We are always interested in the opinion of advisors, and other industry experts, regarding the Physician Medical Group (PMG) market. So, we put out a pulse survey to get a better feel of the current environment.
From this survey, we spoke with Robert Aprill, Partner at Physician Growth Partners, to get his perspective on the market.
How optimistic are you about the future of the PMG market within the next year or two?
“I think there’s two forces at play so it’s a little bit of a complex answer. There’s going to be more Owners interested in selling and there’s going to be a lot of Buyers that are spooked by higher interest rates and broader headwinds in the PPM space. Physicians are continuing to see falling compensation as owners because of rising costs and falling reimbursement rates. So, there’s a lot of interest from practices that have been traditionally standoff-ish on private equity. But that’s counterbalanced by private equity groups becoming more selective over who they’re partnering with because of an increased cost of capital due to high interest rates.”
He additionally said, “The increased optimism from sellers is counterbalanced by the increased selectiveness from buyers so deal flow is going to stay level until there’s a genuine sense of decreasing interest rates. I don’t know if that will happen over the next 12 months but will probably happen over the next 24 months.”
What factors are currently driving M&A activity?
“It’s a combination of reimbursement pressures and administrative burdens meeting rising costs. Physicians have seen their compensation steadily decrease over the last three years and that has spooked a lot of groups into being more open to exploring options for future sustainability.”
What are the biggest challenges facing the market?
“The cost of capital is probably the biggest challenge. I don’t think it’s competition as there are plenty of deals to be had and plenty of patients.”
How would you rate private equity’s impact on healthcare?
“It’s not nearly as influential as people believe. Public perception puts PE’s impact at maybe a four but it’s closer to a two or three. In my opinion, hospital/health systems and academic institutions are motivated to disparage PE’s reputation in healthcare because PE is direct competition to them in local markets. But I think what’s really impacting the physician space is payers moving into the provider side of the world in a big way.”
What do you believe could significantly disrupt the industry in the coming 12 months?
“I do think regulatory pressures and increased control and restrictions around deal flow is a concern over a longer period of time. Over the next five years, regulatory pressures could cause concern. It’s a concerning idea that the government controls how independent physicians feel best to manage their practice and so the more that states that towards ‘no item state level boards’ can create M& hurdles.”
To add your own perspective and opinions to our survey, please click here.
