re focusing on at the top of the, at the top of his meeting, the other one that Jeff you brought up, which is so important, it goes hand in hand with this m&a changes on the non compete and compensation side of the on the side of the ledger. And especially, you know, even for large organizations, that’s an issue. And I think, in particular, for smaller businesses, that can be even more challenging than, you know, the for the first item that you outlined. So maybe maybe you can just give us a brief high level of that as well. Yeah,

Geoff Cockrell  13:53  

the tide is definitely moving on the entire kind of idea of restrictive covenants and covenants and non competes that are related to employment. And that type is definitely moving in the direction of those the either scrutinized much more heavily or prohibited outright. And the current evolution of that is kind of some pending rule changes that would make the most employment based restrictive covenants like that and just not valid. It’s a little weird to be making that kind of a sweeping change through administrative action that can be changed with an administration change. But that doesn’t kind of change the underlying reality that the tide is moving in the direction of those being less likely to be enforceable. The truth is that there’s lots of states or there are large states where that was the case already.

Zak Eisenberg  14:55  

From a high level perspective, obviously you have to At a short of healthcare partners, you have many different portfolio companies there are facing very similar challenges because many of them are in this area of healthcare, which are dealing with employment contracts and have large m&a activity. Maybe you can you can talk to the audience a little bit about how, at HP, you’re thinking about navigating these next couple of years as this legal landscape is changing just at an operational level, what are you? What are you implementing across the spectrum in the variety of specialties you’re invested in?

Bede Broome  15:36  

Sure. I mean, I would have to say that, that actually, these us regulatory changes don’t change much for us, because our approach was never one of consolidation for the purpose of market power. Right, that was never a goal. Nor do we look to depend on non competes as the reason to keep someone employed. Right. So let me handle each of them separately, on the on the antitrust side, and the sort of the concerns about market power, you know, as we start talking to physician groups, to us, the value proposition of consolidation is very clear, right? The world is getting a lot more complex for physicians, you have health systems that are integrating, and they are consolidating, we see similar antitrust concerns there, you have payers that are consolidating on that side, in the middle, you have physicians, right. But while payers and health systems are at a scale, that they can take advantage of new developments in technology, new analytics, the ability to leverage different components of their workforce. More effectively, physicians, especially those in smaller practices are sort of left out of this efficiencies of scale. And also, I would say efficiencies of skill. Alright, so as one gets larger, it’s not just that the cost of doing business goes down, it’s that you can have more people who are better at specific tasks, think of it as someone who’s dedicated to revenue cycle, or dedicated to ensuring that your EMR is stable and customized and doing exactly what you want, as opposed to it’s a part time job with your practice manager, and you need to rely on vendor and all that, right. So there’s very real and immediate benefits for physicians through consolidation that have nothing to do really with a lot of the concerns the antitrust rules that are coming through. Similarly, on the non compete side, no, non compete, do we have non competes with our physicians? Yes, right. In some cases, were in some states where they are enforceable. But we really see it is just one of a number of factors that we employ with physicians, right? Our primary goal when working with physicians, partnering with physicians, and either acquiring partially or in all their practices, is to create an environment that they want to work in, they want to partner with us. And most importantly, that their incentives are aligned, they’re aligned to ownership, they’re aligned through share of the profits. They’re aligned through overall sort of career development and growth. Those are the reasons why we want to physician to continue to work on one of our platforms, not if you you know, if you do something wrong, we’re going to come after you with a lawyer, no offense lawyers, very useful. All of these documents are very useful as well. But you know, the goal here is to not rely on non compete. So you know, Zack, to your question, yes, these pieces of legislation or administrative action, are, they are dramatic changes. But if you’re sort of doing things right, all along, they really have less

Zak Eisenberg  19:17  

impact. Yeah, I think you made you made a few very important points there be that, in particular, the advantages of consolidating and joining with other physician groups and building a larger platform are varied and numerous, and it’s not all the market power. Yes, that may be something as a result, that that is not the goal. That might be a side effect of this consolidation and, and banding together. But you mentioned a few other things in particular, that just caught my attention like, ability to have better technical capabilities and Let X. And with the advent of Chechi, BT and really general AI bursting onto the public consciousness at the really the beginning of 2023. That was a major change. I think in every sector of the economy, obviously, it’s also starting to impact healthcare, which we can talk a little bit more about later. But before we do, though, I wanted to bring Barry into this really is the operator of the group, I think it’s fair to say, and just very, maybe we can get a little bit more micro oriented and tactical in terms of how conversations if, if at all, if they’ve changed at all, because of these non compete changes with physicians that you’re speaking with other providers? Or, or if the, you know, the m&a conversation, anti trust conversation, even comes up? Because it might not maybe it just drags out the timeline. I know, for us in the investment banking space, certainly, that’s all it’s done, it hasn’t really changed the value proposition of joining with a group or transacting with a group just means instead of planning for six months, you have to plan for nine months, there’s an additional time factor that you have to you have to add in. So what are your thoughts there?

Barry Tanner  21:18  

Well, that is certainly the way I’ve looked at it, too. We’re going through one transaction right now, that happens to be in the state of California, California has a new review process that actually goes into effect, I believe it’s April 1 or March 31. We’ve been advised, you know, by counsel, that if you’re closing a transaction after December 31, of 23, you should plan to go through that process anyway, even though it’s not technically in effect, hasn’t changed anything in terms of our valuation or pricing, the way we’ve approached the transaction other than, you know, we do anticipate it’s another hoop that we will have to clear from a regulatory hurdle. And whether it’s 60 days or 90 days, you know, it’s just something we have to, you know, prepare everyone for and make sure that the the required patience is there to go through the through the exercise. But, you know, I want to just touch on the consolidation point that he was talking about, as well. And I wanted to just add to that, and say that I’ve been in practice consolidation for a long time, I think it has huge benefits, beat I think, did a great job of articulating what a lot of those are. But I also want to say I view personally, I view practice consolidation, as essentially a means to an end. I mean, right now, physician practices are in that consolidation phase. And it’s like, there’s a lot of attention given to it, you know, the consolidation itself, the pricing of it, the valuation, how to affect away, effectuate a good merger among practices. But ultimately, very soon, I think all of these platforms have to get to the point where they can begin to deliver not only within the consolidated practices and the efficiencies that can be extracted, but we also have to focus on creating value within healthcare overall, I mean, eventually, where this is headed is we have to be able to deliver better, the best care if you will. And achieve the best outcomes at the most optimal cost. That doesn’t mean the lowest costs doesn’t necessarily mean the highest cost, it means we have to figure out the formula to improve to deliver equal or better care at the most optimal cost and, and the consult the larger consolidated practice practices will have armed themselves with the ammunition the capabilities to be able to deliver on that. Well, I would how I would define the value based care promise, again, to me, that’s what value based care is all about. And the whole purpose of consolidation is to be able to get there and deliver on that promise. So I mean, that’s the way I see the consolidation. I will say that the the problems that we’re facing headwinds that we’re facing, you know, across all platforms, I would say, in smaller practices right now are sort of you can boil it down to there’s a, there’s a labor shortage. There’s a cost of labor prop, a labor problem, those are two huge issues. I would say cost of capital is a big issue. So for platforms that are highly leveraged right now, I can tell you that, you know, interest rates are probably I’ll say at least double what was probably planned for at the time of the consolidation. So I would say in most part most physician platforms that that I’m aware of right now, I would say A lot of the formerly free cash flow has been sucked up to pay interest costs. So there’s a little bit of that’s not a bad thing necessarily, it certainly causes a lot of focus a lot more focused on same store growth as opposed to m&a. So there are some positives there. I would also say that the continuing pressures that everyone faces small or large on reimbursement right now are a day to day operating issue. I will say that from an RCM standpoint, it has not gotten any easier to Bill and collect what you’re entitled to. The reintroduction, reintroduction or restart, if you will, of sequestration has impacted like like higher interest rates as impacted practices, large and small, I would say today, and then I would say that some of the consolidation that Jeff and be talked to that’s going on in the industry has literally changed referral patterns, or has challenged I’ll say referral patterns. And those are things that I think every practice has to be tuned into. Sign a couple I mean, when united optim you know, acquired change, health care when CVS acquired signify, you know, Walgreens care Centrix. All of these are working their way through the market and are going to change referral patterns to some extent, frankly, even hospital acquisition of physician practices, who’s changing for the private, the smaller or larger independent practices, referral patterns are changing. And those are those are headwinds that operationally they require a lot of focus and we all have to work our way through.

Zak Eisenberg  26:55  

But great, great points, Barry. There’s there’s a lot to unpack there. 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 and or send us an email at

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