Warnings for the Physician Practice Management Market

Private equity first dipped a toe into the physician practice management (PPM) market more than a decade ago. Since then, the PPM space has been on the receiving end of a steady stream of institutional money. It was, after all, a stable investment and, given an aging population, a relatively recession-resistant one at that.

Or so we thought. Turns out, PPMs aren’t exactly pandemic-proof. With restrictions limiting medical care to only those services deemed emergent, single specialty PPMs providing elective care – including dental, optometry, and physical therapy – were among the more dramatically impacted investment sectors.

Of course, it’s easy to blame everything on a pandemic. The sophisticated sponsor, however, knows that even prior to COVID, PPMs were beginning to show sizeable cracks. Investor unfamiliarity with nuanced regulatory and sub-sector specialty dynamics were not only creating operational headaches, they were leading to flat or diminishing margins.

The result (of all this) is a coming two-part sell-side wave.

The first wave will be independent at-risk practices selling to survive the fiscal impact of COVID-era operational challenges. The second wave will be driven by sponsors who have realized the complicated dynamics of the sector (further exacerbated by COVID) and are looking to rid themselves of highly-leveraged investments facing extended periods of flat or declining revenue.

Both waves present opportunities for sophisticated buyers who are well-versed in the nuances of PPMs and who have the available dry powder to take advantage of fire sale prices. But PPM buyer beware: even sophisticated sponsors will need more acute expertise now, than they did in the pre-COVID world. Why?  Three reasons:

• Regulatory Considerations
• Operational/Financial Considerations
• Practical Considerations