2025: The Revenge of the Independent Physicians

As we close out 2024, I want to wish you, your families, and your colleagues a happy holiday season and the best of luck in the new year.

As the father of two very young children, time for reflection is elusive. So instead of a year in review, I will close out the year with a not-so-bold prediction for 2025.

There is a great deal of optimism about the M&A markets heading into the new year. Pay close attention to where that deal flow is actually pointed. It is concentrated in healthcare services — technology, revenue cycle, data — and not in provider organizations themselves. There is a reason for that, and it is worth understanding before you sign anything.

My prediction is simple: in 2025, a group of feisty, motivated physicians is going to fight back — starting de novo practices, or buying their own practices back for pennies on the dollar.

The value drivers that built the platforms

Of the physician practice management platforms created over the last decade or more, nearly all were conceived around the same three value drivers:

• Professionalizing practice management — through investment in technology, or by applying MBA-style management discipline to organizations that had grown up without it.
• Revenue growth — riding demographic volume (the silver tsunami), negotiating better rates with insurers, and capturing referral revenue inside the platform.
• Cost take-out — more efficient use of overhead, and vendor consolidation with better negotiated terms.

These are not stupid ideas. Some specialties have broadly succeeded with them and are not going anywhere — a shout out here to dentistry. Some platforms inside otherwise difficult specialties are doing just fine and will keep chugging along, albeit with lower growth than the deck promised.

And other specialties are rife with zombie platforms.

We have run this experiment before

For the last several years I led the M&A function for a private equity-backed physician practice management platform. I had countless conversations with physicians who looked at our model skeptically and asked some version of the same question:

"How will you not end up like PhyCor?"

For those who did not live through it: in the 1990s, a wave of publicly traded physician practice management companies consolidated tens of thousands of physicians, fueled by the equity markets and the general economic exuberance of the decade. Then it came apart. In his retrospective "The Rise And Fall Of The Physician Practice Management Industry" (Health Affairs, 2000), the late Princeton health economist Uwe Reinhardt documented the collapse: PPM industry valuations fell roughly 64% between late 1997 and mid-1998, and the unwinding that followed took most of the sector's largest public companies with it.

I did my best to piece together decent answers to the PhyCor question, pulling from the value-driver language in our investment thesis. But I was missing the point.

The physicians have all the leverage. They are the business. If physicians are unhappy with the management support they are receiving, these platforms tank. That is not a moral argument. It is an operating one.

To be clear, I am not taking aim at all physicians or at every employment arrangement. I have numerous friends in medicine who are genuinely happy with their contracts, and for many physicians employment is the right answer. I am speaking specifically about the physicians who tend to be the most entrepreneurial, the most productive, the most innovative, and — yes, these are not mutually exclusive — who often drive the highest quality. Rather than unleashing those physicians, the consolidation and employment model has too often stifled them.

Who actually owns medicine now

The scale of the shift is easy to underestimate if you are living inside one practice. The Physicians Advocacy Institute, working with Avalere Health, has tracked practice ownership for years. Its study of employment and ownership trends from 2019 through 2023 found roughly 77.6% of U.S. physicians employed by hospitals or corporate entities, with about 58.5% of practices owned by them.

The American Medical Association's own benchmark work tells the same story from the other direction: the share of physicians working in wholly physician-owned practices has fallen steadily for more than a decade. Worth noting for anyone quoting these numbers — "practice type" and "has an ownership stake" are two different survey measures, and press coverage conflates them constantly. Read the footnotes before you cite the headline.

What the acquisitions actually did

This is where the evidence has gotten much better, and much less comfortable for the thesis I used to pitch.

Researchers examining private equity acquisition of physician practices found, in a 2022 JAMA Health Forum study comparing 578 PE-acquired practices against 2,874 controls, that acquisition was associated with an increase of $71 per claim in charges (+20.2%) and $23 per claim in allowed amounts (+11.0%), alongside a 37.9% increase in new patient visits and a 25.8% increase in unique patients.

Meanwhile the footprint expanded enormously. A 2024 Health Affairs analysis from researchers at the Petris Center found PE-acquired physician practice sites grew from 816 sites across 119 metro areas in 2012 to 5,779 sites across 307 metro areas by 2021. In 108 metro-area specialty markets, a single PE firm held more than 30% share; in 50 of those, more than 50%.

Read those two findings together. The model delivered scale and it delivered price. What it did not reliably deliver was a better place for a physician to practice medicine.

The four conversations I keep having

Over the last several months, the physicians reaching out to me have fallen into four fairly clean buckets.

1. Those at the end of their contracts with no plans to renew — and, increasingly, those who want to test their non-competes. The ground here genuinely moved in 2024. The Federal Trade Commission's rule banning most non-compete agreements was set to take effect in September; instead, on August 20, 2024, the U.S. District Court for the Northern District of Texas set the rule aside on a nationwide basis in Ryan, LLC v. FTC. So the blanket federal ban is not coming to rescue anyone in the near term. But the litigation put physician non-competes under a spotlight they had never had, and state legislatures — Ohio's included — have been actively debating provider-specific restrictions. If your plan depends on the enforceability of your non-compete, get real counsel and get it early. Do not plan around a headline.

2. Those employed by companies that are, functionally, bankrupt. This does not require a formal filing, though there has been no shortage of those either. Envision Healthcare filed for Chapter 11 in May 2023. American Physician Partners wound down and filed that September. Steward Health Care filed in May 2024. Beyond the formal filings, type "assignment for the benefit of creditors" into your favorite search engine, and once you have picked your jaw up off the floor, call a couple of friends in investment banking. In my own experience this is happening far more often than the headlines suggest.

3. Those working for companies trying to go to market and finding little interest. The easy, lucrative "second bite" on rollover equity — the number that made the first deal palatable — suddenly looks unattainable. If you are holding rollover equity in a platform that cannot find a buyer, you are not an owner in any meaningful sense. You are a creditor with no priority and no exit.

4. Those frustrated by poor management decisions that are not their own. This one is the most corrosive. An unintended consequence of corporate practice of medicine laws is that the patient often has no idea who actually owns the platform. But the patient knows exactly who their doctor is — the name on the door may literally be theirs. If a surgeon cannot get the right supplies or staffing because corporate headquarters is not responding, it is the surgeon who takes the earful and the reputational hit, not the platform company. That risk might be proportionate if the physician held the majority of the equity. It is no way to keep the people generating the revenue motivated.

Then why do I expect the pendulum to swing back?

Does any of this fix the underlying challenges in the system — economic, regulatory, or otherwise? Of course not. Independence is harder than it looks, and anyone who tells a physician otherwise is selling something.

But this is a group that operated independently for years before the promises of consolidation, and the accompanying dollars, made it very hard to say no. Whatever the motivation — one of the four buckets above, or something else entirely — I am not going to bet against a group of people with something to prove who have been told for too long that their only options are sell or close the doors.

If you are thinking about it, think about it properly

Conviction is not a plan. If you are seriously considering starting a practice or buying yours back, the work in front of you is unglamorous and entirely doable:

• Know what it is actually worth before you make an offer or field one. That means a defensible valuation, not a multiple someone quoted you at a conference.
• Diligence the thing you are buying back — including the version of it you used to own. A quality of earnings analysis and proper transaction due diligence will tell you what the reported numbers are hiding, in both directions.
• Model the first eighteen months honestly. Payor contracts do not transfer themselves, credentialing takes longer than anyone promises, and working capital is where good clinical businesses die.
• Get financial leadership in the room before the letter of intent, not after. That is the entire premise of our fractional CFO work with physician practices — the economics of a deal are decided long before closing.
• Run it as a project, with someone accountable. A carve-out, a de novo build, or a buyback is a project management problem as much as a financial one. Scope, timeline, and follow-through are what separate the practices that land from the ones that stall.

And if you are on the other side of this — if the honest answer is that the right move is a sale rather than a fight — then run that properly too. Exit planning and sale preparation done twelve months early is worth more than any negotiating tactic deployed in the final week.

Cheers to 2025

If you find yourself in the new year motivated to start your own practice or get it back, we are always happy to talk through the options or help assemble the right team. Not sure where you stand? That is usually the most useful conversation to have first, and it costs you nothing.

Time will tell whether this post ages well or ends up on the scrap heap of new year predictions. Please set a calendar reminder for this date next year and stick it to me if I am wrong.

For those celebrating in grand style, enjoy yourselves. For my fellow tired parents, we plan to be right there with you on the couch on New Year's Eve — sweatpants, re-runs, and asleep well before midnight.

And one last thing: Go Irish.