Stop me if you've heard this one: Consolidation was a trend that dominated healthcare over the past year.
Consolidation is hardly a new phenomenon, but the pace at which it's happening, the types of buyers and their targets all morphed in interesting ways in 2018.
Hospital consolidation, which continued at high levels, has almost lost its ability to surprise, especially given the sheer size of deals like the merger between Catholic Health Initiatives and Dignity Health, a deal expected before year-end that would create the nation's largest not-for-profit hospital company by revenue.
But the degree to which profitable physician practices are being gobbled up by a number of different buyers has been quite the spectacle.
This year, buyers hungry for acquisitions paid particular attention to specialty practices in such areas as orthopedics, cardiology, dermatology, gastroenterology and dentistry. Primary care is in strong demand, too.
As far as who is buying practices, it's a three-way race between the old hats—health systems—plus private equity firms and, a relatively new entrant: payers. UnitedHealth Group's OptumCare has been particularly aggressive about buying physician practices as part of its strategy to get as close to consumers as possible. But Centene Corp., Humana and Anthem are adopting a similar strategy as they work to control spending.
Private equity investors and payers may have the upper hand. Health systems are known to struggle when it comes to integrating practices into their operations, and often aren't willing to make the capital investments physicians demand, said Matt Caine, a managing director with Solic Capital. Groups like Optum, by contrast, are more inclined to support physicians' instincts. “I think their strategy is one that's quite remarkable relative to what's going on in the industry today,” Caine said.
Physician practice acquisitions take on a number of forms. Carole Streicher, a partner with KPMG who leads its healthcare and life sciences deal advisory practice, said that sometimes different practice areas with one or two physicians are rolled up into groups with 50 or 100 different physicians.
The difference that Streicher has observed in recent acquisitions is a real focus on value creation. “What we're seeing is finance folks dive into 'How can we now create one plus one equals three?' ” she said. “It's really the optimization of that business and how that can create better cash flow for the business overall.”