Throughout the nation, independent physician practices are increasingly being acquired by hospitals, private equity investors, insurance companies, and other larger organizations. According to the American Medical Association, the proportion of physicians working in private practices or those solely owned by physicians declined by 13% between 2012 and 2022 — dropping from 60.1% to 46.7%. Meanwhile, the percentage of physicians operating in practices partially owned by hospitals or health systems rose by almost 8% during the same period, and the share of physicians working directly in hospitals increased by 4%. The future trajectory of this trend remains uncertain, yet it’s evident that physicians play a pivotal role in shaping healthcare advancements.

Despite recent economic and regulatory challenges impacting the acquisition of healthcare businesses, activity related to the sale of independent physician practices remains robust. According to Beckers Hospital Review, despite interest rates increasing globally since 2022 and having challenged overall transaction activity since then, transaction activity for physician practices have remained elevated. This is particularly notable in specific geographical areas and within certain medical specialties. While buyer interest in acquiring healthcare businesses persists, some are adopting strategies involving lower valuation multiples, reduced upfront cash payments, and other innovative financial arrangements. For instance, certain investment banking and private equity buyers are now requiring physician practice sellers to accept a larger portion of the purchase price through “rollover” units in the buyer’s business or its affiliate. Other private equity buyers are placing caps on potential earnouts for physicians or structuring part of the purchase price through a promissory note with minimal interest, but with extended payment terms. Various other creative financing methods are also being employed to address challenges.

Overall physician practice acquisitions have been trending upwards over the last five years.  Deals have largely been increasing year over year from 245 deals in 2019 to 535 deals in 2023 with only a slight decline in 2023, based on Irvin Levin’s 2024 Health Care Services Acquisition Report. Note that these deals represent only publicly announced deals. A monthly trend analysis from the first quarter of 2019 up to the fourth quarter of 2023 is shown in the table below.

Source: Irvin Levin, 2024 Health Cre Services Acquisition Report

Source: Irvin Levin, Healthcare M&A Quarterly Reports

As far as transaction multiples are concerned, a report by Scope Research compiled a summary of completed physician practice transactions from May 2022 through May 2024. Findings show that there have been over 33 transactions in this period and suggest a positive correlation between EBITDA and corresponding EBITDA multiples. As seen in the subsequent charts, as EBITDA rises, so does the related EBITDA multiple for a given transaction. The median EBITDA multiple is 13.0x from the 33 transactions over the 2-year period.