By Andrew Colbert
The pandemic has provided physician groups with a rare opportunity for true “strategic recalibration.” Groups are stepping back to strategically access their long-term goals, evaluating where to make investments, operational improvements and modernize care models. Many healthcare stakeholders are beginning to rethink traditional fee-for-service payment models and accelerate the movement toward value-based care arrangements.
Physician practices have a great opportunity in 2022 to grow and invest in their businesses, drive meaningful cost and quality improvement to the broader health care industry, and to be a leader in providing value-based care.
Value-Based Consumer Friendly Models Will Accelerate
In today’s market, consumers want to shop for healthcare in the same way they shop for other retail services. Accelerated by the pandemic, consumers are demanding better quality care and more price transparency, while seeking a higher level of care convenience and access. This shift has forced an accelerated uptake in higher-touch consumer-focused delivery models with the goal of ultimately providing a better healthcare product to their patients.
Forward thinking physician groups are adapting to the market’s changing demands by investing robust patient facing digital technology that enables online scheduling, virtual visits and mobile integration. Patients today are looking for a fully integrated care model with primary care, specialty and ancillary services (i.e., therapy, nutrition, etc) all coordinated together though a seamless platform.
In 2022, physician groups need to move beyond the traditional episodic delivery model to create a holistic integrated patient experience. This will enable practices to move deeper into value-based payment models that reimburse based on populations. High visibility into monthly recurring revenues will enable practices to make more investments into innovative technologies, engage in more proactive population health management and ultimately provide a better healthcare product to their patients.
Continued Consolidation and M&A Activity
The operating landscape will only become more complex in 2022 with the tightening labor market, reimbursement changes, regulatory dynamics and greater consumer demands. We will continue to see a move towards larger group consolidation across all physician practice specialties as many independent groups are looking for greater scale to drive their continued success.
In 2021, we saw over 400 healthcare M&A transactions, an increase of over 150% from 2020, and the strength of the market is poised to continue into 2022. This activity is being driven by a confluence of factors, including low interest rates, significant availability of private equity capital, and positive market tailwinds. Fueled by healthy private equity and public market activity, favorable M&A market trends will likely continue well into 2022, with no sign of market activity slowing down anytime soon.
Outpatient Care Migration
Healthcare services that can be administered outside of the hospital environment in a freestanding site is becoming a more attractive option to patients and insurance companies, largely driven due to cost and convenience. Managed care plans will continue to increase their steerage to incentivize patients to seek care in lower cost outpatient settings. In addition, Medicare is continuing to expand its coverage of outpatient procedures, which will only further accelerate this site of service shift. Further, the COVID-19 pandemic has only accelerated the shift in consumer preferences towards the outpatient setting. We can expect volumes to increasingly shift into the outpatient setting in 2022 and beyond.
In 2022, the market will look to continue to move quickly with many new entrants like Amazon, Wal-Mart, Walgreens and CVS all trying to capture the outpatient healthcare marketplace. Physician groups with leading market share today will face increased competition tomorrow and must be making significant investments in growth to maintain their competitive advantage. In addition, hospitals that have not historically made these investments will look deepen their footprint into the outpatient arena through direct investments and partnerships.
Physician groups need to create a thoughtful strategic plan for how to bolster their outpatient footprint and making sure that they are allocating significant capital to fund both brick and mortar expansion as well as technology investments to deepen their consumer reach and engagement.
The Path Forward Requires Scale
One clear takeaway through the pandemic is that scale is a requirement to ensuring success over the long-term. Scale will position practices with the foundation to establish and expand their market share.
2022 will be a pivotal year for physician groups, which must prepare to determine whether they want to expand their capabilities in house (i.e., be the “platform”) or establish a partnership with a larger national firm.
To be the “platform,” physician groups should be forceful in adding sophisticated leadership, deeper operational capabilities, acquiring more share of the market, and building scale. Effective groups will strive to execute the technology, management, and workforce investments to get there.
It is not practical to make all investments at once, but the key is to outline a one-year, five-year and ten-year investment plan and execute. Incremental growth is best as it is most manageable, demonstrates practice momentum and helps ensure your practice is nimble and agile to adjust for changing competitive dynamics and future market changes.
The physician practices that will fare best in 2022 and beyond will undoubtedly be those that have conducted thorough analysis and make strategic investments in their platforms, bolstering their ability to scale and address whatever challenges the future might bring.
Andrew Colbert is a senior managing director and founding member of Ziegler’s Healthcare Investment Banking practice. He specializes in advising physician groups on strategic and financing alternatives including merger and acquisitions, joint ventures, capital raising transactions, and partnership development. More information is available at www.ziegler.com/physician-groups.
Ziegler is a privately held, national boutique investment bank, capital markets and proprietary investments firm. It has a unique focus on healthcare, senior living, and education sectors, as well as general municipal and structured finance. Headquartered in Chicago with regional and branch offices throughout the U.S., Ziegler provides its clients with capital raising, strategic advisory services, fixed income sales, underwriting and trading as well as Ziegler Credit, Surveillance and Analytics. To learn more, visit www.ziegler.com.
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