Healthcare has been a focus of private-equity investment for years, driving consolidation throughout the industry.
However, PE activity in healthcare has shown some signs of slowing in recent years. According to a recent market analysis report from Pitchbook, healthcare specialist funds have not seen the peak returns they experienced from 2012 to 2014, and exit activity in the industry has slowed. PE firms also recorded notably fewer acquisitions in 2023 compared to recent years, with 788 recorded transactions, compared to 940 in 2022 and 1,114 in 2021.
Physician groups were also a major target of PE investment in 2021 when buying boomed at 317 recorded acquisitions.
But some predict that the relative slowdown of PE activity in the healthcare space could signify a shift in power away from private equity and toward large physician group practices.
"I believe the swing for the equity money over the last seven or eight years will start to swing back due to group consolidation," Mitch Schwarzbach, a Denver-based healthcare consultant, told Becker's. "The larger groups have the resources to do everything that the equity folks can, but they are able to not have to share the cash with outsiders."
Private equity deals appeal to physician groups for a number of reasons, according to Mr. Schwarzbach. Practices led by older physicians often find financial comfort in the exit planning provided by PE and many physicians are relieved at the thought of being able to come to work and focus solely on patients while PE firms fund and manage the day-to-day operations.
The problem with these deals, as Mr. Schwarzbach points out, is that members of physician groups and those who carry on at the practice are left to deal with the lack of physician autonomy post-acquisition.
"[About] four or five months later, they realize that they are not what they were, and cannot be perceived how they were," Mr. Schwarzbach said. "They are just a number. And they realize that if they quit, they will just hire another urologist to come in, and that's deflating to no level, because they're the ones who built that practice. They're the ones who feel, you know, that self gratification. They're the ones who threw their heart and soul into doing this kind of stuff."
As more physicians open up about the realities and trade offs of PE deals, he predicts that more physician group leaders will look to build and maintain financial structures that are designed with physician autonomy in mind. He also predicts that other consolidators in the physician group and ASC space — such as Optum's SCA Health and Tenet's United Surgical Partners International — may meet physician realizations about PE investment with more carefully structured acquisition deals.
"I think they're going to turn around and they're going to have some kind of a package out there to be able to bring to these physician groups that's going to be up and up, versus an equity-and-sell," he said.
Tenet has already begun refocusing its strategies by selling off hospitals and investing more heavily in its ASC line through USPI. In addition, SCA Health acquired at least two cardiovascular groups and received approval to bypass a state review of its planned purchase of physician-owned Cornvallis, Ore., clinic.
Per Mr. Schwarzbach's predictions, consolidators could see major physician acquisition success if they can figure out a way to make deals that offer all of the perks of acquisition, such as an exit strategy and retirement benefits, without plans to sell practices to other PE groups and leaving physicians effectively independent.