Private Equity Firms are Now Buying Medical Practices
Private Equity firms are eyeing primary-care practices proven to be ahead of the curve in value-based care.
One of the recent trends in business sales is the growing number of investments that private-equity firms are making in primary-care physician practices. Specifically these investors are targeting medical practices that are at the forefront of offering new care delivery and payment models.
These investors are finding an opportunity in being early participants in value-based care, while the business case continues to evolve. Then again, experts contend that the niche is tailored for private-equity firms, which thrive on a degree of uncertainty. Investors continue to put stock in the concept of shared-savings payment models and want to get in on the ground floor.
Long-term, these private-equity firms see the opportunity to turn around and sell these managed-care-savvy medical groups to insurers or health systems. They will pay a premium for the care-coordination expertise and data analytics of these practices. Experts believe that primary-care groups with the ability to show better quality and lower costs in managing medically complex patients will be valuable in a healthcare system that will increasingly reward cost-effective care.
A Break with Tradition
Private-equity firms traditionally look to invest in medical groups that have the ability to offer high-reimbursement potential, for example, dermatology, pain management, and dentistry. While this is still the norm, private-equity investors are looking at primary-care groups, and the managed-care space in particular, due to the relative expense of specialty practices.
Experts say that provider groups that ask for high prices are often times getting them from companies making a strategic play. However, private-equity firms are looking at other opportunities.
Modern Healthcare monitored 294 deals in 2015 and saw an increase of 25% over the same period in 2014. Remarkably, deal value skyrocketed to $97.9 billion—over twice as high as the comparable period’s $48.9 billion. Private-equity firms upped their activity in the first quarter of last year with 41 healthcare deals, compared to 28 total deals in the prior-year period.
Hospital systems have been buying physician groups at a steady rate to bolster their provider networks and prepare for the time when they will be paid based on their effectiveness in keeping their enrolled populations healthy. Solid primary care will be critical to this eventuality, and a practice’s experience in managed-care contracting with public and private insurers provides significant value.
Experts agree that providing care for Medicaid patients often requires a varied outlook than might be implemented with commercially insured patients, and the best providers are those who have the wherewithal to manage complex medical needs.
Insurance Companies Also Buying Medical Practices
Insurers also have been acquiring medical groups that specialize in chronic disease management. For example, in late 2013, Cigna purchased Chicago-based Alegis Care, which coordinates care for homebound Medicare and Medicaid beneficiaries. About the same time, Centene purchased a $200 million majority stake in U.S. Medical Management, which also provides home health services for high-risk patients.
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