US medical clinic consolidation gathers pace – commentary

The consolidation of specialist medical clinics is one of the hottest strategies for North American healthcare-focused private equity firms.

The US market remains vast and fragmented, and, as reporting and regulatory costs continue to rise for providers, joining a bigger and better resourced clinical platform is an increasingly attractive option for smaller players.

The trend may have kicked off in dental care back in the mid 2000s, but a range of other specialised clinics are following the same route. Dermatology, eye care and physiotherapy clinics – or physical therapy as it’s known in the US – have all been subject to private equity clinic acquisition and roll-up activity in recent weeks and months.

The latest in the latter category is Advent International, which is buying a controlling stake in ATI Physical Therapy from KRG Capital Partners. Before Advent’s approach, ATI had already made four physiotherapy clinic add-on acquisitions this year alone.

Perhaps unsurprisingly, considering the backdrop of an ageing population and growing adoption of physiotherapy across all age groups, Advent spies a greater slice of the physiotherapy pie.

It values the outpatient physiotherapy market in the US at around $15 billion, with around 18,000 freestanding clinics still in existence.

And it’s happening up and down the market cap scale. Private Equity International sister title Private Healthcare Investor reported this month that lower mid-market specialist Pharos Capital had acquired New York City-focused Community Physical Therapy through its Motion PT acquisition vehicle.

Meanwhile Canadian pension plan OMERS told PHI last month that physical rehabilitation was a key investment theme in its healthcare strategy. The plan has already made two related acquisitions, Toronto-based CBI Health Group and Chicago-based Accelerated Rehabilitation Centers, before selling the latter to Athletico Physical Therapy in 2014.

Private equity-backed outpatient services like physiotherapy provide an effective way to take pressure off creaking public sector healthcare services. Of course, in countries where the private equity model is readily accepted and even embraced as part of the overall healthcare provision mix, it can make a significant difference to patient outcomes.

Mid Europa senior partner Matthew Strassberg believes this is firmly the case in countries like Poland and Romania, where it is widely accepted that the top 25 percent of wage earners will go private for most of their healthcare needs. Strassberg spoke to PHI this week following Mid Europa’s acquisition of cutting edge Bucharest private hospital Ponderas through its portfolio company Regina Maria.

The acquisition is Regina’s first in Romania, but Strassberg expects it to make several more specialist acquisitions in the country, in areas such as diagnostics or laboratories. At that point, he believes, it will have become an attractive target for strategic healthcare buyers looking to gain a credible foothold in new markets.

He contrasts the healthcare backdrop in Poland and Romania with that of the NHS in the UK, where the role of private equity in healthcare service provision remains emotionally and politically charged.

Of course, it’s a politically charged sector in the US too, but that isn’t down to a lack of private equity investment. Broader acceptance of private equity as part of the UK’s healthcare mix might yet help to provide better solutions for its much admired but under pressure system.