Private Equity Acquisitions: What Physicians Need to Know

Here’s what today’s physicians should know about the current trend and what to consider if their own practice is ever approached for acquisition.

Tracking the Trend of Private Equity Acquisitions

According to Forbes, private equity’s interest in the healthcare sector began in 2013. By 2016, firms acquired more than 350 physician practices and, over the next four years, nearly 600 more. According to a recent report from Physicians Advocacy Institute, nearly seven out of 10 doctors are currently employed by a hospital or larger corporate entity.

Household name brands like Amazon and CVS have made recent headlines by aggressively pursuing this market. Last year, Amazon bought One Medical for roughly $4 billion. More recently, CVS Health (which also owns insurer Aetna) acquired Oak Street Health for $11 billion. Oak Street Health has locations in more than 20 different states.

Walgreens, Walmart, and Cigna are just a few of the other marquee companies who have made headlines by investing in or outright acquiring practices and doctor groups. If your practice has been approached about acquisition, make sure you know your financial options. Need help? Call our team of advisors today.

Why Medical Practices?

According to Reed Abelson’s recent article in the New York Times, corporations have two major business interests in the healthcare industry. One major prospect is to assert more control over where patients and their insurers spend money. 

Primary physicians see the most number of patients in any given market and, once these physicians become employees of a corporation, they can easily divert patients to preferred providers for prescriptions, lab work, hospital visits, etc. 

In many cases, the corporations who own these doctor groups also run the other facilities providing secondary care. For instance, One Medical might instruct patients to receive prescriptions from ​​Amazon's online pharmacy.

Secondly, there’s Medicare Advantage — a Medicare-approved plan (commonly called “Part C” or an “MA Plan”) that is offered by private insurers. The federal government pays $400 billion in reimbursements annually to insurers who provide these plans. 

Because the government subsidizes these plans, they tend to be highly profitable for insurers and healthcare providers. In 2022, about half of One Medical’s revenue came from Medicare Advantage patients. These patients only represented five percent of One Medical’s customers.

The private companies behind all this consolidation argue that, ultimately, acquiring practices and doctor groups is beneficial for all parties. “The salaries of the folks [doctors] in those arrangements are higher," the CEO of the Primary Care Collaborative, Ann Greiner, told the New York Times. "They are providing more comprehensive care in many of those arrangements. They are providing more tech and more team-based care. That's all investment."

Industry Concerns About Private Equity Acquisitions

While legislators intended Medicare Advantage to help provide easier access to Medicare benefits, industry experts have criticized the program for allowing insurers (and/or their parent companies) to profit from overstating how sick patients were. The Biden Administration is proposing new rules that would limit some of the most common and problematic claims under Medicare Advantage plans.

Some doctors have also voiced concerns that corporate consolidation has turned them into mere employees and negatively impacted patient relationships. Dr. Dan Moore of Virginia told the New York Times that corporate stewardship often means a loss of autonomy for doctors, adding: “You don't become a physician to spend an average of seven minutes with a patient.”

Other physicians are worried that, despite corporate touting of patient-focused, “value-based care,” there is a debilitating focus on profits. Dr. Beth Kozak of Grand Rapids, Michigan, told the New York Times that after Agilon Health partnered with her doctor group, she has had to work longer hours to make more diagnoses that result in Medicare reimbursements. 

"It's not because I'm giving better patient care," she told the Times. "It's all tied to the billing."

What Physicians Can Expect

Forbes recently summarized what a typical private equity acquisition for a physician’s practice looks like. Here’s what a doctor can expect:

• An offer to acquire anywhere from 30 to 100 percent of the practice

• A purchase price roughly equal to 15 times a doctor’s annual salary

• A purchase price reduced for the percentage of of the practice the doctor would still own

Earlier this year, Medical Economics also reported that — after a record-breaking spike in 2021 — investor appetite in the healthcare sector remains significant. Last year, it was common to see practice valuations at 11–14 times EBITDA (earnings before interest, taxes, depreciation and amortization). Currently, 5–8 times EBITDA is more common. 

Other Important Factors to Consider About Private Equity Acquisitions

Physicians who are looking to sell their practice and stay on as a part-owner or employee should consider a number of different factors when negotiating with a private equity firm. Just a few of these are:

• How does the firm expect to achieve higher profitability?

• Will that strategy affect physician workload?

• How does the physician’s career fit into a larger org chart post-merger?

• Does the firm align with the practice on workplace culture?

It’s also critical that physicians be aware of state laws that could affect the acquisition of their practice. A growing number of state governments have become wary of private equity acquisitions in the healthcare space and have put new regulations in place — or plan to in the near future.

Speak with an Advisor About Private Equity Acquisitions

Selling a practice isn’t right for everyone but, in many cases, can be beneficial for all parties, including patients. If you’re currently fielding an offer on your practice from a private equity firm, Earned can help.

Our experienced financial advisors specialize in physician wealth management and can provide tailored financial guidance during the course of an acquisition. Earned can help ensure a secure financial future for this next stage of your career and beyond.

To learn more, contact our team today. 

This post was all about private equity acquisitions.