In the past two years, physician and specialist groups’ consolidation activity has picked up steam, mostly due to downward financial pressure from a changing industry.
Hospitals continue to merge with each other and acquire primary care groups, but multispecialty groups and larger physician groups are increasingly of interest for physicians to join.
The consolidation trends are focused on different types of groups, but the hot specialties right now are orthopedic, radiology, gastroenterology, neurology, dermatology and ophthalmology and eye care, according to Gary Herschman, a health care attorney with Epstein Becker & Green in Newark.
“Eye care and dermatology have been hot for several years now, but we are still doing deals,” he said. “These other ones are newer spaces within the physician services sector that are being looked at.”
In addition, activity among women’s health groups and OB/GYNs is picking up.
“These groups are really facing four to five opportunities,” he said. “They still have some hospitals as buyers, other large physician groups, national physician services companies and private equity.”
It’s still a developing market, since the consolidation activity for some of the specialty groups is relatively new.
And it’s starting to attract the attention of a new group: private equity.
The multispecialty group and hospital acquisitions are more commonplace, but, recently, national players and private equity have been taking a keen interest in New Jersey’s health care sector.
The funding interest is key for physicians to maintain their autonomy and be able to make the costly and imperative transitions into electronic medical records, prepare for value-based reimbursement and acclimate to changing metrics of what is considered good quality and access to care.
In addition, it’s important to have some way of reading and analyzing data collected from the records and on the operational side of the practice in order to identify efficiencies.
Private equity firms typically offer the back-end support, and allow physicians to continue practicing, Herschman said.
Private equity control lasts anywhere between three to seven years and ends with the firms either selling to larger private equity firms, if they are smaller, or to national companies, he said.
And, despite the physician practices not being as profitable as they once may have been, they are still profitable enough for private equity firms to become interested, make a buck or two, and then sell them off.
But, that doesn’t negatively impact physicians, Herschman said.
“So, what’s interesting is when the (private equity) company exits … the doctors usually sell a piece of equity,” Herschman said. “It’s a way to monetize the practice.”
Firms are seeing between two to four times the amount they invested.
So, if a doctor retains a 30 percent stake, during the change of hands, he will also benefit financially.
And groups with better management structures are key targets for these private equity firms, Herschman said.
That’s because the goal of the equity investor is to be able to eventually let go of the company. If a company is too small and unable to stand alone, equity firms may not be interested, unless they add the small practice to a larger group and sell that group.
Uncertainty about the future of health care is the key driver of some of these deals, Herschman said.
“There is uncertainty about what reimbursement will be five years from now,” he said. “Physicians are looking at these options as ways to go where some investment or bigger groups with the ability to position for the future are going. When (private equity) invests in your practice, they think what you are doing is good. They want to add a data analytics platform or care management. No one is going to pay millions or tens of millions if they don’t like (your operation),” he said.
“That’s what’s going on out there.”
Reach Gary Herschman, an attorney with Epstein Becker & Green, at: firstname.lastname@example.org or 973-639-5237.