Opportunities are accelerating for surgical specialists and specialty practices to access private practice alternatives and move away from large hospital systems and academia. A sea change in the delivery of specialized care is opening up new opportunities and revenue streams for practitioners who can also reclaim their much-desired autonomy and lead more physician-driven and physician-centric businesses. In turn, this move toward independence in specialty care is driving a wave of mergers, acquisitions and consolidations in specialty care practices as the need for size and scale leads practitioners to seek the capital and resources necessary for growth.
With the opportunity of acquisitive growth comes risks for doctors who fiercely value and guard their independence and control over their practices. For investors and advisers, recognizing and addressing these nonpecuniary concerns when discussing possible deals is critical to successful transactions.
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One of the key challenges of acquisitions of specialty physician
practices is moving physicians from a siloed approach to defining
success on a broader continuum. Specialists usually want to
maintain some degree of self-governance and autonomy.1
Opportunities are accelerating for surgical
specialists and specialty practices to access private
practice alternatives and move away from large
hospital systems and academia. A sea change
in the delivery of specialized care is opening
up new opportunities and revenue streams for
practitioners who can also reclaim their much desired autonomy and lead more physician-driven
and physician-centric businesses. In turn, this
move toward independence in specialty care
is driving a wave of mergers, acquisitions and consolidations in specialty care practices as the
need for size and scale leads practitioners to seek
the capital and resources necessary for growth.
With the opportunity of acquisitive growth comes
risks for doctors who fiercely value and guard their
independence and control over their practices. For
investors and advisers, recognizing and addressing
these nonpecuniary concerns when discussing
possible deals is critical to successful transactions.
Changing regulatory, reimbursement landscape drives consolidation
A key driver in the growth of independent specialty practices is the change to regulatory and reimbursement policies that allow practitioners to perform Centers for Medicare & Medicaid Services approved procedures in ambulatory surgery centers rather than on an inpatient hospital basis.
This creates a significant pathway for practitioners
to take advantage of a new revenue stream for cases that they’re already doing and grow their practices. Before these changes, certain specialists
were almost entirely hospital-driven because there was no practical or viable mechanism for physician-driven, physician-centric businesses to thrive. It isn’t just new revenue streams driving specialists
in this direction, however. In private practice,
specialists can be more autonomous than they
would be in a large hospital system. They can make
their voices heard, govern themselves internally,
have more control over patient care and monetize
services to improve their compensation.
But in the absence of size, controlling sites of service, and having robust data collection and data management, it can be difficult for small practices to grow and be consistently profitable. This is especially the case with alternative payment models and in light of increasing consolidation of health systems, payers, and primary care, and other referral sources.
Organic versus acquisitive growth
Specialty practices can grow in two ways:
organically and acquisitively. The former
can involve bringing on new practitioners/
shareholders or expanding ancillary services, both
of which require an initial investment of time and
money. This involves doctors coming off-line
from seeing patients because they need to put on
their business hats, crunch the numbers and do
the analytics, and then decide whether they want
to make that investment. This can make organic
growth impracticable or unattractive.
That’s why the market for acquisitive growth in the
specialty practice ecosystem — through mergers,
acquisitions and consolidations, in particular — is
so robust. Structural pressures, whether regulatory
or economic, are pushing toward consolidation in
a highly fragmented industry that has many fixed
costs. The amount of private equity investment
in specialty practices has increased significantly
over the last 12 years. In turn, deal count and deal
value have increased substantially since 2020,
breaking records for consolidations, with no signs
of slowing down.
BY THE NUMBERS: PHYSICIAN MEDICAL GROUPS ACQUIRED BY PRIVATE EQUITY GROUPS, 2013-20162
What makes specialty practices attractive investments?
Investors and other players who seek opportunities
in the specialty practice market consider several
factors when evaluating practices and determining
whether they’re an attractive investment platform.
These include size, the type of ancillaries the
practices have and how those ancillaries are doing,
and what aspects of their practices the physicians/
owners have consolidated.
Investors are attracted to providers who
have a history of success and understand the
demonstrated best practices of executing upon that
success. The regulatory and payer environment
where a practice operates also plays a role.
Beyond the dollars and cents, investors seek
practitioners who share their vision for growth
and a fully integrated national platform. When
they find a practice where vision and values are in
sync, investors will want to lean into the doctors’
strategic vision for their practice, bring their
strengths to bear in support of executing that
strategy, and add resources — whether capital,
analytics or staffing — to help drive growth. In the
end, it’s about how much investment is required to
create the infrastructure necessary for expansion.
It’s about more than dollars and cents
Investors and practitioners share a desire for
growth and increased revenue. But doctors
approach prospective deals with a distinct set of
concerns about consolidation and acquisition, as
essential as such transactions may be for viability
and growth. Evaluating opportunities involves
much more than considering financial terms.
Specifically, the challenge for doctors in private
practice is how to balance their desire for
autonomy with the ability to access capital or take
advantage of scale so they have a level playing
field. A practitioner who’s obtained independence
and control over his or her practice will be
understandably reluctant to work for a hospital
system or a big medical group. After being an
owner, the physician won’t want to become an
employee.
Practitioners may be able to address these concerns
by choosing partners they’re comfortable with and
those that align with their goals. In turn, investors
must be cognizant of the tension practitioners feel
between necessary growth and desired autonomy
and its role in their decision-making process.
Failing to acknowledge and address these concerns
during negotiations could quickly sour a practice
owner on the potential benefits of a proposed
transaction.
Similarly, the medical practice advisers who find
opportunities, connect potential partners and
facilitate deals for practice owners also need to
recognize and consider how emotional these
transactions can be for practitioners who live and
breathe the business they’ve built for themselves.
Advisers want all parties to see the opportunity as
a win-win. The adviser’s role is to provide sound,
objective data to help guide doctors through the
process and make them feel good about what
they’re doing.
Unique focus. Proven results.
Merritt Healthcare Advisors focuses exclusively on representing owners of surgical facilities and health care practices that are considering strategic options, whether selling an interest in
their organizations, creating new partnerships or growing through acquisitions.
As the industry’s leading mergers and acquisitions
firm, our proven process and extensive buyer network enable us to help our clients realize the absolute best financial and nonfinancial outcomes.
We’re unique in that we’re the only firm that combines an investment banking background
with actual “owners” experience that comes from developing and managing our own health care facilities. We’ve used this experience to
successfully complete more than $4 billion in transactions on behalf of our clients.
Contact Us
Matt Searles Partner
msearles@merrittadvisory.com
(914) 262-1217
msearles@merrittadvisory.com
(914) 262-1217
