2022 M&A Outlook for Physician Practices

 In Blog

As healthcare leaders look ahead to 2022, many are speculating about the outlook for mergers and acquisitions in the year to come.

By definition, the healthcare M&A segment is very broad.  And with both clinical and non-clinical categories to consider, trend lines in transaction volumes and valuations can be easily skewed. That said, relative to the independent physician practice segment, MMG’s expectations for 2022 include a strong belief that transaction volumes will trend higher, valuations will continue to rise, and market appetite will favor specialty providers and those who have proven their ability to vertically integrate.

Our outlook is guided by the extensive experience of our Transaction Advisory and Support Practice and influenced by many factors, including the following:

  1. Available Liquidity

Simply stated, there are many interested buyers, and these suitors have capital to invest. Private equity interests continue to sit on unutilized liquidity. Large independents and health systems have bankrolled subsidy support that they’ve received over the past eighteen months and have liquidity reserves.  A market flush with liquidity positively influences both volume and valuations.

  1. Demographics & Labor Shortages

The clinical provider base is aging, and sale of a practice is often the most effective solution for failed succession planning. Additionally, the current labor market has added a degree of difficulty to maintaining nursing and clinical support staff, as well as administrative personnel. This dynamic drives challenged provider employers to buyers with capacity to resolve the issue.

  1. Need for Scale

Ability to scale fixed cost overhead continues to motivate add-on transactions. Prior period volume carries forward with an element of inertia as the “bigs” expand within existing geographies and share a portion of their economic benefit with sellers. Practices generating revenue with peripheral service lines and proven vertical integration and alignment may create attractive opportunity for operating leverage.

  1. Value Based Delivery

A longstanding buzz phrase, the need to deliver “value-based care” is becoming ever more evident. To effectively manage margin on patient population, clinical practices need adequate patient counts, meaningful procedure volumes, actionable data, and the ability to execute with consistency. This requires size and scale.

  1. General Complexity in Execution

The business of healthcare continues to become more sophisticated and complex. It is more difficult to manage and harder to execute. Changing patient behaviors, ongoing compliance requirements, heightened regulatory demands, maintenance of payor relationships, evolving technology, and many other factors complicate the mission, frustrate independent providers, and prompt consideration of strategic alternatives.

In light of current market conditions, practice leaders need to be well informed of the options available to them. Whether it’s in the immediate cards or not, the best time to begin planning for a potential transaction is today, and identifying key priorities and objectives can lead to optimal outcomes.

While it can be difficult to accomplish in a frothy market, buyers who maintain focus on selectivity, diligence, and disciplined execution will be well served. Integrations will go more smoothly, relationships will be more productive, and long-term financial outcomes will be better for both buyers and targets.

At MMG, we help our clients ask the right questions and ensure that they are answered objectively and rationally. Without bias, we help practice owners refine their personal and professional priorities, align partner interests, evaluate possible options, and execute to successful outcomes.  If you have interest in further discussion on this topic, please reach out to Jerry Kelsheimer at jkelsheimer@medicmgmt.com.

Jerry L. Kelsheimer is President of Medic Management Group and MMG Healthcare Solutions.  His background includes extensive work in areas including leadership development, strategic planning, process improvement, and capital markets / financial management.  MMG is a national provider of advisory and consulting competencies, transaction support services, and back office administrative support to independent and system owned physician practice groups.     

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