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Deal or no deal: COVID-19’s impact on the pace of consolidation in healthcare

MGMA Stat - July 14, 2021

Partnerships, Mergers & Acquisitions

Strategic Planning

MGMA Staff Members


No one in healthcare escaped the dramatic impacts of the COVID-19 pandemic, and a July 13 MGMA Stat poll gives fresh insight into ownership changes and merger/acquisition (M&A) activity among physician practices during the past year.

About 15% of practices completed M&A activity in the past year, according to the poll, with only 5% considering M&A activity. The poll had 497 applicable responses.

Among 49 medical practices providing detail on their M&A activity in the past year, 69.4% of them were involved in mergers, joint ventures or acquiring new practices, compared to 22.4% that sold their practice to a hospital or health system. Another 8.2% noted some other form of M&A activity.

These findings reflect little change since a Nov. 17, 2020, MGMA Stat poll found only 12% of practice leaders said their practice’s ownership status changed in the past year, and of the remaining 88%, only 8% said they were considering a change in 2021.

For the 12% that did see an ownership change in 2020, less than a third said it was a sale to a hospital, health system or private equity firm, whereas the majority (51%) pointed to new partners joining, and another 7% merged with another practice.

As Aimee Greeter, MPH, FACHE, senior vice president, Coker Group, outlined during a session at the 2021 Medical Practice Excellence: Pathways Conference, there are several reasons for medical practices and other healthcare provider organizations to pursue M&A deals in the current market:
  • Achieving economies of scale
  • Spreading of risk/cutting costs/increasing synergies
  • Acquisitions of cash or building excess debt capacity
  • Flexibility and leverage
  • Growing leadership potential and/or succession planning
  • Gaining new competencies/talent/knowledge from another organization
  • Defensive strategy for competition and/or achievement of critical mass
  • Improving recruitment potential and attractiveness to potential employees/providers
  • Asset growth for potential investors.

Consolidation picks up steam after pandemic pause

The waves of consolidation via mergers (for horizontal and vertical integration) and acquisitions (including growing ownership of practices by payer entities and private equity) briefly ebbed at the beginning of the pandemic, only to return to previously seen levels toward the latter half of 2020 and beyond. By December 2020, a Deloitte report pointed to the top 10 health systems controlling almost a quarter of the entire market — with more rapid consolidation of health systems on the horizon.

This trend has significant implications for the ways in which America’s physician workforce performs its crucial work in directing care delivery while the healthcare ecosystem grapples with efforts to contain costs and promote better outcomes for patients.

By the numbers

  • The American Medical Association’s (AMA) Physician Practice Benchmark Survey — conducted in September and October 2020 — found that only 49.1% of patient care physicians work in physician-owned practices, down from 54% in the AMA’s 2018 survey. Similar AMA surveys have pointed to this trend going back to 2012, but the five-percentage-point drop from 2018 to 2020 points to an acceleration of this shift.
  • A separate study by the Physicians Advocacy Institute, conducted between Jan. 1, 2019, and Jan. 1, 2021, found about 48,400 physicians left independent practice for a larger employer (e.g., hospital or corporate-owned practice) during that time. Specifically, the report found that more than half of the 18,600 physicians who left independent practice for hospital employment did so during the pandemic.

The consolidation trend is also pronounced with hospitals. The American Hospital Association estimates that hospitals could lose between $53 billion and $122 billion in 2021 on top of losses from 2020; financially struggling hospitals may seek partnerships or become the targets of better-performing organizations seeking to grow their markets. A Q3 2020 report on healthcare M&A activity from Kaufman Hall noted that “the pandemic had little impact on the pace” or interest in M&A deals among health systems and not-for-profit hospitals.

In fact, consulting firm RSM pointed to a flurry of healthcare and life sciences deals at the outset of 2021 as potential for this year to be the “busiest year yet” for partnerships, joint ventures and other M&A activity.

Charting the future

Kaufman Hall’s latest quarterly data point to larger hospitals and health systems within a region pairing up, rather than larger organizations buying up smaller hospitals and groups. At the same time, President Joe Biden’s July 9 executive order encourages the Department of Justice and Federal Trade Commission to step up antitrust enforcement, specifically citing “unchecked mergers” of hospitals. As noted in the executive order, the Administration has concerns about provider consolidation leading to higher prices and the trend of rural hospitals closing.

But not all M&A activity is centered on larger organizations. There are several smaller and mid-sized physician practices that have innovated during the pandemic and are poised for growth.

A tale of two recoveries

With the pandemic’s effect on practice performance heavily influencing strategic decisions around ownership and M&A activity, an upcoming data report based on findings from the 2021 MGMA Cost and Revenue survey points to two very different financial realities for medical practices throughout 2020, largely based on practice ownership. (Editor’s note: The release of the data report will be announced in an MGMA Insights newsletter later this month.)

All practice types in the 2021 MGMA Cost and Revenue survey report had pronounced decreases in productivity levels in 2020 versus 2019, though hospital-owned practices fared much worse. While physician-owned practices saw total encounters per FTE physician decreases ranging from 10.72% to 18.07% from 2019 to 2020, the percentage decreases with the same practice types among hospital-owned entities for the same period were three times greater on average (Table 1).

One explanation for this significant variance might be the “eat-what-you-kill” compensation models underpinning many physician-owned practices: With financial viability on the line as businesses awaited word on federal relief programs, physician-owned groups quickly pivoted to telehealth and other innovative care delivery models to keep physicians, providers and staff working even as patients were told to stay at home in the early months of the pandemic.

In some cases, the significant decrease in the gross charges in physician-owned practices in 2020 (detailed in the full report) may not be a result of a decrease in professional services but rather a decrease in ancillary services. Converting several appointment types from in-person care to telehealth/virtual visits may have had a profound impact on practices’ ability to migrate patients to ancillaries throughout 2020.

As the latest MGMA Stat poll results reveal, not all M&A activity adds to the trend of hospital, payer or private equity ownership of medical practices; the space for independent groups to grow and partner with other independent physician practices appears viable despite a challenging pandemic year.

Additional resources

  • For further insights on ways in which the pandemic is likely to fuel consolidation in healthcare, read this Harvard Business Review article by Lovisa Gustafsson and David Blumenthal of The Commonwealth Fund.
  • MGMA Benchmarking Data — Understand the past and present to propel your practice into the future with industry-leading data analysis, reports and surveys.
  • MGMA Consulting — Get an organizational tune-up and overcome new challenges with the help of experts in medical practice management.
  • Ask an Advisor — Turn to this MGMA member-benefit service to get subject-matter expert guidance on a range of topics.
  • For an in-depth look at an independent group’s success in value-based care while actively in expansion mode, read the Business Strategy feature, “Go your own way,” in the January 2021 issue of MGMA Connection magazine.
  • Listen to the July Executive Session podcast featuring Randy Pirtle, FACMPE, about how to properly manage the transition from volume to value-based care.
  • Aimee Greeter, MPH, FACHE, senior vice president, Coker Group, discusses trends, challenges and opportunities in medical practice M&A on the MGMA Insights podcast.
  • Medical Practice Excellence: Leaders Conference — Connect with industry-leading experts and
    peers to learn and grow. In-person Oct. 24-27 in San Diego, or Digital Experience (DX) Nov. 16-18.
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