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The Rise of Alternatives to PE-Backed Consolidation

Bulletin Board Overview

Consolidation activity in the MSO market over the past several years has been dominated by private equity-backed corporates.

  • The percentage of physician practices owned by corporates now exceeds the percentage of practices owned by hospitals.
  • The share of practices owned by corporates has grown -2x since January 2019

Rumblings of interesting alternatives are beginning to emerge across the market as stakeholders organize their “response” to private equity driven consolidation.
Recent developments of interest:

Hospital Market
Response:

  • Hospitals are increasingly brainstorming new ways to engage with physicians and address evolving market demands and opportunities. This includes:
    • MSO Development: e.g., various hospitals are advancing efforts to advance their own MSO strategy
    • Value-Based Care: e.g., Kaiser Permanente’s recently formed Risant Health

PE-Backed MSO Physician
Response:

  • Early signs of physician-led “buyouts” whereby hybrid debt & equity transaction structures replace traditional private equity investors from earlier investment rounds with:
    • (i)hybrid debt & equity investors
    • (ii)increased equity ownership for physicians
  • Recent examples executed on by Apollo Global Management with U.S. Acute Care Solutions and Gl Alliance.

Independent Physician Practice Response:

  • A recent example is the formation of PELTO Health Partners, which is an alliance amongst three independent orthopedics practices across three states.
  • Other independent platforms are considering similar MSO development efforts.

Media
Response:

  • There is a growing debate about private equity’s impact on healthcare services. Articles both against and in support of private equity’s role are being produced with increasing frequency.
  • The debate is in its early stages and the narrative to-date is largely high level and lacking in sophisticated analysis that is inherently complex and will take time to evolve. In the meantime, market stakeholders are seeking to influence the narrative.

Healthcare is in the midst of another transformational shift. As the healthcare market has modernized, the fundamental drivers of success have changed.

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