On the verge of a new push for practice mergers

ByJohn B. Pinto

Expectations 20 years ago were that America would by now be dominated by gigantic practices. It was believed that these super-practices would be formed largely through the merger of small practices into behemoths with 20 or more providers in multi-subspecialty, multi-location groups — groups with all the “O’s” under one roof. The reality, of course, has fallen profoundly short of this. Most practices are still modest with three or fewer providers. I believe that a momentum toward the development of super-group practices will resume in the near term for a number of reasons.

The chatter is up. The calls I get from prospective clients are a good proxy for what’s happening “out there.” And call traffic to help vet merger and acquisition deals is way up.
Fear makes mergers happen. Fears of falling reimbursement have until just now been reduced, dampening a significant motivation to merge. There is a sense today that Washington is more likely to have the political cover in the present fiscal crisis needed to allow fees to get axed and to let the resulting chips fall where they may. Whether real or not, fear of falling fees is sufficient to drive merger and acquisition talks forward.
With national health care reform now in place and accountable care organizations now being formed (potentially shutting access to patients by non-involved providers), we will see the necessary economic pressures build to drive mergers. These pressures have renewed after a 20-year hiatus.
Hospitals are back in the merger and acquisition game. Big time. And they are no longer concentrating on primary care and admitting specialties.
Back in the 1990s (remember “Clinton Care” and the rise of physician practice management companies, or PPMCs, such as PRG?) there were numerous corporate attempts to build national provider networks as well as to drive local, in-market consolidation. Few of these enterprise models were financially viable or commercially stable. A whole new crop of private equity firms is now rising to buy up practices. Whether they’ve learned the lessons from the PPMC days or not, we’ll have to wait to see.

I believe that practice mergers will rise as an active trend over the next decade and longer. Learning from the experience of mergers that fail, there should be an increase in the percentage of practice marriages that deliver real economic benefits. Careful financial analysis of your own situation, combined with more subjective and strategic analysis, can help to discriminate rational deals from wishful thinking.