Deal Trends for Physician Practices: Takeaways from the iiBIG Investment and M&A Opportunities in Healthcare Conference

Last month, ECG’s Jared Langus and Mark Johnston attended the 14th Annual iiBIG Investment and M&A Opportunities in Healthcare Conference in Nashville. The conference focused on healthcare investments and partnerships and, as a sponsor, ECG facilitated a panel on recent deal trends for independent physician practices.

This blog post offers a reflection on the key takeaways from the panel, including the factors behind an extremely active deal environment in 2021, the current drivers of deal volume for multiphysician practices, characteristics of successful transactions, and a look ahead to 2023.

A Look Back at 2021

A big topic of discussion centered on how 2021 was a record year for mergers and acquisitions of physician medical groups and what the drivers were for the influx of deals seen in the market. According to a report from PwC, 2021 deals for physician groups increased 119% year over year and totaled $5.5 billion. Deal volume was driven by the desire of systems and investors to strengthen physician networks and the fact that coming out of COVID-19, many physician groups were faced with low patient volumes and financial difficulties, leading them to seek capital support and partnership opportunities with both health systems and private equity groups.

Impact of Dry Powder

Dealmaking in 2022 has remained strong despite the onset of several economic trends weighing on the market, including rising interest rates, high inflation, and a declining stock market. Helping to keep the market hot for physician groups is the fact there is a record amount of capital allocated to healthcare investments that has yet to be deployed.^[1] Commonly referred to as “dry powder,” these are funds raised during the pre-2022 period of low interest rates and a strong stock market and must now be put to work on behalf of investment funds. As inflation continues to impact medical practice supply and labor costs, there will be ample opportunities for medical practices to partner with PE firms and health systems as they seek to deploy these funds.

The Allure of Value-Based Care

Finally, a major theme from the recent slew of deals was how health systems and investors are targeting organizations that have demonstrated success in value-based care (VBC) arrangements and have large numbers of covered lives under their care. Traditionally a market targeted by payer organizations, private equity and venture capital firms are working to expand investments in the VBC space by partnering physician organizations with companies providing access to world-class data analytics capabilities. Due to the nature of the managed care model, physician practices must have access to technology that can track patient care and improve health outcomes at a lower cost. One prime example of this is the recently announced merger between Navvis, a company focused on population health and value-based care solutions, with St. Louis-based independent physician group Esse Health. The merger allows the companies to “transform care delivery and…improve clinical and financial outcomes.” ECG represented Esse Health in the transaction.

Future Market Considerations

The past several years have been tumultuous for independent providers as they have faced the prospects of a slow recovery coming out of the pandemic, sky-high inflation, and the drop in the stock market. But none of this changes the fact there are historic levels of capital waiting to be deployed in the healthcare space.

To this end, the sentiment coming out of the panel was that deal volume for physician practices is here to stay and, as long has VBC continues to be an emphasis for Medicare, those organizations with VBC experience and large numbers of covered lives will serve as attractive partners.

_{Edited by: Matt Maslin}

Published November 29, 2022