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Medical practice acquisitions may see uptick after election

Consultants say hospital and health system appetite for medical practices remains strong, despite a recent downturn in large deals.

By Victoria Stagg Elliott — Posted Nov. 12, 2012

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The number of large merger and acquisition deals involving hospitals and physician groups plummeted in the third quarter of 2012, according to data released Oct. 25 by Irving Levin Associates. Analysts, however, say this represents a blip rather than a true slowdown.

“Hospitals and health systems now are hiring individuals with investment banking backgrounds to be instrumental in mergers and acquisitions,” said Sanjay Saxena, MD, a partner in the North American health practice at Booz & Company, which researches merger and acquisition trends. “This topic is very much on everyone’s minds. And if there is a physician group [a hospital or health system] has been eyeing, there’s little reason to wait.”

Eight physician groups merged or were acquired in the third quarter of 2012, down 62% from the 21 deals in the second quarter and a drop of 71% from the 28 in the third quarter of 2011, according to Irving Levin. Irving Levin tracks only publicly announced deals involving large organizations.Health industry watchers say uncertainty around the impact of the Supreme Court decision on June 28 upholding the Affordable Care Act and an impending presidential election may have given some institutions reason to pause. Health care mergers and acquisitions also are attracting greater regulatory scrutiny.

“Physician practices are getting larger,” said Alison Cuellar, PhD, associate professor of health administration and policy at George Mason University in Fairfax, Va. “Health systems are looking for market power, to keep beds full and for control of ancillary services, but sometimes it just takes a while to complete the large transactions.”

While there are no definitive numbers on acquisition trends involving small practices, health industry analysts said that because of their relative ease, those deals likely have continued unabated.

Irving Levin did find a few health sectors actively making deals. A greater number of labs, MRI and dialysis centers, and long-term-care facilities were the focus of merger and acquisition activity. Fifty-two deals involving long-term care occurred in the third quarter of 2012, an increase of 44% from the 36 deals in the second quarter of 2012 and a 21% growth from 43 in the third quarter of 2011. The category of labs, MRI and dialysis grew 110%, from 10 deals in the second quarter of 2012 to 21 in the third quarter of 2012. The jump was 250% compared with the third quarter of 2011, when only six deals occurred in the sector.

Consultants said that activity reflected companies trying to expand their positions so they can treat the 9 million — and growing — people eligible for both Medicare and Medicaid.

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