Medical Trend - Private Equity Firms Acquiring Physician-owned Practices

The trend of private equity firms buying physician owned practices increased through 2019 and is on track to continue into the future. The push toward value-based programs requires major changes for a private practice and often requires additional technology and both clinical and non-clinical personnel, which can be cost-prohibitive for a small practice. As small to mid-size private groups have struggled to keep up with these changes, private equity groups have stepped in, providing capital for the practice to keep up with the rapidly changing medical market. The private equity firm typically takes 60-80% ownership of the practice for a 3-7 year period. During this time, they expect to receive a 20% return on their investment, which they achieve by consolidating multiple small practices into a larger practice, increasing revenue by bringing supplemental services like pathology and radiology in-house and decreasing costs by replacing physicians with advanced providers when possible.

Here are some things to keep in mind if your practice has been approached by a private equity group about a potential acquisition:

  • How much of your income stems from ancillary revenue streams? Will it make financial sense over the long term for you to move from partnership-based income stream to a fixed salary or RVU-based income stream? Will any income reduction be off-set by the increased stability and security you will have when you are not impacted by fluctuating revenue?
  • Will you be happy as an employee instead of as a decision-maker? How much will the change in your position from owner to employee impact your happiness? Will the freedom to focus on patient care without the headaches of managing your practice outweigh any reduction in your autonomy?
  • How many years do you intend to practice? If you are close to retirement, selling your practice to a private equity firm may make sense, but if you are in the beginning or middle of your career, it may be less attractive.