THE OUTLOOK FOR HEALTH CARE IN 2023:

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5 factors that will make or break a private equity-physician practice partnership

    Overview

    Understanding the influx of private equity (PE) funds into health care and their impact on the industry is top of mind for many executives. And while private equity invests across the health care ecosystem, one of the areas that has gotten the most attention is investment in medical groups. Which raises the question: Is this type of investment good or bad for the industry? And how about for individual practices?

    When it comes to the success of these investments, it’s more helpful to evaluate each deal individually. We’ve identified the five most important distinctions between PE deals with physician practices that will impact the partnership’s success.

    While the merits of this influx of capital can be debated, as we did here, when it comes to the success of these investments, it’s more helpful to evaluate each deal individually. There’s a tendency to paint physician practice funders with a broad brush—especially when it comes to private equity investment. But the reality is that just knowing a practice has a PE investment doesn’t tell you much about the deal specifics, changes to the practice, or what it means for a market. When it comes to a single PE deal with a physician practice, just like any physician practice partnership, the success of the deal hinges upon a range of factors unique to the arrangement itself.

     

    Five differentiators of success for PE investments in physician practices

    We’ve identified the five most important distinctions between PE deals with physician practices. The expectations of both partners around each of these areas will factor into the deal’s success.

    • 1. Betting on fee-for-service or value-based care
    • 2. Practice sophistication
    • 3. Alignment on quick growth
    • 4. The firm’s health care experience
    • 5. Local market dynamics
     

    Parting thoughts

    As we spoke with PE firms, physician practices, and other industry players, these five make-or-break considerations rose to the top as the most influential on the success of a PE investment in a physician practice. For those directly involved in these deals, like PE firms, law firms, and practices themselves, we suggest considering these five attributes as you determine the goodness of fit of a deal. For the rest of the industry, these can be used as indicators to understand the likelihood of success and the disruptive potential of these transactions within your market.

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