CHICAGO – In this age of corporate megamergers, private practice gastroenterologists are increasingly weighing the pros and cons of selling their practices to private equity firms.
It’s becoming more difficult for solo or small group practices to go it alone. While there may be advantages in selling a medical practice to a private equity firm, physicians could be trading a degree of freedom for financial certainty and relief from administrative burdens, according to Klaus Mergener, MD, PhD, MBA, AGAF, a clinical gastroenterologist, affiliate professor of medicine at the University of Washington, Seattle, and chief medical officer of Pentax Medical’s Lifecare Division.
“Over the last decades, and ongoing, there have been massive downward pressures on reimbursements and costs are rising. Practices have tried to compensate, and they’ve added ancillary revenue streams, and they’ve tried to cut costs internally. It’s fair to say that depending on the local market, many practices find that one of the last viable options is essentially to spread overhead costs – meaning you have to get larger and you have to merge into larger entities,” he said on May 6 during a presentation at the annual Digestive Diseases Week® meeting.
The first independent gastroenterology practice was purchased by a private equity firm in 2016. Today, more than 1,000 gastroenterologists have been acquired by private equity firms, which amounts to a total value in excess of $1 billion.
The pace at which private equity firms are buying private medical practices is accelerating. On April 26, Kaiser Permanente – with 39 hospitals and 24,000 physicians – announced that it had acquired Geisinger Health System, a regional health care provider in Pennsylvania with 10 hospitals, forming a new entity called Risant Health.
Dr. Mergener likened the situation to the story of David and Goliath. David famously defeated the much larger and more powerful Goliath, but the metaphor is imperfect, because small private practices are running out of rocks to sling at the big guys.
In some small, rural markets with no significant competition, it may be possible for small practices to survive through mergers, “but in most U.S. markets, it’s fair to say that ... practices have found it hard to merge without external help. There are egos involved, there are many hurdles, and this is where private equity has essentially moved in as catalyst,” Dr. Mergener said.