Among the countless ways in which healthcare was disrupted by the COVID-19 pandemic are the trends in ownership for medical practices.
After years of growth in terms of mergers and acquisitions (M&A), industry observers said that 2020 has seen a significant slowdown in deal activity.
- One report from Irving Levin Associates and SOLIC Capital found that healthcare M&A declined 20% from the first quarter of 2020 to Q2.1
- That same report noted that physician medical group M&A declined 50% in that same period.2
- Additionally, the total value of healthcare M&A for Q2 2020 was down compared to both Q1 2020 and the second quarter of 2019, according to S&P Global Market Intelligence.3
The Medical Group Management Association’s most recent MGMA Stat poll asked healthcare leaders, “Has your practice’s ownership status changed in the last year?” The majority (88%) said “no,” while 12% said “yes.”
- Among healthcare leaders who didn’t have an ownership change this year, 8% said they are considering a change next year, compared to 92% who said they are not.
- Among the practices for which ownership status changed:
- The majority (51%) cited new owner/partner(s).
- 27% said they sold to a hospital or system.
- 7% merged with another practice.
- 4% sold to a private equity firm.
- 11% responded “other,” which included answers such as bankruptcy or going independent after being in a hospital system.
The poll was conducted Nov. 17, 2020, with 956 applicable responses.
Looking ahead
While the productivity and revenue losses that many medical practices experienced have them focused on maintaining solvency through the coming winter months, there are some practices actively in expansion mode and looking strategically for new opportunities in acquiring new physicians or partnering with new groups.
Erich Koch, FACHE, FHFMA, CPA-ND, CMPE, director of finance, Tyler Family Circle of Care, Tyler, Texas, noted that his practice has been participating in more value-based and risk-based programs, and gaining market share and patient panel can help the group go back to payers to seek better rates in contract negotiations.
“If volumes go down, we can offset it with quality metrics,” Koch said.
But the surge in healthcare M&A also has drawn concerns about consolidation across the industry, especially after the American Medical Association’s Policy Research Perspectives report in May 2019 found that more practicing physicians are now employed (47.4%) rather than owning their own practice (45.9%).4
As Anders Gilberg, senior vice president, MGMA Government Affairs, detailed in a recent MGMA Executive Session podcast, the incoming Biden administration may put an additional focus on antitrust enforcement amid the trend toward consolidation in the healthcare industry.5
Thriving independently
As outlined at the 2020 Medical Practice Excellence Conference, William “Bill” Gonzaba, MD, MHA, chief executive officer and founder, Gonzaba Medical Group, agreed to an acquisition by a physician practice management (PPM) company in 1995 to help grow the practice with the addition of capital.
While the PPM did fuel growth, the rapid growth “exceeded the management infrastructure,” Gonzaba said, which led to fragmented care, misaligned incentives and a loss of the medical group’s purpose, identity and culture.
By 2000, the PPM industry had collapsed and Gonzaba had the opportunity to reacquire the original parts of the medical group. The advantages of going back independent, as Gonzaba noted, include:
- A patient-centric focus without competing interests from affiliated partners
- Flexibility to adapt and maneuver within the healthcare landscape
- Better able to control costs as compared to some larger entities
- Controlling your own destiny.
“Gonzaba Medical Group has lived in both models, being acquired and being independent,” Gonzaba said. “We can say that we've achieved a higher quality of patient care while being independent.”
Though some barriers exist for independent groups — such as inadequate capital for resources for expansion of facilities, IT infrastructure, equipment and personnel — there are still areas for independent organizations to evaluate options through strong leadership and a value-based mindset, which Gonzaba called “crucial” for adapting to the evolving industry.
Options for independent organizations to succeed in a value-based environment include:
- Debt financing (ideal for equipment and physical expansion)
- Joining an accountable care organization (ACO) or independent physician association (IPA)
- Equity financing (reinvesting capital into the practice).
“Today, we're seeing rapid consolidations, and as a result … there are options that you might be faced with that seem attractive and very well may work for you, like partnering with a hospital system, a private equity firm, or merging with another medical group,” Gonzaba said. “However, you must remain cautious, because these options are dependent on you giving up some control, and you will eventually lose your independence.”
MGMA Stat
Would you like to join our polling panel to voice your opinion on important practice management topics? MGMA Stat is a national poll that addresses practice management issues, the impact of new legislation and related topics. Participation is open to all healthcare leaders. Results of other polls and information on how to participate in MGMA Stat are available at: mgma.com/stat.
This poll was conducted in collaboration with Change Healthcare.
Notes:
- SOLIC Capital. Healthcare Services | Second Quarter 2020. August 2020. Available from: bit.ly/2KhdEjb.
- Ibid.
- “Mergers and acquisitions worth significantly less in Q2 compared to last year.” Healthcare Finance. July 22, 2020. Available from: bit.ly/2Ha6En3.
- Kane CK. “Updated Data on Physician Practice Arrangements: For the First Time, Fewer Physicians are Owners Than Employees.” AMA Policy Research Perspectives. 2019. Available from: bit.ly/2CBXZUk.
- MGMA. “Executive Session: 6 things to watch in 2021 on health policy, the ACA and COVID-19.” Nov. 13, 2020.
