Healthcare M&A update: Q3-2017

Sector spotlight: Physician practice consolidation

Overall healthcare merger and acquisition (M&A) activity continues to benefit from favorable growth dynamics such as the aging baby boomer population, increased millennial spending on health and fitness and readily available capital. M&A activity and consolidation of physician group practices has been particularly noteworthy. 

The high level of market fragmentation and presence of numerous private equity-backed platforms has created opportunities for regional and national roll-up strategies within specialty practice sectors such as dental, ophthalmology, dermatology, urology and radiology. Drivers for physician practice consolidation include evolving reimbursement models and the need to realize economies of scale. 

  • Value-based care initiatives have pushed prices down while staffing and rent costs have increased. Consolidation enables cost containment and synergies as fixed costs are spread across a broader base of clients providing a better value proposition for patients, providers and payors. Additionally, centralized administration removes non-clinical burdens such as reimbursement negotiations and bill collection from independent practitioners, allowing physicians to focus more on patients. 
  • Consolidation allows for large-scale investments, such as an updated electronic health information infrastructure necessitated by federal demands to measure quality and outcomes.
  • Larger group practices will be at an advantage over smaller groups and provide for increased leverage with payors and bargaining power with vendors – critical to remaining competitive in the current reimbursement environment.
  • Significant interest from private equity investors has led to attractive valuation multiples for physician practices, providing an exit strategy for later-career doctors and partial liquidity for younger physician partners interested in participating in the future growth of the practice.

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