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Disruption has redefined health care in the past decade. For private practice physicians, the biggest disruptor has been consolidation.

The trend of local hospitals merging into massive health systems has significantly affected private practices. According to Avalere Health and the Physicians Advisory Institute, between 2016 and 2018 hospitals acquired 8,000 medical practices and 14,000 physicians left private practice to work in hospitals.

Here’s an example: In New Jersey, Hackensack University Health Network merged with Meridian Health system in 2016 to create Hackensack Meridian Health. Its acquisition of JFK Medical Center in Edison made Hackensack Meridian the largest hospital chain in the state. Three years later, it was a $5.5 billion not-for-profit system employing 6,500 doctors. And it isn’t done growing. At the end of 2019, Hackensack Meridian Health proposed a $400 million merger with Englewood Hospital.


Ever-larger health systems affect the flow of patient referrals a private practice needs to stay in business. They change the competitive dynamic for independent physicians, who aren’t left with many choices at this point. They must find a way to get bigger or discover a niche.

Hospital growth isn’t the only threat to independence. Big insurance companies are also venturing into the provider side of health care. UnitedHealth Group is doing this through its Optum division. Optum recently acquired Surgical Care Affiliates for $2.3 billion, setting the base for OptumCare’s primary and specialty care division, which focuses on acquiring or partnering with private medical practices.


Independent medical practices are now increasingly looking to private equity to grow and compete in response to these market forces. And private equity is responding, fueling health care consolidation with billions of dollars. A study recently published in the Journal of the American Medical Association found that the number of private equity deals with physician practices across specialties more than doubled between 2013 and 2016. According to EY, $32.9 billion in private equity was invested in 647 health care transactions in 2018 — that’s double the investments made in 2014.

Early on, private equity tended to fund specialties such as dentistry and dermatology. Later, private equity funds directed their investment philosophies to other specialties, such as ophthalmology, urology, orthopedics, and OB-GYN.

As the medical environment shifts to value-based care, private equity funds are increasingly interested in potentially profitable specialties that still have many independent private practices, opportunities where they may be able to consolidate regional markets.

One specialty that fills the bill is gastroenterology. As the population ages and people — and their doctors — focus on how the gastrointestinal tract affects overall health, the demand for gastrointestinal services will continue to expand. According to a report by Medscape, 53% of the nearly 14,500 gastroenterologists in the U.S. are employed at hospitals or other health care organizations. About 6,000 of them are in private practice.

In 2018, there were only two private equity deals for gastroenterology practices; in 2019 there were 16. In 2020, I expect to see merger and acquisition announcements for various mid-size or large gastroenterology practices. The groups supported by private equity will compete to acquire other smaller groups and expand. And new and innovative models will most likely arise as well, in gastroenterology and in other specialties.

As these deals continue, it’s important to understand the role of private equity and be aware of the mistakes made by physician practice management (PPM) companies when they tried to consolidate medical practices in the 1990s.

PPMs brought in fresh capital and management talent, added new ancillary services, negotiated better contracts, and rushed to demonstrate to the market growth and higher revenues. Unfortunately, they also charged hefty management fees and used confusing accounting practices to make the platforms look more profitable than they were.

In the end, physician practice management companies struggled to execute on their business plans and ran out of money. By 1998, this space imploded and it only took a few years to almost disappear.

Today’s landscape is different. Physicians have become more knowledgeable about the business, technology, and advocacy components of health care. Professional trade associations, such as the Large Urology Group Practice Association and the Digestive Health Physicians Association, increasingly provide forums for private practice leaders to learn from each other and discuss ways to navigate issues that affect their ability to remain independent.

I believe that in 2020 we will see massive consolidation across health care, especially among private practices. It’s not a question of whether this level of consolidation is good — we can’t turn back the clock. The question that must be answered is how to consolidate in ways that support independent physicians and improve patients’ access to cost-effective, high-quality care.

Praveen Suthrum is the president and co-founder of NextServices and the author of “Private Equity in Gastroenterology: Navigating the Next Wave” (2019).

  • There are certain rules in medical science. For example, you can’t maximize sensitivity and specificity of a test at the same time, because they tradeoff.

    Is there reason to believe that you can increase profitability and decrease total health care cost at the same time.

    Is it true that at every step in the consolidation process there are more managers, vice presidents (and shareholders), profiteers that increase cost without increasing payment to practitioners or quality of care.

    Is this just emperor’s new clothes. Speaking as a patient my quality of care (face-to-face with MD) has gone down and referral time has not improved.

    So obviously I am missing something.

  • With this consolidation dynamics, one way to improve quality of care is to motivate physicians by compensating appropriately by minimizing the huge variation in reimbursements( based on whether care is provided at private practice or health systems/corporate).

  • Provider based billing has seemed to be intended to consolidate the industry. With the insurance companies becoming involved with the providers side if the industry one would worry about monopolies. But that is really the goal, isn’t it? A single payer system. The patient is becoming increasingly the Hitchcockian McGuffin, where the dance of healthcare is the story and the patient only the excuse to dance.

  • Can you tell us again how practice consolidation has resulted in better care and lower prices? Or are we going to wind up paying a “facility fee” (to those not in the know, that’s like a “resort fee”) for the privilege of going to a non-hospital medical appointment?

    • Thanks for your comment Biotech Analyst. It’s an important question. Let me answer in two ways – direct and broad. Facility fees apply to both outpatient facilities and hospitals. However, the costs are lower in a private practice environment. A CAT scan in a private, consolidated facility typically costs around $300. The same in a hospital typically costs $1,000. For outpatient care, a patient is likely to get more attention in a private practice.

      Now, here’s the broader question you are asking. How’s this any better? It’s too late in the game to ask this question. The consolidation wave is so strong that it won’t recede. We will see both good and bad outcomes. Getting this wrong for healthcare will have a devastating effect. So we must ask different questions. How do you make it better? How can private equity develop the courage to look beyond economic outcomes? How can you use data across consolidated practices to arrive at better health outcomes at scale? (For e.g. In GI, I’ve learnt of ImproveCareNow – the registry collates Crohn’s disease and ulcerative colitis data for kids – it helps in population health studies. Parents keenly track metrics such as lost days at school) How can you use consolidation to create platforms (clinicians + systems) that take healthcare to its next iteration?

  • One could argue that single payer with everyone getting enhanced Medicare rates could eliminate the impetus for this consolidation. If all providers are paid the same there is less of the need for consolidation to negotiate for better rates.

    • Thanks for your comment. It’s not that Medicare has money to spare. Aging demographics are further going to increase Medicare costs. At $3 trillion plus, healthcare costs will soon approach 20% of our GDP. There are too many competing forces – private insurances, hospitals – for the current interlocked system to undergo a dramatic shift. Even if policy changes, you can’t guarantee outcomes. That’s why innovation is coming from the outside in the form of Big Tech.

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