In 2021, CMS removed the cap on the number of operating rooms, procedure rooms and beds that can be approved for physician-owned hospitals at the main campus. Brown Gibbons Lang & Co., an independent investment bank and financial advisory firm, is bullish on the future growth of physician-owned hospitals.
The firm released a July 26 report on the state of the physician-owned hospital industry, including an expert roundtable discussion on future merger and acquisition activity.
“I think [physician-owned hospitals] continue to remain a very fiable investment for a lot of different types of potential partners,” said Amber McGraw Walsh, a partner at Chicago-based law firm McGuireWoods. “The partnerships are most typically about the opportunities they can unlock in terms of value-based care, operational efficiency, etc.”
Eight takeaways from the report:
1. There are around 120 to 130 surgical hospitals in the U.S. with physician owners. More than half of the physician-owned hospitals are independent, and the rest have corporate or health system partners.
2. The breakdown of physician-owned hospitals by ownership structure:
- Independent: 58 percent
- For-profit partner: 38 percent
- Three-way joint venture: 15 percent
- Nonprofit partner: 9 percent
3. Bringing on a health system or corporate partner, such as Surgery Partners, United Surgical Partners International or Surgical Care Affiliates, can provide retiring physicians with high-value liquidity while also giving early-career physicians the opportunity to buy in or increase ownership.
4. Physician-owned hospitals can expand by adding ASCs and urgent care centers. Surgery centers are typically more successful for physician-owned hospitals and can be investment vehicles for early career physicians in the market, according to the report.
5. Only physician-owned hospitals in markets with high concentration of Medicaid beneficiaries are able to expand the inpatient hospitals.
6. Outpatient surgery generates around 42 percent of physician-owned hospital revenue. Nonphysician-owned hospitals typically generate 28 percent of their revenue from outpatient surgery.
7. Brown Gibbons Lang predicts physician-owned hospitals will be highly competitive facilities in the emerging healthcare landscape focused on value-based care because they have lower price points than nonphysician-owned hospitals and rely less on inpatient surgery revenue.
8. Physician-owned hospitals are in a good position to become vertically integrated networks or partner with payers in the future, according to Brown Gibbons Lang.
