A recent study shows acquisitions by investment groups is on the rise. In an uncertain time for physician practices, how can you tell whether you’re ready to look for a buyer?
This is a particularly uncertain time for medical practices. Over the last several years, many physicians have sold their practice as the pressure on fee-for-service medicine has flattened revenues and decreased profits.
Now, as the grand shift to value-based care proceeds, the practices are arguably even more vulnerable to shifts in their financial state. After all, value-based care calls for not only tight financial management, but also the implementation of new strategies and organizational models, as well as developing partnerships and referral networks that might not have been in place before.
So it’s little wonder practices are selling to outsiders at what may be a record rate. And it’s not just to hospital systems. A recent study, published in the Annals of Internal Medicine, concluded that the acquisition of practices by private equity firms increased dramatically over the past few years - 102 purchases in 2017 alone.
“The ultimate outcome is not known, but certainly this trend will increase the corporate transformation of healthcare, for better or for worse,” Lawrence P. Casalino, M.D., lead researcher of the study, tells Fierce Healthcare.
The researchers at Weill Cornell Medicine in New York found that private equity firms typically focus on acquiring large, well-managed practices that have a good reputation in their community, particularly specialties that have the potential to bring in additional income from elective procedures and ancillary services, such as dermatology, ophthalmology, urology, and gastroenterology.
The investment groups, which typically take an ownership interest of anywhere from 60 to 80 percent, may pay practice owners as much as $1 million to $2 million per physician.
The private equity firms increase the value of their investment by recruiting additional physicians and acquiring smaller practices. In addition, they grow revenues by bringing in high-margin ancillary services and decrease costs through strategies such as using more physician assistants.
After taking these steps, the investors expect average annual returns of 20 percent or more from these investments. The private equity firms usually sell the practices within three to seven years.
The question is, how can you tell whether the time has come for your practice to look for a buyer? Here are some things to look at:
- Consider to whom you might want to sell. While hospitals are the most likely candidates, they may not be the most lucrative option, as they typically pay only for your assets and don’t consider the intangible value of your reputation and brand.
- Look at your position in your marketplace. Do you hold the lead role in the delivery of your specialty? If so, determine whether staying independent might be a smarter choice.
- Are there other practices with which you might consider a merger? Depending on the arrangements, this could both increase your income and leave you with some independence.
There are many more issues to ponder if you’re thinking about selling your practice, but these are a good start. If you start out by considering whether you have the potential to improve your situation substantially—in a manner that still allows you to be productive and happy—other issues may take care of themselves.