Many private medical practices across the country are facing increasing challenges as a result of many factors, most notably lower reimbursement and higher overall practice expenses, which together result in lower physician take-home compensation.
Physician practices are also facing increased competition as hospitals, large health care companies and investor-backed platforms are acquiring primary care referral sources and specialty practices. Moreover, workforce shortages are prevalent in many regions and present yet another substantial challenge to private practice.
These larger competitors have various competitive advantages over independent physician practices, including: seasoned health care executives who guide their physicians through all aspects of practice finance and operations, such as managed care contracting, regulatory issues, value-based care and expansion strategies; and access to extensive capital to invest in recruitment, new and expanded ancillary services, advanced EHRs, data analytics, and cybersecurity.
Here are 10 strategic options for physician practices to consider in this evolving, competitive market:
1. Transact with a reputable private equity (PE) backed practice management platform with a track record of success in your specialty. There are multiple PE-back platforms in every specialty, including many in primary care. There are various pros and cons to PE partnerships, and not every PE platform has been successful. Some physicians are averse to partnering with a private equity platform due their profit-driven focus, perceived interference with the practice of medicine, and their goal of “exiting” the platform in three to seven years.
Based on general industry experience, however, approximately 80-90% of PE-physician partnerships are successful. The likelihood of a successful partnership is often depends on whether the physicians engaged in thorough due diligence of potential PE partners, including checking references and ensuring a cultural fit, prior to making a very careful and thoughtful decision on which (if any) PE platform to choose.
6 Practical Recommendations for evaluating a potential private equity or strategic partner
The following are practical recommendations for physician practices on conducting due diligence of potential PE Partners:
Make an Informed Decision. Some physicians have a negative knee-jerk reaction to any kind of transaction, private equity or otherwise. But before making a fully informed decision about what (if anything) is right for your group, learn comprehensive details about different potential strategic options, and the pros and cons of each.
Culture Trumps Everything. Regardless of the numbers being offered by a potential partner, make sure that you are very comfortable with the “culture” of the potential partner, whether it is a hospital, PE platform, national company, or otherwise. This includes evaluating the following:
- Do you trust them as good people/individuals?
- Are you convinced they are very experienced and are likely to execute on their plan to improve your practice?
- Are you “on board” with their business philosophy, and their operational, strategic, and growth plans?
Confidence in “Income Repair”. Income repair is the concept that physicians will take home higher compensation within a few years after entering into a partnership transaction. This is most important if joining a PE platform, because PE transactions involve an initial compensation reduction (aka “scrape”), and physicians must have confidence that the benefits of the platform are “real” and will result in your compensation being “repaired” over a few years to the same amount, or even higher, than before the partnership transaction.
Thus, before committing to a particular partner, ask for details demonstrating the potential partner’s ability to provide (and their past record of success in providing) significant “income repair” through one or more of the following mechanisms:
- commencing or expanding ancillary services (e.g., ASC, imaging, therapy, specialty-focused urgent care, etc.);
- commencing or expanding participation in value-based care programs;
- economies of scale through the use of centralized services (e.g., billing, human resources, managed care contracting, compliance, IT services, call centers, etc.); and
- savings via group purchasing (e.g., reduced cost of equipment & supplies, reduced malpractice insurance premiums, reduced health plan cost for staff, etc.).
Solid (Proven) Plan for Recruiting New Physicians. You should also be convinced that your partner has a solid plan for recruiting new physicians to the group in the future who can become partners in the normal course on reasonable terms. If a particular platform has been operating for several years, then ask for details on their track record of successfully doing so.
Assess the Extent of the Partner’s “Leverage” (a/k/a Debt). Your financial advisor should conduct an analysis of whether your potential partner is “over-leveraged” (i.e., has too much debt and/or on bad terms). Companies that are overleveraged are more likely to face challenges in achieving their objectives for growth and success.
“Doc-to-Doc” Diligence. Before finalizing your selection of a potential partner for a strategic partnership, speak with other physicians who have partnered with that platform to help you assess, as objectively as possible, each of the topics in Items 4-5 above. If the PE platform has been around for a few years, this means calling junior and mid-level physicians at practices that previously joined the platform to ask “off the record” (and confidentially) whether they are happy at the company, and whether the platform has lived up to its commitments.
In addition, if you are considering a PE platform, also ask your advisors to identify other physician specialties that such PE firm has previously invested in since many PE firms investing in one specialty also have experience in other specialties (e.g., eyecare, dermatology, urology, OBGYN, etc.). If so, call some of the junior and mid-level physicians at those platforms (who you may know from local or national specialty meetings, medical school or training) and ask the same questions.
In both cases, however, do not just call physicians on a list of references that is provided by the PE platform, as most of them likely were leaders of groups that previously transacted, or are currently in some kind of managerial role at the company.
2. Transact with a practice management platform that is backed by a reputable family office with a track record of success with physicians. Investment groups funded by very wealthy families, often referred to as “family offices”, have also been active in partnering with physicians. The pros of partnering with a family office are that they have a longer-term investment outlook (e.g., 10 years or more) and generally are perceived to be more deferential to physicians and otherwise being more “physician-friendly.”
3. Sell your practice to, and become employed by, a reputable local hospital or health system that has a track record of investing in, supporting and valuing physicians in the community. Some physicians inherently trust their local hospitals and their executives, while other physicians want to stay as far away as possible from any venture with or control by their hospital. Whether you seriously consider this option (if it is available), depends on the hospital’s relationship and reputation with physicians, which varies from region to region, and from hospital to hospital.
4. A hybrid option of joining a reputable three-way partnership involving a major academic health system, a seasoned health care management platform, and a private equity investor. There is a small but growing trend of 3-way partnerships involving physicians, hospitals and private equity platforms, and depending on various factors (including the hospital’s philosophy), such a 3-way joint venture could be beneficial to physicians in diversifying the relationship, but it also could have drawbacks for the same reasons discussed above.
Some recent examples of this growing trend include the following:
5. Merge into a 100% physician-owned specialty practice or multi-specialty group in your region. This option is not new at all, as medical groups in certain regions have been merging for many years to create larger organizations that provide the benefits of economies of scale, managed care contracting, advanced IT infrastructure, and experienced executives.However, mega-groups still need capital to grow and succeed in the changing marketplace, and ultimately, it is the physician owners who must bring the capital, directly or indirectly through debt.
6. Sell your practice to, and become employed by, a national specialty company that is part of a health care insurer/payor. Payor-owned medical groups have become very larger players in physician group acquisition/consolidation over the last 20 years. One of many examples is Optum, which is rumored to have almost 100,000 physicians under its control nationwide (including the largest multi-specialty groups in around 30 of the largest major metropolitan regions in the country).
Although there are advantages of being part of such a large company, many physicians are averse to payors, and do not desire to partner with payor-sponsored entities.
7. Sell your practice to a growing number of reputable national specialty companies that are backed by one of the "big three" health care distributors (Cencora, Cardinal Health & McKesson).A new breed of investors in physician specialties has emerged over the last several years, consisting of the three largest health care distributors in the country.Some recent examples of this include:
- Cardinal Health’s ownership of the following specialty platforms:
- Integrated Oncology Network (since December 2024)
- Specialty Networks (multi-specialty, since March 2024)
- GI Alliance (since May 2025)
- Solaris Health (urology, since August 2025)
- Cencora (formerly AmeriSource Bergen) ownership of:
- One Oncology (since June 2023)
- The Surgical Clinic (multi-specialty, since February 2025)
- United Urology Group (since October 2024)
- Retina Consultants of America (since January 2025)
- McKesson’s ownership of the following specialty platforms:
- U.S. Oncology Network (since November 2010)
- Epic Care and Nexus Health (since 2023)
- Urology Associates of Central Missouri (since January 2015)
- PRISM Vision (since April 2025)
There are potential benefits to partnering with platforms owned by large public health care companies. These companies are not looking to “exit” investments, and because they have a long-term outlook, they may be more physician-friendly than other investors/owners. In addition, they have a lot of capital to invest in expansion and other capabilities.
8. Contract with a reputable physician practice management services organization (MSO) that provides services for a fee (without buying the practice’s assets or equity). Another option that should be explored (assuming physicians are not looking for a partnership involving some cash proceeds) is a specialty focused practice management company that charges a fee for seasoned “C-suite” administrative services and strategic advice, without buying the practice or its assets. Some examples of “pure” MSOs in different specialties are:
- For cardiology groups:CardioOne | Redefining Independence
- For orthopedic groups: PELTO Health - How the best practices stay independent.
- For concierge medicine practices:About Us – Specialdocs Consultants
- For various practices:PDS Health | Formerly Pacific Dental Services | Integrated Care; and TRIARQ Health Company Overview
9. Join a local, reputable IPA or CIN (clinically integrated network) that provides you with access to enhanced payor rates and value-based care arrangements (without selling the practice’s assets or equity). This option could work for groups in regions where IPAs are very active and have competitively negotiated managed care rates. However, this option doesn’t address other practice challenges, such as a sophisticated management team and access to capital.
10. Entering into a Professional Services Agreement (PSA) with a hospital system. This option involves the medical practice entity continuing to employ its physicians and other licensed clinicians (and potentially all of its staff), and notably, does not entail selling the practice’s assets. Rather, via the PSA, the practice’s physicians and other clinicians provide medical services exclusively to the hospital, or its affiliated, captive medical group (essentially, like a lease of such personnel), and the hospital or its affiliate bill for all of the professional services provided by such personnel.
Some PSA arrangements also involve a “Premises, Equipment and Non-Clinical Staff Lease” with the hospital, pursuant to which the practice’s offices, equipment and non-clinical staff are also leased to the hospital. (But, sometimes the practice’s non-clinical staff become directly employed by the hospital or its affiliate).
The biggest advantages of PSAs (if offered by a hospital), are that the physician group remains a separate entity, the physicians can earn greater compensation through wRVU-based compensation paid via the PSA, and the arrangement is “easy-in and easy-out”, such that if the physicians are unhappy at some point, they can terminate the PSA (and the related lease), and go back to independent medical practice or explore other strategic partnerships.
If none of the above options is appealing to your group, then remaining independent may be the best pathway, in which case the group should develop and implement a carefully crafted strategic plan to address the increasing challenges it is facing.Generally, this is a viable option mainly for groups that have both:
- Seasoned management teams to help the group navigate through the various challenges described at the outset of this article;and
- Access to capital on favorable terms to invest in ancillary services (e.g., ASCs, imaging, etc.), IT/EHR, cybersecurity, data analytics, and otherwise to use in positioning the practice for succeeding in value-based care and direct contracting with large, self-insured companies in the region.
Remaining independent, however, is becoming more difficult as small-to-medium sized practices try to effectively address mounting financial challenges and increasing competition in their markets.
Gary Herschman, Esq. is Co-Chair of the Health Care Transactions Group at the national health care firm of Baker Donelson et al, (Health Care Transactions | Baker Donelson).Gary advises dozens of physician groups across the country on their strategic transactions, and can be reached at [email protected]
Dana Jacoby is the President & CEO of Vector Medical Group (Healthcare Consulting Services | Training & Planning).Dana provides strategic healthcare consulting to physician groups and other healthcare providers across the country.Dana can be reached at [email protected]
Nivedita Patel, Esq. is a health care transactions and regulatory attorney at Baker Donelson (Baker Donelson).Nivedita advises physician groups on major transactions across the country, and can be reached at [email protected]
