BGL Healthcare & Life Sciences Insider

Physician-Owned Hospitals Remain Prime Targets Amid Changing Landscape

Physician-owned hospitals (POHs) are a critical part of the care continuum and valuable partners to health systems, owed to long track records of providing high-quality care at lower costs, according to an industry report released by the Healthcare & Life Sciences investment banking team from Brown Gibbons Lang & Company (BGL).

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BGL examined current market dynamics impacting POHs, notably a restrictive regulatory climate, changes in payer strategy, site of care neutrality, and an aging physician demographic, all of which are leading physician owners to seek strategic partnerships to better navigate the changing landscape. The report also features an executive roundtable which discusses the current state of the market, as well as future outlook. Dr. Mike Russell, founder and past board chairman of Texas Spine & Joint Hospital and former President of Physician Hospitals of America, commented on future M&A activity, “There is consolidation in the hospital space. There is consolidation in the physician-owned hospital space. There is consolidation in the independent practice space. It’s just part of the natural progression. The regulatory and market dynamics are pushing that direction. It’s just going to continue.” 

The market has demonstrated that there is significant strategic value in partnering with physician-owned and led organizations:

  • As the industry continues to shift towards value-based care, POHs should remain highly competitive given the focus on delivering high-quality care at a competitive price point
  • Broad cost containment efforts across the healthcare industry increase the importance of efficient, effective healthcare delivery systems, particularly given demographic trends that support increased procedural activity. 
  • POHs may be better suited to accommodate the shift to outpatient versus inpatient site of care due to greater operating flexibility. Additionally, POHs are well positioned to participate in vertically-integrated networks and or more targeted provider-payer partnerships. 

Amber McGraw Walsh, a partner at McGuire Woods, observed, “I think POHs continue to remain a very viable investment for a lot of different types of potential partners. The partnerships are most typically about the opportunities they can unlock in terms of value-based care, operational efficiency, etc.”

Given asset scarcity, remaining independent POHs continue to be in high demand. As such, BGL expects acquisition activity to remain strong.

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