Gary W. Herschman, Member of the Firm in the Health Care & Life Sciences practice, in the firm’s Newark office, co-authored an article in Medical Economics titled “Why So Many Physicians Are Partnering with Private Equity.” The piece was also co-authored by Dana Jacoby, President and CEO at Vector Medical Group.

Following is an excerpt:

Over the past eight years, strategic transactions by physician groups have increased an average of over 20% per year. The following chart reflects data on publicly reported transactions, and is a good indicator of trends, even though many other physician consolidation deals go un-reported.

The last two years have witnessed even more dramatic average growth. Physician specialties that have received significant investor attention include:

(a) Some “mainstays”, such as primary care, pediatrics, eyecare, retina, dermatology, urology, OBGYN, fertility, gastroenterology and pain, and

(b) Some “newer” targeted areas, such as orthopedics, neurosurgery, cardiology, plastic surgery, med spa, and neurology.

Why are so many physicians partnering with private equity platforms?

To understand the reason for the trend, it is important to explore the increasing challenges on physician groups in private practice:

Reimbursements from both Medicare and commercial payors have been decreasing over the past several years. This results in physicians having to do more service for less money and ultimately decreased personal income.

Physicians are encouraged to institute value-based reimbursement programs, bundled payment initiatives, risk-based reimbursement, population health, and direct-to-employer programs. These are new, somewhat undefined initiatives that are based in preventive care and management of the overall care for patients requiring treatment. Successful implementation also requires a substantial investment in advanced EHR systems, cutting-edge data analytic capabilities, and experienced care management staff.

Private medical practice is facing tremendous competition from previously unknown rivals such as mega specialty and multispecialty practices in multiple cities, hospital systems that directly employ physicians in primary care and specialties, and a host of many new and growing national players. …

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