Independent medical practices are struggling under financial and operational pressures. Rising labor costs, shrinking reimbursement rates, and increasing administrative demands have made it difficult for many to remain independent. These challenges are changing how physicians approach mergers, private equity, and hospital partnerships, as well as how they assess the value of their practices.
Andy Colbert, senior managing director at investment bank Ziegler, has observed these changes closely. His firm, which has specialized in healthcare for over a century, has overseen more than $6 billion in transactions. Colbert leads the company’s physician advisory practice, where he assists independent practices in handling consolidation, determining fair value, and forming strategic partnerships.
The financial realities have shifted. Colbert notes that a practice now typically needs 40 to 50 physicians to sustain itself independently. Smaller groups often find the economics unsustainable.
Many are turning to consolidation, though the options are complex. Selling to a hospital, partnering with private equity, or joining a management services organization each has advantages and drawbacks. The best choice depends on a practice’s size, specialty, and future objectives.
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Most physicians misunderstand what their practice is worth, Colbert explained. Value isn’t based on revenue or patient volume but on cash flow. A common arrangement involves a 30% “scrape,” where a buyer takes a portion of earnings in exchange for capital or administrative support.
The valuation also considers how many years a physician has left in practice. Younger groups may receive higher offers, while older ones could see their value decrease as retirement approaches.
Primary care physicians face particularly high stakes. Colbert advises them to expand their scale and develop a three-to-five-year strategic plan before external forces dictate their future. The market moves quickly, leaving little room for delay.
Hospital deals often provide immediate advantages, such as higher reimbursement rates, increased referrals, or protection against competitors. However, they also come with conditions. Private equity offers capital and operational expertise but may push for rapid growth. Management services organizations offer a middle ground, allowing practices to retain ownership while reducing administrative burdens.
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No option is without risk. Staff concerns are a significant challenge. While mergers rarely result in layoffs, change can still create unease. Clear communication helps, though it cannot eliminate all uncertainty.
Artificial intelligence is raising expectations for smaller practices. It can improve billing, scheduling, and diagnostics but requires investment that solo groups and small partnerships may struggle to afford.
For physicians who have spent their careers focused on patient care, the shift toward business strategy can feel abrupt. In a consolidating market, adaptation is not optional—only the method remains a choice.
