Can Hospitals Compete with Private Equity in Attracting Physician Group Deals?

The recent rise in transactions involving hospitals and physicians is one of the most impactful trends in how both types of organizations are structured and how they function as enterprises. These transactions continue at a steady volume and entail a wide range of structures, provisions, and valuations. Considering the value that such transactions can generate for the parties involved, it is no surprise that in recent years, we have seen new players enter this market. Perhaps the most significant new player to this “game of healthcare deal-making” is private equity (PE) firms. Enough indicators have emerged within the last few years to conclude that the impact of PE firms targeting physician practice transactions should not be underestimated or ignored. You can merely look at the significant increase in consortiums backed by financial sponsors over the last ten years. Moreover, we can observe the value that has emerged for many of these entities, either through growth in earnings or subsequent exit transactions, and it is easy to understand how attractive these deals could be for any firm trying to generate value for investors.

Perhaps one of the most interesting aspects of this trend is the impact these deals are having on the healthcare market. A PE firm entering a market by acquiring a physician group (or potentially consolidating multiple different groups to create and/or expand broader platforms) can significantly impact a local market’s healthcare services dynamic. The deal, depending on its size, can have significant effects on the local hospital facilities through a shake-up in various matters such as service mix, ancillary referral trends, managed care contracting, and other variables that play key roles in shaping a local healthcare market.

How a deal ultimately gets done and what it means for the different players within a given market is all over the board, which we will address in an upcoming white paper and podcast. For now, the primary point to stress is that not only are these deals happening, but more importantly, these options should be on the list of possible alternatives for what could take place in your respective market.

  • If you are a medical group and are considering potential affiliation or full-scale sale scenarios, then private equity may be something you should explore.
  • If you are a hospital, then the prospect of having to compete with PE buyers entering your market—or expanding existing assets within your market—is something to take seriously.

For more information on PE Firm deals, refer to our recent Coker Connection article The Next Stage of Evolution in Physician Practice Transactions: Can hospitals compete with private equity in attracting physician group deals? and keep an eye out for the related white paper, coming soon. Contact us today to learn more about how Coker Group can assist your organization

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