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Is the US M&A Market for Physician Practices Viable?

By Van Hamilton Barbeau 24 Jul 2019

In recent years, the M&A market for physician practices in the US has seen renewed attention from the healthcare sector.

Given this increased attention, it is important to look at whether the M&A market for physician practices is viable. Viability in this case is understood to be the availability of exit opportunities. As will be demonstrated by analyzing the reasons PE firms, hospitals, and insurers are acquiring physician practices, there are ample exit opportunities, making the market viable in the short term.

Physician Practices M&A market

Private Equity Rationale

Compared to other areas of healthcare, the physician practice sector remains less consolidated by some margin. This presents an opportunity for PE firms to add value by consolidating assets and introducing technological and other operational efficiencies. With this strategy in mind, PE firms have been targeting dermatology, anesthesiology, gastroenterology, radiology, orthopedic, urology, and ophthalmology physician practices because these specialties generate income from elective procedures and ancillary services. To a lesser extent, PE firms have also focused on primary care and multispecialty practices in order to profit from risk contracts that manage care for Medicare Advantage patients. Focusing on these areas led to 45 PE acquisitions of physician practices in the first quarter of 2019. At this rate, PE acquisitions of physician practices are on pace to surpass the 2018 total of 181, a sign that there are ample exit opportunities with this buyer group.

Hospital Rationale

Hospital acquisitions of physician practices in the past 10 years have been focused on primary care, cardiology, and oncology physician practices. The acquisition rationale for hospitals can be separated into four major areas, namely improving quality, increasing revenue, increasing market share, and gaining power in negotiations.

In terms of improving quality, new payment models intended to reward value instead of fee-for-service reimbursement have made hospitals focus on building integrated delivery systems that provide the full range of services from professional, facility, laboratory, and pharmaceutical services to patients. Integrated care is correlated with improved quality and can be achieved through acquiring physician practices because hospitals have more resources to establish integrated health information, administrative, and financial systems.

In addition to improving quality, hospital acquisitions of physician practices generate revenue because of the increased services provided by the added physicians. Increased revenue also results from the fact that ambulatory services provided in hospital outpatient departments receive higher reimbursements than if the same services were rendered in community-based hospital settings.

Increasing local market share is another reason hospitals have acquired physician practices, as market share gives hospitals more bargaining power in price negotiations with insurance companies. By having a large share of the local physician market, hospitals can increase inpatient, outpatient, and physician reimbursements.

Insurer Rationale

As healthcare companies look to diversify, there has been a new wave of buyers interested in the M&A market for physician practices focused on radiology, anesthesiology, and emergency medicine. UnitedHealthcare’s Optum unit is the best example of insurers pursuing these types of acquisitions, as UnitedHealthcare’s strategy has been to join medical care and insurance by acquiring physician practices. While UnitedHealthcare has been the leader in physician practice acquisitions, its competitors have started to follow the same strategy, as demonstrated by Humana acquiring physician practices and rebranding them under the CONVIVA name as well as Anthem and Centene acquiring physician practices that treat Medicare patients.


The M&A market for physician practices is evidently very viable given the level of interest from PE firms, hospitals, and insurers. While this market currently has many exit opportunities from different buyer groups, if hospitals want to remain competitive in this market, they will have to address growing concern that hospitals struggle to integrate physician practices. Without addressing this integration issue, hospitals will find themselves watching PE firms and insurers take advantage of the projected growth in the physician practice market.


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Van Hamilton Barbeau

Vice President

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