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Editor’s note: Bret Schiller is head of healthcare corporate client banking for J.P. Morgan, with more than 20 years of healthcare-finance and investment-banking experience.

Physician groups across the U.S. continue to consolidate at an accelerating pace, with integrated delivery networks and health systems absorbing small independent practices, or private equity firms, public corporations and larger practice groups buying them.

Between January 2019 and January 2022, 4,800 physician practices were acquired by hospitals and 31,300 were acquired by corporate entities, according to a report from the Physicians Advocacy Institute/Avalere Health. And a study by the American Medical Association found that 2020 was the first year in which fewer than half of physicians (49%) worked in private practice or a physician-owned practice. It marked an 11-percentage-point decline from eight years prior. Still, the field remains fragmented with a majority of physicians (54%) working for practices with 10 or fewer doctors.

Physician groups face pressure to streamline their operations and protect margins — tasks that are more easily done at scale. Even the smallest practice groups face growing demand for sophisticated EHR upgrades and enhanced IT solutions that strain resources.

These demands could drive even more doctors toward consolidation opportunities as they look for back-office support. Given the fragmented landscape, private equity firms are investing in every type of physician group. Here are a few of the key trends to consider.

The healthcare workforce is aging

The healthcare industry is grappling with a shrinking labor market and a looming wave of retirements.

More than 40% of active doctors will reach retirement age in the next decade, according to a study by the Association of American Medical Colleges. Unless medical schools graduate more students soon, the U.S. will face a shortage of between 37,800 and 124,000 physicians by 2034, the AAMC found.

This labor landscape makes private equity and other consolidation moves attractive as exit strategies for owners looking to sell their practices. Private equity can offer the technology solutions that can make physicians more productive while reducing their operating costs.

The newer generation of doctors prizes efficiency, flexibility

Consolidated practice groups could present the right incentives to recruit and retain younger associates who are more likely to place a high value on technology, efficiency, connectivity and flexibility. A lot of graduates would rather join an up-and-running company than get saddled with administrative responsibilities on top of their clinical duties.

Aggregator models offer an added retail aspect

Dentists’ offices and veterinary clinics have seen a similar influx of consolidation and their evolution could foretell what’s ahead in healthcare more broadly. Private equity investors have long integrated smaller dental and veterinary practices into aggregator models that scale up into larger networks, but many go a step further by adding a retail aspect and national branding. Other medical specialties are consolidating into similar, multistate practices (e.g., allergy, orthopedics and others) and rolling out national branding and retail channels as well. This trend is expected to continue unabated.

Different structures require different decision processes

The shift toward consolidation has its critics, chiefly among physicians who see larger corporate models interfering with doctors’ judgment and patients’ best interests. Others see the model as a valuable trade-off to gain better technology, easier operations and a more seamless experience for patients.

In any future scenario, it’s important to work with a partner who can help you gain a better understanding of your financial situation and how it shapes your future plans, both efficiently and effectively.

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