Skip to main content

Nixon Peabody LLP

  • People
  • Capabilities
  • Insights
  • About
Trending Topics
    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    Practices

    View All

    • Affordable Housing
    • Community Development Finance
    • Corporate & Finance
    • Cybersecurity & Privacy
    • Entertainment & Media
    • Environmental
    • Franchising & Distribution
    • Government Investigations & White Collar Defense
    • Healthcare
    • Intellectual Property
    • International Services
    • Labor, Employment, and Benefits
    • Litigation
    • Private Wealth & Advisory
    • Project Finance
    • Public Finance
    • Real Estate
    • Regulatory & Government Relations
    Industries

    View All

    • Aviation
    • Cannabis
    • Consumer
    • Energy
    • Financial Services
    • Healthcare
    • Higher Education
    • Infrastructure
    • Manufacturing
    • Nonprofit Organizations
    • Real Estate
    • Sports & Stadiums
    • Technology
    Value-Added Services

    View All

    • Alternative Fee Arrangements

      Developing innovative pricing structures and alternative fee agreement models that deliver additional value for our clients.

    • Continuing Education

      Advancing professional knowledge and offering credits for attorneys, staff and other professionals.

    • Crisis Advisory

      Helping clients respond correctly when a crisis occurs.

    • DEI Strategic Services

      Providing our clients with legal, strategic, and practical advice to make transformational changes in their organizations.

    • eDiscovery

      Leveraging law and technology to deliver sound solutions.

    • Environmental, Social, and Governance (ESG)

      We help clients create positive return on investments in people, products, and the planet.

    • Global Services

      Delivering seamless service through partnerships across the globe.

    • Innovation

      Leveraging leading-edge technology to guide change and create seamless, collaborative experiences for clients and attorneys.

    • IPED

      Industry-leading conferences focused on affordable housing, tax credits, and more.

    • Legal Project Management

      Providing actionable information to support strategic decision-making.

    • Legally Green

      Teaming with clients to advance sustainable projects, mitigate the effects of climate change, and protect our planet.

    • Nixon Peabody Trust Company

      Offering a range of investment management and fiduciary services.

    • NP Capital Connector

      Bringing together companies and investors for tomorrow’s new deals.

    • NP Second Opinion

      Offering fresh insights on cases that are delayed, over budget, or off-target from the desired resolution.

    • NP Trial

      Courtroom-ready lawyers who can resolve disputes early on clients’ terms or prevail at trial before a judge or jury.

    • Social Impact

      Creating positive impact in our communities through increasing equity, access, and opportunity.

    • Women in Dealmaking

      We provide strategic counsel on complex corporate transactions and unite dynamic women in the dealmaking arena.

    1. Home
    2. Insights
    3. Alerts
    4. Healthcare trends we're watching

      Alerts

    Alert / Healthcare

    Healthcare trends we're watching

    Jan 22, 2024

    LinkedInX (Twitter)EmailCopy URL

    By Christopher Desiderio, Marissa Espinoza Icochea, Isaac Figueras, Michele Masucci, Richard Pedone and Michael Schnipper

    We expect these business trends to influence the healthcare transactional landscape in 2024.

    What’s the impact?

    • Joint ventures can provide access to capital but may open the door to regulatory scrutiny.
    • Buyers and sellers are keeping an eye on interest rates and exploring revenue growth through both traditional M&A activities as well as joint ventures and options.
    • Distressed transactions require extra caution to minimize risks.

    DOWNLOAD

    PDF: Healthcare trends we’re watching

    As the healthcare industry continues to pivot and evolve, the intricacies of healthcare transactions play a crucial role in how effectively healthcare systems can provide services and shape the overall patient experience. We explore the business trends that will steer the course of healthcare businesses in 2024.

    Joint ventures between platforms and with hospitals

    We expect private equity backed Management Service Organizations to continue entering joint ventures with hospitals. These sorts of joint ventures provide hospitals with needed access to capital, a requisite for a hospital’s expansion that is frequently a critical barrier to growth. We anticipate transactions in this space to remain robust as hospitals seek to grow their footprint and as the economy strengthens.

    Entering into new markets certainly poses risks and benefits to all parties involved: the private equity backers, the hospital, and even the physician partners when the cachet of the physician practice is notable. Reputable physician practices bring expertise, credibility, and a recognizable brand within their specialty. Hospitals, looking to strengthen their focus in that area of specialty, can capitalize on that expertise through a joint venture with the physicians, such as through establishment of a new line of business leveraging the MSO’s expertise. In exchange, the parties benefit from economies of scale, allowing for improved clinical care management, resource utilization, and better management of value-based reimbursement contracts. These joint ventures frequently include an investment opportunity in the MSO for the health system. These ventures, when paired with private equity’s valuable access to capital, can make for a mutually beneficial and successful arrangement.

    One unpredictable risk arising from such arrangements is the continued scrutiny and regulation of the healthcare space, particularly with respect to private equity involvement. Unlike pure private equity investment in healthcare, these types of joint ventures are precisely the public-private partnerships that policymakers so frequently invoke when seeking to promote investments in an industry in which the government limits its own investment.

    As the year unfolds, expect to see more such joint ventures occur.

    Healthcare M&A outlook

    Many economists, attorneys, and other professionals are hopeful that interest rates will start to lower in 2024 and are cautiously predicting a stronger year for M&A in general, but will that apply to healthcare M&A? Just like 2023, it depends on the strength of the seller, the risk tolerance of the buyer, and many other considerations. 

    While a number of the factors that slowed down healthcare M&A in 2023 still exist (rate suppression, antitrust enforcement, union activity, lasting effects of the great resignation, and so on), buyers have also found creative ways to pursue these transactions in an environment with larger risk and higher interest rates. For private equity buyers, these often involve deals with larger amounts of rollover equity or looking more closely at earnout structures. For small physician practices, buyers may focus on acquihires—recruiting physician practices as employees as opposed to a fulsome acquisition with an asset purchase agreement and traditional representations and warranties. Other healthcare industries, such as telehealth, are under duress and consolidating at a fast factor, creating opportunities for strategic buyers. In short, buyers have tended to be more conservative on target choices and have an increased focus on due diligence, but have not closed the door on M&A activities.

    Acquiring or establishing ambulatory surgery centers

    Recently, hospitals and private equity backed platforms have looked to a number of areas to grow revenue outside of traditional M&A activities. One path that continues to be very popular is acquiring or establishing an ambulatory surgery center. 

    These are often structured as joint ventures with a group of physicians. However, structuring the joint venture can be tricky. Management rights between the physician group, on the one hand, and the hospital or platform, on the other, need to be carefully navigated. Buy out provisions for physicians that desire to withdraw or redemption rights for bad actors are often heavily negotiated, including what purchase price should be paid based upon the reason for withdrawal or redemption. Establishing a new ambulatory surgery center contains additional risks. For example, obtaining third-party financing may require the physician group to provide guaranties after already making an initial capital contribution, which is not always popular on the physician side. 

    These joint ventures require striking a balance between properly negotiating each group’s rights and obligations with making sure the entirety of the physician group appreciates the risks involved.

    Due diligence in distressed healthcare transactions

    In 2023, many health systems and providers were involved in distressed healthcare matters ranging from out-of-court workouts and acquisitions to chapter 7 and chapter 11 bankruptcy cases. 

    We believe that healthcare providers will continue to face tremendous financial pressures as a result of rising labor costs, reimbursement rates that have not kept pace with inflation and increased costs of care. The “merge-or-die” wave whereby providers consolidate to reduce back-office costs and increase the size of the patient population with a goal to improve profitability is probably ending. 

    In 2024 we will see an increasing number of transactions at distressed prices effectuated through “no cash” deals where the physicians are given notes in exchange for their practices or receive equity in the new venture. In return, the physicians hope that the new structure provides additional stability ensuring the continued viability of their practice and allow them to focus on patient care rather than the bottom line. 

    While due diligence in distressed transactions is crucial, we will continue to see parties seeking to close deals on tight timelines with limited due diligence and representations and warranties to realize a perceived “bargain” price. Even though a deal may appear to be a bargain on its face, issues of successor liability or third-party payor claims can sink a newly acquired practice. On the other hand, identifying common weaknesses in practices can allow investors to create a model that can be easily replicated and maximize their return on investment. 

    What’s next?

    Despite economic factors affecting business growth and increasing government oversight in the healthcare space, private equity buyers, hospitals, and others continue to look at healthcare businesses for top returns. Nixon Peabody’s healthcare transaction attorneys can help you navigate healthcare’s complex regulatory and business landscape and help you maximize new opportunities for growth and success in the new year.

    For more information on the content of this alert, please contact your Nixon Peabody attorney. 

    Practices

    HealthcareHealthcare FinanceHealthcare TransactionsHealthcare Restructuring

    Industries

    Healthcare

    Insights And Happenings

    • Alert

      OCR updates guidance on the risks of using online tracking technologies

      March 20, 2024
    • Article

      Physician M&A options for navigating the healthcare industry

      Feb 27, 2024
    • Alert

      New York proposes new hospital regulations concerning patients with behavioral health needs

      Feb 27, 2024
    The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

    Subscribe to stay informed of the latest legal news, alerts, and business trends.Subscribe

    • People
    • Capabilities
    • Insights
    • About
    • Locations
    • Events
    • Careers
    • Alumni
    • Cookie Preferences
    • Privacy Policy
    • Terms of Use
    • Accessibility Statement
    • Statement of Client Rights
    • Purchase Order Terms & Conditions
    • Nixon Peabody International LLC
    • PAL
    © 2025 Nixon Peabody. All rights reserved