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Consolidation & Investment Within Value-Based Primary Care

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Published July 2021


A nationwide push for adoption of value-based care has influenced a wave of consolidation among primary care and multispecialty physician groups with a record high of 41 transactions closing in 2020 and the market outpacing that already in 2021.

Value-based care (VBC) is a payment model that steps away from a traditional fee-for-service (FFS) model in which providers are not rewarded for volume of procedures but instead rewarded for quality care by measuring benchmarks of positive patient health outcomes. In September 2020, CMS issued guidance for states to accelerate the transition to VBC, largely driven by offering Medicare Advantage (MA) plans. Following the order, MA plans saw an increase a nearly 10% increase of 2.4 million new members in 2021. MA plans are offered through commercial payors but backed by CMS, utilizing capitation payments, a form of value-based reimbursement. The alternative payment models of VBC are designed to incentivize efficient care, holistic treatment, and improve outcomes at a lower cost. Investors recognize the opportunity for growth that comes with these at-risk contracts.

In 2020, the VBC market experienced robust M&A activity from both established and newer players, signaling that this spur of consolidation will continue.

Traditional consolidators of primary care groups, such as large payors and health systems, hold the majority of Medicare Advantage market share, but private investors and the public market are quickly expanding their footprint in value-based care.

Payors are by far the most established players by means of their Medicare Advantage plans. UnitedHealth Group is the stand-out market leader with 27% market share as of March 2021. In fact, the largest ten MA insurers hold over 77% market share. By owning a large market share, payors can exercise influence over execution of VBC in real time.

Although new to the space, private equity and venture capital investors offer differentiated products through platform investments. These private investors now account for approximately 2% of Medicare Advantage lives.

Several private investments have also graduated to the public markets debuting via IPO and SPAC. Most recently, Alignment Healthcare (NASDAQ:ALHC), a provider of privatized Medicare benefits, raised $489.6M through its IPO in March 2021. Public offerings by VBC and MA players Oscar Health, Clover Health, Oak Street Health, and Cano Health reached an aggregate valuation of $22.6 billion, signifying a large step for investors in the space.

Industry tailwinds such as an expansion in Medicare Advantage will continue to drive VBC implementation for the coming years. Due to the nature of a managed care model, primary care providers feel immediate, direct impacts of VBC trends. Smaller practices are not as easily able to realize the advantages directly tied to patient population size and sophisticated operations that are crucial to benefit from VBC models. Instead, smaller practices will battle higher fixed costs, fluctuating potential outcomes due to population instability, and overall operate in a riskier environment. These market pressures will cause primary care practices to leverage consolidation to remain competitive.

Whitepaper Summary

  • An Evolving Value-Based Care Landscape Spurs Consolidation in Primary and Multispecialty Care
  • Shifting Primary Care Delivery Model Pushes for Alternative Market Opportunity
  • Obstacles Remain Before Widespread Adoption of Value-Based Care Becomes Standard
  • Evidence: Shift to Value-Based Medicare Advantage Care
  • The Future of Value-Based Care
  • Private Equity Investments Explained
  • Concluding Thoughts
  • About Provident Healthcare Partners
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