The race to acquire outpatient healthcare assets is accelerating. Health systems, private equity firms, payers and physician-led platforms are all competing for ASCs, physician practices and urgent care centers, driving one of the biggest structural shifts in healthcare. Here are 10 trends shaping the outpatient M&A landscape—and what they mean for independent ASC operators.
The Northeast, Florida and Arizona are the nation’s hotspots for private equity (PE) firms to acquire physician practices across six specialties.
A new study examined geographic trends of private equity acquisitions of physician offices specializing in dermatology, gastroenterology, ophthalmology, obstetrics/gynecology (OB/GYN), orthopedics, and urology. Among those, less than 10% of physicians worked in PE-acquired practices, as of 2019, based on figures from the IQVIA OneKey database, compiled with the American Medical Association Physician Masterfile and other data.
Health care industry analysts have been examining effects, good and bad, of PE investments in physician practices. The study did not attach financial values to PE transactions and did not examine consequences for patient care, but it did refer to potential price hikes if market competition dries up.
“Because some PE acquisitions consolidate physician practices into larger organizations, geographic concentration of PE penetration may be associated with reduced physician competition, which could lead to increased prices,” the study said. “If PE acquisitions induce practice consolidation among remaining independent practices with financial pressures, this spillover effect may further hinder competition, underscoring the importance of monitoring practice consolidation and the ownership and regulatory environment of acquisitions.”
The research letter, “Geographic Variation in Private Equity Penetration Across Select Office-Based Physician Specialties in the U.S.,” was published earlier this year in JAMA Health Forum.
The study found in 2019, there were 97,094 physicians in the six specialties and 4,738, or 4.9%, worked in PE-acquired practices, the study said. PE penetration was:
• 7.5% for dermatology, or 851 of 11,324 physicians
• 7.4% for gastroenterology, or 845 of 11,484 physicians
• 6.5% for urology, or 492 of 7,609 physicians
• 5.1% for ophthalmology, or 741 of 14,493 physicians
• 4.7% for OB/GYN, or 1,325 of 28,493 physicians
• 1.9% for orthopedics, or 460 of 23,891 physicians
Based on state and hospital referral region data, PE penetration was greatest in the Northeast at 6.8%, or 1,270 of 18,708 physicians, and lowest in the Midwest at 3.8%, or 638 of 16,613 physicians. PE penetration was highest in:
• Washington D.C., 18.2 %, or 188 of 1,031 physicians
• Arizona, 17.5%, or 326 of 1,866 physicians
• New Jersey, 13.6%, or 464 of 3,49 physicians
• Maryland, 13.1%, or 195 of 1,488 physicians
• Connecticut, 12.6%, or 212 of 1,688 physicians
• Florida, 10.8%, or 741 of 6,852 physicians
Source: Medical Economics
In what has been a transformative year for healthcare, more than 250 national leaders in the sector just came together in person at the GlobeSt. Healthcare Real Estate conference in Scottsdale, AZ.
And while many of the sessions drilled down into the opportunities to be had in this asset class, at least one discussed the tensions that can exist between the practice of medicine and the realities of paying for it.
According to Angie Weber, a first VP at CBRE, healthcare has two speeds… Slow and slowest. “Covid added a new one…slowest. You have the physicians who want what they want and you have the finance folks where a plan needs to be in place before anything gets done. Who will come out on top depends on the system and the state.”
Jon Boyajian, a principal at Echo Real Estate Capital, says there is also an arm wrestle in the hospital between the operations group and the finance group. “Their capital and expansion plans really got turned on its head during Covid,” he said. “The finance folks want to move all the family practice and provider groups into buildings they already own, and the operations people are saying, ‘no wait, those buildings are well located and are great amenities etc….why would you move these practices.’”
As for what the future holds for these spaces, Weber said that she believes the systems will start to utilize their space within the four walls of their hospital differently than they have been.
“What Covid showed is that they cannot afford to not do surgeries because of other patients being too ill, said Weber. “I think we will start to see that over the next five to 10 years, they will take things out of the mother ship and put it nearby. You will see different utilization for space within the walls of the hospital because they don’t have a choice. They do have to make money and oftentimes, elective surgeries is how they do that. The behavioral health side is also going to be more of a trend in a big way for sure.”
Switching gears, when discussing flexibility of healthcare space, Boyajian said that every doctor his company has spoken with would prefer larger exam rooms for people to spread out. They also said they would want larger or multiple break rooms for provider and staff and admins to spread out.
“The footprint will increase in the future because they want and need to spread out,” said Boyajian.
Weber added: “You have two things right now…you have the physicians and the ones who own them. There has been a real tug over the last years over what physicians want and the reality. I think Covid will increase the size of a lot of space, but I also think it will be a reevaluation of how they do things. All of these changes and even putting as many flags in as many places as possible takes resources and dollars and it isn’t just systems. There is a lot of VC money that has come into healthcare. They are going big and all over whether it is 3,000 square feet of space or 15,000 square feet of space and they are planting flags in spots like fertility groups, oncology groups and more. On the systems side, some have more financial wherewithal than others.”
Boyajian added that private equity companies don’t just make an investment and sit on it.
“They make an investment and want to see growth, said Boyajian. “The good part about it is private equity groups when they can partner with nimble development groups, they can roll out more quickly and then the landscape and network is there.”
Source: GlobeSt.
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