Kathleen M. Premo, Member of the Firm in the Health Care & Life Sciences practice, in the firm’s St. Petersburg office, was quoted in Part B News, in “Practice M&A Stays Hot, and the Gains Favor the Well-Connected,” by Roy Edroso. (Read the full version – subscription required.)
Following is an excerpt:
A new report says the market for physician practices and other medical entities, which showed surprising signs of life in the midst of COVID-19, is even hotter now; but if you want to get in on it, note that the sheer number of practices in the pipeline, not to mention an impending capital gains tax hike, may get in your way.
In May 2020, consultancy VMG Health in Dallas released a report that found the U.S. health care mergers and acquisitions (M&A) market was weathering the pandemic better than had been expected, with some buyers looking to take advantage of properties made available by the general downturn (PBN 11/16/20). In May 2021, VMG revisited the market and found the situation further improved, with announced transaction deal volume in the first quarter of 2021 “a staggering75% higher than transaction activity in Q1 2020,” according to the report. …
Risky business
The ability to take on and manage risk and accept value- rather than fee-based payment is also attractive to buyers.
“Late 2020 and early 2021 sees continued trends in Medicare Advantage consolidation,” says Kathleen M. Premo, member of Epstein Becker Green in the health care and life sciences practice, St. Petersburg, Fla., referring to acquisitions of entities that have direct risk agreements with MA payers.
… Premo thinks the pandemic has had an effect on buyers’ appetites: “The reduced utilization of health care services in 2020 resulted in more retained surplus for risk-accepting practices,” Premo says. “This clearly demonstrated the importance of value-based contracting in the market and validated deeper investment in what was perceived as, at times, a risky space.” …
Drawbacks …
Also, the market may be in for a jolt: President Joe Biden has been pushing for a capital gains tax rate hike from the current 20% maximum to 39.6%, and that kind of move typically shakes investors.
Premo says she “saw a rush toward the end of 2020 to try to sell prior to any election changes in capital gains. This reminded me of the stampede to sell from 2013 when providers tried to exit prior to capital gains increases.” At that time, the capital gains rate increased from 15% to 23.8%. “This may foretell of a slower 2021, but I have not seen this downturn yet,” Premo adds.
