Since the COVID-19 pandemic hit, there have been more than the usual number of large deals focused on primary care providers and clinics in North America. These clinics staff physicians (but are not run by them, like a physician group) and other healthcare providers to help patients with routine, non-emergency medical issues, and are often the first stop for a patient seeking treatment.
A wide range of investors and strategic buyers have been moving into this space this year. Cano Health, Inc. (NYSE: CANO), one of the more active buyers, announced two deals in the second quarter expanding its primary care network in Florida. In June, it purchased University Health Care and its affiliates, which provides comprehensive primary care to communities in South Florida. The company serves approximately 24,000 Medicare Advantage members. Cano Health paid $600 million, or $540 million in cash and $60 million in equity. University Health Care is expected to generate $355 million in revenue this year and $37 million in adjusted EBITDA.
Following that in July, Cano Health struck the second deal and announced it was acquiring Doctor’s Medical Center (DMC), which provides integrated, innovative care to Medicare, Medicaid and ACA members in South Florida. The deal is valued at $300 million cash. DMC is expected to generate $194 million in revenue and $22 million in EBITDA in 2021.
The largest deal in this market so far has been One Medical’s (NASDAQ: ONEM) $2.1 billion purchase of Iora Health, a national network of primary care clinics. Iora offers holistic, personalized care to patients through online and in-person sessions with individual health coaches. The company provides mental health treatment and primary care services for adults 65+ enrolled in Medicare Advantage and other at-risk reimbursement models.
The deal extends One Medical’s primary care and digital health platform to a total of 28 markets. The combined company is expected to have more than $350 million in annual revenue synergies by 2025 and $30 million in annual net cost synergies by 2025.
There is also activity for smaller clinics across different markets. Skylight Health Group Inc. (TSXV: SHG), a multi-state health network operator based in Ontario, acquired two different targets in the United States. In March, the company purchased three independent primary care clinics located across the United States for $4.5 million. Combined, the practices reported $10 million in unaudited revenue in 2020 and $1 million in estimated EBITDA.
And way back in January, Skylight added an undisclosed primary and urgent care clinic with six locations in Colorado. The clinics generate an annual revenue of $20 million with EBITDA hitting $3.04 million. The planned acquisition of the clinics expands the company’s bricks-and-mortar and telemedicine services within one of the existing Skylight Health states. The clinics’ staff mix includes physicians, nurse practitioners, and physician assistants.
There are a number of tailwinds driving deal activity, and one of them was a big common denominator for most of the buyers mentioned earlier: the Medicare market, especially Medicare Advantage. According to an analysis done by the Henry J. Kaiser Family Foundation (HJK), “nearly four in ten (39%) of all Medicare beneficiaries – 24.1 million people out of 62 million Medicare beneficiaries overall – are enrolled in Medicare Advantage plans.” The article cited that the “Congressional Budget Office projects that the share of all Medicare beneficiaries enrolled in Medicare Advantage plans will rise to about 51 percent by 2030.”
That’s a huge population of patients that operators like Cano Health and One Medical are competing for. This is especially lucrative because Medicare Advantage plans tend to pay higher than Medicare plans on average across the nation, according to the analysis done by HJK. With a growing enrollment rate and higher reimbursement rates, it’s no wonder that primary care providers are looking to jump into the market quickly. Plus, due to the economic effects of COVID-19, the Medicaid-eligible population has increased dramatically, increasing the potential patient base even further.
Additionally, what’s been helping the primary care market has been the companies themselves. OneMedical, for instance, is a membership-based, tech-integrated, and consumer-focused primary care platform. These features most likely proved to be valuable once COVID-19 hit, since they gave them the ability to quickly provide telehealth services and keep in touch with their patients. As patients were avoiding hospitals and traditional physician practices, this was a huge advantage. Patient engagement was key during COVID-19, and these companies were able to capitalize on that.
The primary care market has been growing at a rapid pace, and with tailwinds in the industry getting stronger, it doesn’t look like it will be slowing down anytime soon.
