Healthcare Services M&A Overview

2021 was another record-setting year for Healthcare Services M&A activity, with physician practice management (PPM) transactions comprising a material percentage of all U.S. M&A volume. Over the past five years, Healthcare Services investments—the majority of which are PPM deals—accounted for over 10% of all U.S. private equity leveraged buyout volume (including add-on acquisitions). Platform and add-on PPM deals across specialties are announced almost daily. Healthcare investment veterans and new players continue to evaluate opportunities to help physicians alleviate the administrative burdens of an evolving regulatory environment, benefit from economies of scale, and enhance business practices.

The investor community is facing increasing pressure to put capital to work. At the same time, as private equity spends more time educating them-selves and investing in Provider Services, we are seeing such investors gain comfort and under-standing for the risks inherent in PPM models. Together, these forces are moving the investment community “up the acuity curve” as they seek novel opportunities to deploy capital.

Cardiology, along with Orthopedics and Oncology—encompassing BGL’s “Big Three” healthcare provider services specialties—are areas beginning to capture more attention as attractive investment opportunities. For many reasons, the Big Three, and Cardiology in particular, are not dissimilar investment areas to the retail-focused specialties like Ophthalmology, Dermatology, and others. These groups provide high-quality care to patients but lack the resources to grow or even sustain in an extremely complex regulatory and reimbursement environment.

A key difference in Cardiology is the necessary presence of the local health system. Many cardio-vascular procedures will always be hospital-based surgeries. Over the last 10 to 15 years, health systems have been working to lock in these high-dollar procedures, often employing the cardiologists and referring primary care physicians to ensure a com-prehensive system of cardiovascular care. By some estimates, the percentage of all U.S. cardiologists employed or closely affiliated with health systems exceeds 70%. Until recently, many cardiologists had no alternative to hospital employment, given those health systems had absorbed much of the PCP referral network in many markets. In the absence of technical and outpatient opportunities to earn a living, the physicians had little choice. That notion is evolving as more cardiovascular CPT codes are being approved in the ASC setting. This shift in the site of care is opening doors for cardiovascular physicians to re-establish private practices with profitable ancillary opportunities.

Health systems will also need to evolve if they wish to maintain an interest in the “shift to outpatient”— an area many systems have struggled with historically.

These dynamics present unique opportunities for investment as the changing landscape will require capital for outpatient infrastructure, staff and resources, and new technology.

Cardiology is ripe for consolidation, with a number of growth catalysts driving outside capital investment: 

• Demographic trends that support sustained demand for cardiovascular care
• Regulatory tailwinds driving ongoing shift in site of service to the ambulatory environment, reimbursement trends incentivizing such shifts
• Continued technological advancements that facilitate delivery of advanced procedures and monitoring in the outpatient and at home settings
• Office-based and outpatient procedural reimbursement equalizing at significantly lower rates than hospital-based care
• Market fragmentation lending to consolidation opportunities
• Significant demand for capital to support these various dynamics

First movers are establishing growth platforms in partnership with physicians; significant fragmentation presents the opportunity to pursue various growth strategies. We expect investors to engage in both buy-and-build strategies and land-and-expand methods, using a strong platform practice to add ancillaries, build surgical facilities, and expand around a hub. BGL conducted an exclusive roundtable with key thought leaders that are either invested in or operating within the sector who provided insights on a wide range of topics, from market dynamics to reimbursement and tax changes. You can read the full roundtable report by downloading our latest Healthcare & Life Sciences Insider.

Looking for a more in-depth analysis of the healthcare and life sciences markets?

If you are interested in discussing the current state of M&A within the Healthcare Provider Services sector, please contact us using the form provided below. Our healthcare and life science investment banking team has a deep understanding of the strategic, financial, and operational factors impacting physician practices and has a long track record of success in representing physician entrepreneurs in M&A advisory