MSOs can bring significant benefits without having to invest in all of these capabilities internally. However, there is an inherent loss of control over these outsourced functions, and full synergies are sometimes difficult to realize if the capabilities are not managed under the same organization. MSO arrangements can also complicate potential private equity/sale transactions in the future.
5. Private equity (PE) investment
Private equity groups bring significant capital and expertise to help physician groups achieve scale. The PE model is often an attractive option for growth—with some upfront liquidity provided to owners, along with shared alignment through a significant retained ownership stake in the business going forward.
Potential drawbacks include the external pressure to drive growth, a possible cultural mismatch, and a requirement to stay with the practice for many years to come. Still, for entrepreneurial physician-owners, this avenue may offer the ideal blend of high-stakes strategy and readily-available resources for implementing it.
6. Consolidation with a national physician platform
National physician models often bring the most immediate capabilities and synergies to the table. Typically these are large, well-funded platforms with deep industry expertise that have invested heavily in sector-specific management and administrative functions. Additionally, given how quickly the consolidation can be implemented, these models can often afford to pay the highest upfront purchase price. Practice leaders who choose this option will typically receive a significant portion of their proceeds in upfront cash, along with the ability to roll a meaningful portion of their equity into the parent organization. This can be a great opportunity for shareholders to receive cash at favorable tax rates and roll equity into the high-growth parent entity.
Joining forces with a national physician group remains an attractive option for many practice owners.
Conclusion
Physician groups are bracing for much uncertainty in 2022 as they prepare for rising costs, reimbursement uncertainty, and an uncertain labor market. Healthcare stakeholders across the industry are consolidating; regulatory requirements are getting more complex; and patients are demanding more immediate access. Physician groups will be faced with many difficult choices on how and where to invest their scarce resources in order to remain viable. What they cannot do, however, is nothing at all.
About the author: Andrew Colbert is a senior managing director and founding member of Ziegler's Healthcare Investment Banking practice. Andrew has represented over forty physician groups on innovative transactions. He specializes in advising physician groups on strategic and financing alternatives including merger and acquisitions, joint ventures, capital raising transactions, and partnership development.
Ziegler is a privately held investment bank, capital markets and proprietary investments firm. Specializing in the healthcare, senior living and education sectors, as well as general municipal and structured finance, enables Ziegler to generate a positive impact on the clients and communities it serves. Headquartered in Chicago with regional and branch offices throughout the United States, Ziegler provides its clients with capital raising, strategic advisory services, equity and fixed income sales & trading and research. To learn more, visit www.ziegler.com.
Disclaimer: The article is provided for informational purposes only with the understanding that the material contained herein does not constitute legal, accounting, tax, or other professional advice.
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