Medical group mergers show slowing trend

Larger groups are now the targets

The number of medical group mergers has fallen for the first time in four years, according to a new survey. Publicly announced mergers among medical groups dropped by 16% during 1998 to 262, while the number of groups acquired fell by 28% to 369, says Irving Levin Associates, a New Canaan, CT, research firm.

"Not every year can be a record-breaker," says Stephen M. Monroe, a partner at Irving Levin Associates. "Nevertheless, 1998 is still the second-most active year we have seen in the medical group merger and acquisition [M&A] market when measured by the number of physicians involved."

"The shift in the number of groups acquired, coupled with the relatively large number of physicians involved, indicates that buyers are now favoring larger groups and networks like independent practice associations," observes Sanford Steever, one the consultants who worked on the study.

Both the volume and the nature of these transactions are changing. "Rather than buy a practice outright, the practice management companies and other players are now seeking to forge looser arrangements such as IPAs or a management service organization as a basis for their relationship," says Steever.

The merger and acquisition market for physician medical groups cooled off significantly in the second half of last year. Of the 20 most expensive deals of 1998, 80% took place in the first half of the year. "The deal volume also fell off because of a number of well-publicized bankruptcies in the physician practice management [PPM] business, as well as several PPMs deciding to get out of the business altogether," says Steever

Here is a summary of merger and acquisition activity since 1994, showing the number of deals each year, the number of groups involved, and the number of physicians affected:

"We expect the volume of physician medical group M&A activity in 1999 to remain close to the levels established in the second half of 1998. With continued fragmentation in this sector as well as pressure from payers, physicians will want to bolster their position in the health care delivery system by aligning themselves with companies that represent their professional and financial interests," stresses Monroe.