M&A activity in physician practices continues to have a significant presence in the healthcare landscape as practices compete against each other for market control. To make their mark on patients and grow, physician groups are forced to carve out a distinctive place in the industry.
According to data captured in the LevinPro HC database, there were 51 Physician Medical Groups (PMG) transactions announced during January 2023, a 35% decline from January 2022 when 79 PMG deals were reported. The dental specialty had the most transactions, representing approximately 24% of all January 2023 PMG acquisitions, an increase from January 2022 when dental represented more than 20% of the PMG deals. The second most active specialty in January 2023 was gastroenterology, accounting for roughly 10% of transactions. The vast majority (94%) of buyers were private companies such as other physician medical groups or private equity firms. The most active acquirers were Gen4 Dental Partners, a portfolio group of Thurston Group, and MB2 Dental Solutions, one of Charlesbank Capital Partners’ portfolio companies, with three transactions each.
As of April 2022, 74% of the more than 1.1 million actively working physicians were employed by a hospital or health system, according to Primary Care Collaborative. And that percentage is only rising due to consolidation. Consolidation is becoming increasingly prominent as more physicians retire early, the labor shortage continues to impact staff and the cost of medical care increases.
Referrals also play a significant role in consolidation as the prospect of a new patient strengthens a hospital’s ancillary services. When hospitals refer patients to a physician group that’s in their network, they still get money. And a physician is guaranteed a steady stream of patients seeking further care.
Richard Scheffler, a professor of Health Economics and Public Policy at UC Berkeley, noted that hospitals also benefit from higher reimbursements than as independent physician practices. The circular nature of referrals benefits both hospitals and physicians and it also increases competition between different hospitals and health systems.
As a result of consolidation intensifying competition, physician groups are working to establish large platforms to expand their network and promote themselves as a sought-after practice. We’ve looked at several large physician groups and the strategies that fuel their growth.
Ascension Medical Group (AMG) is a physician-led national provider organization that supports a network of physicians and clinicians.
AMG is a subsidiary of Ascension, which is one of the leading non-profit and Catholic health systems in the U.S. Across more than 3,000 sites of care, including 139 hospitals and 135 emergency care clinics in 16 states and Washington, D.C., Ascension’s network includes more than 7,100 providers and 150,000 associates.
In April 2022, AMG announced its acquisition of two practices, Orthopedic Associates of Central Texas and Surgical Specialists PA.
Orthopedic Associates of Central Texas was renamed Ascension Medical Group Seton Orthopedics. The practice has nine locations across Texas and is run by 17 providers. Terms were not disclosed. This deal was one of the five transactions in the orthopedic specialty reported in April 2022.
Surgical Specialists PA was purchased through Ascension Medical Group’s subsidiary, Ascension Medical Group Via Christi, a management services organization serving Kansas and Oklahoma. Surgical Specialists PA, which was renamed Ascension Medical Group Via Christi on North Ridge Road, is a two-physician surgical group in the Ridgewood Medical Building of Wichita, Kansas. This transaction represents one of the two surgical group deals reported in 2022. With the addition of Surgical Specialists, Ascension Medical Group Via Christi has 18 primary and specialty care practices in the Wichita MSA. This deal highlights AMG building its outpatient care capabilities.
In August 2021, Ascension sold seven Wisconsin hospitals to Aspirus Health, a non-profit health system based in Wausau, Wisconsin, with 11,000 employees. The hospitals included in the deal were Eagle River Hospital in Eagle River, Good Samaritan Hospital in Merrill, Howard Young Medical Center in Woodruff, Our Lady of Victory Hospital in Stanley, Sacred Heart Hospital in Tomahawk, St. Mary’s Hospital in Rhinelander and St. Michael’s Hospital in Stevens Point.
The deal brings Aspirus’ footprint to 13 hospitals in Wisconsin and four in Michigan. The nonprofit system added 2,700 employees to its workforce and increased its clinic count to 75 as a result of the deal.
These transactions highlight AMG’s strategy of building a larger physician platform and prioritizing outpatient care over inpatient care. While hospital care is becoming less preferred by patients and more expensive, outpatient care can provide the same quality of services at a typically lower price.
In addition to Ascension and AMG focusing on building a stronger outpatient portfolio, Kaiser Permanente, a managed care consortium based in Oakland, California, is as well. Through its subsidiaries, Kaiser is one of the country’s largest not-for-profit health plans, serving more than 12.6 million patients. Kaiser includes more than 23,900 physicians, 65,005 nurses, and 75,000 allied health professionals across 39 hospitals and 737 medical facilities.
Kaiser Permanente’s subsidiaries include The Permanente Medical Group, Inc., Southern California Permanente Medical Group and Mid-Atlantic Permanente Medical Group, P.C. (also known as Kaiser Permanente of the Mid-Atlantic States). Through these subsidiaries, which function as separate entities, Kaiser has gained a reputation as a prominent healthcare provider across the country.
The Permanente Medical Group, Inc. has 9,580 physicians, 21 hospitals and 269 medical clinics. It was founded in 1981 as a subsidiary of Kaiser Permanente and is based in Oakland, California. The Permanente Medical Group is Kaiser’s largest physician organization. Southern California Permanente Medical Group is based in Pasadena, California. The group has more than 8,121 physicians, 15 hospitals and 236 locations. Mid-Atlantic Permanente Medical Group supports more than 1,600 physicians in 38 locations. It has served more than 800,000 patients.
While Kaiser is not the most active in terms of M&A, their emphasis has been on enhancing the services they already provide to further establish itself as an elite healthcare organization. Additionally, Kaiser has placed a greater emphasis on creating equality in healthcare.
According to a Kaiser report released in September 2022, the four main areas that the organization was concentrating on were housing, access to care, mental & behavioral health and income & employment. By focusing on these areas, Kaiser aimed to create stability in communities that experience high levels of displacement and income inequality. To implement this, Kaiser increased their “Medicaid participation in a financially sustainable way through innovative operating models that support whole person care and coverage.”
In July 2021, Monica Morris, senior director for national workforce planning and development at Kaiser Permanente, noted that the need for virtual care and mental health professionals is rising. She said, “In addition to enhancing digital skills among existing mental health staff, we are aggressively recruiting more professionals in this specialty and ensuring digital literacy is part of their onboarding.”
Kaiser Permanente also started a new academic initiative, the Mental Health Scholars Academy, which trains Kaiser’s employees to become mental health professionals. By hiring and training more mental health professionals, Kaiser is increasing their ability to care for patients beyond physical needs.
In April 2022, Kaiser Permanente announced that it was entering into a five-year strategic collaboration with Evernorth, Cigna Corporation‘s health services business. Through the partnership, Kaiser’s members have access to Cigna’s PPO network for urgent and emergency care and more than 1 million physicians. The partnership is aimed at increasing convenience, affordability and expanding access to care for Kaiser Permanente members.
The collaboration builds on Kaiser Permanente’s 2015 acquisition of Group Health Cooperative, a health system offering care delivery and insurance coverage. By adding Group Health Cooperative to its portfolio, Kaiser was able to advance the growth of its integrated model for health care and coverage and add 590,000 members to Kaiser’s network.
These moves have assisted Kaiser’s patients to improve healthcare affordability, enhancing the quality and offering diverse services. This is a particularly smart move as the cost of medical care is exorbitant.
By making themselves known for affordable care or by their vast reach, organizations such as Kaiser and AMG can use their large physician networks as a selling point to patients. This has helped them obtain market share and increase their profitability against the competition. The competition fuels the need to provide better, which ultimately draws in more patients that can be further referred to in the network.