Practice Consolidation Heats Up in 2025: What You Need to Know

After a period of relative quiet in late 2024, healthcare consolidation is accelerating once again. Private equity healthcare deals jumped from 128 transactions in Q4 2024 to 140 in Q1 2025, signaling renewed investor confidence despite ongoing regulatory scrutiny. For medical group owners, this resurgence represents both opportunity and urgency—now is the time to evaluate strategic options before market dynamics shift further.

The Current Consolidation Landscape

Private equity firms have returned to healthcare acquisitions with renewed vigor after stepping back in late 2024. Several large transactions exceeding $1 billion were announced in Q1 2025, reflecting the deployment of record "dry powder" capital that had been sitting on the sidelines. This activity follows a period when high interest rates and aggressive Federal Trade Commission oversight had tempered deal-making enthusiasm.

Despite this resurgence, regulatory oversight remains a significant factor. The FTC and Department of Health and Human Services issued reports and inquiries throughout 2024 highlighting concerns about healthcare consolidation and private equity's expanding role. The regulatory response has been swift—over a dozen states proposed bills in early 2025 to increase oversight of healthcare transactions, ranging from advance merger notifications to restrictions on certain ownership structures. Massachusetts enacted legislation at the end of 2024 requiring stricter reporting of provider deals.

However, this regulatory environment has not halted consolidation; rather, it has made dealmakers more cautious in structuring transactions. Creative partnership arrangements that comply with evolving regulations continue to emerge, and industry observers note that compliance and due diligence have simply become more critical components of the deal process.

Broader Consolidation Trends Beyond Private Equity

Healthcare consolidation extends far beyond private equity transactions. Hospital merger activity has risen for three consecutive years, with experts expecting continued elevation in 2025. In 2023 alone, 65 hospital or health system mergers were announced, up from 53 in 2022. Recent examples include Vanderbilt Health's acquisition of a cardiology practice from a community hospital system and NYU Langone Health's purchase of a large orthopedic group in Q1 2025.

Perhaps more significantly, non-traditional corporate buyers are reshaping the physician employment landscape. Major corporations including CVS Health, Walgreens, Walmart, Amazon, and UnitedHealth Group's Optum division have aggressively acquired clinics and urgent care centers. The statistics are striking: corporate-employed physicians increased from 15% in 2019 to 22% by 2022, with Optum alone now affiliated with roughly 10% of all practicing physicians nationwide.

This corporate expansion has fundamentally altered practice ownership patterns. By 2024, fewer than half of physicians remain truly independent, with approximately 78% now employed by hospitals, health systems, insurers, private equity-backed entities, or other corporate employers. Medical practice ownership has shifted correspondingly—58.5% of all medical practices are now owned by hospitals, health systems, or corporate entities as of 2023.

Economic Drivers Behind the Consolidation Wave

The consolidation trend reflects substantial economic pressures facing independent practices. Flat or declining reimbursement rates, particularly from Medicare, combined with rising operational costs for staff wages, technology infrastructure, and regulatory compliance, are squeezing practice margins. Simultaneously, value-based care models and payer negotiations increasingly favor larger entities capable of coordinating care and assuming financial risk.

Industry leaders consistently emphasize that scale provides negotiating leverage. As one healthcare executive noted, "the bigger you are, the more power you have in negotiations with payers and suppliers." This market reality rewards size and integration, creating powerful incentives for consolidation across all practice types and specialties.

Strategic Options for Medical Groups

Given these market dynamics, practice owners face three primary strategic paths, each requiring careful consideration of financial, operational, and professional factors.

Selling to a Strategic Partner

Selling a practice or majority stake to a private equity firm, hospital system, or corporate buyer can provide immediate financial liquidity while potentially allowing physicians to focus more on clinical work. Many practices report that business support from larger platforms enables physicians to concentrate on patient care while the platform handles billing, information technology, and growth initiatives.

However, successful transactions require more than attractive financial terms. Industry experts emphasize that "culture and alignment, not simply economics, should be the first goal" when evaluating potential partners. Different buyers carry different expectations—hospitals may require integration into employed physician networks, while private equity firms typically expect growth through expansion and eventual platform resale.

Thorough due diligence is essential. Practice owners should examine potential partners' track records with other practices, speak directly with physicians in similar transactions, and clearly understand post-deal operational expectations. Competition among buyers remains strong in 2025, supporting reasonable valuations in popular specialties, though these remain below 2021 peak levels.

Most private equity transactions involve "rollover equity," requiring sellers to retain minority stakes and remain invested in the practice's future performance. This structure offers potential for a "second bite at the apple" when platforms are eventually resold but also means continued financial exposure to the practice's success.

Partnership or Merger with Peer Practices

Strategic partnerships or mergers with other physician groups offer a middle path between complete independence and full sale. These arrangements can achieve operational scale and resource sharing while maintaining physician ownership and control. Specialty groups in oncology, orthopedics, and primary care have successfully formed regional networks through mergers, enabling better payer contract negotiations and shared administrative infrastructure.

Joining larger physician organizations or management service organizations can distribute costs for electronic health record systems, billing, and compliance while providing access to expansion capital without immediate outside investment. This physician-to-physician consolidation has accelerated in 2025 as groups seek scale benefits before considering outright sales.

Successful peer partnerships require complementary cultures and clear governance structures for decision-making in combined entities. While this path preserves more physician control, it also demands greater internal coordination and leadership commitment.

Remaining Independent with Strategic Growth

Some practices will choose to remain independent, but this path requires deliberate strategy to compete effectively in a consolidated market. Independent groups can differentiate through superior patient experience, niche services, or operational efficiency, but must actively adapt to changing market conditions.

Growth strategies for independent practices include adding ancillary services such as imaging, ambulatory surgery, or cosmetic treatments to diversify revenue streams, and opening satellite clinics to increase market presence. Technology investments in telehealth, remote patient monitoring, and data-driven care models are becoming essential for competitiveness.

Joining Accountable Care Organizations or clinically integrated networks allows independent practices to access some scale benefits and participate in shared savings programs while maintaining ownership. However, this path requires significant management capability, technology infrastructure, and comfort with value-based care models that larger systems routinely employ.

Regulatory and Operational Considerations

Healthcare transactions involve complex regulatory frameworks including Stark Law, Anti-Kickback Statute, and state-specific corporate practice of medicine rules. Professional guidance from experienced healthcare legal counsel, financial advisors, and transaction consultants is crucial for proper deal structuring.

Practice owners engaging in sale or partnership discussions should consider long-term implications beyond immediate financial terms. Questions regarding practice autonomy, leadership roles, exit strategies, and remaining equity participation require careful evaluation and clear contractual protections.

The regulatory environment continues evolving, with policymakers closely monitoring consolidation effects on patient costs and care quality. Some studies suggest that consolidation can increase patient costs without automatically improving quality outcomes, underscoring the importance of maintaining clinical excellence and professional values throughout any partnership process.

Strategic Imperatives for 2025

The healthcare consolidation trend shows no signs of abating. Market forces favoring scale and integration will likely continue driving transactions throughout 2025 and beyond. For medical group owners, this environment creates both opportunity and risk.

Simply maintaining the status quo may prove increasingly challenging as competitors gain scale advantages through mergers and acquisitions. As one cardiologist who participated in a practice merger observed, "The time for single practice is over... It is very hard to manage, it is very hard to compete... so you have to either join a bigger group or sell to a hospital or to a [venture] capital group."

Even practices ultimately choosing independence should explore their options, understand their market value, and strengthen operational capabilities. Proactive assessment of practice value, potential partnership opportunities, and internal weaknesses in financial reporting or compliance will position practices to act decisively when opportunities or necessities arise.

The consolidation era offers multiple paths to success, whether through partnership, merger, or strategic independence. The key is approaching these decisions with clear strategic thinking, comprehensive market awareness, and professional guidance. For medical groups willing to engage thoughtfully with these market realities, opportunities to thrive remain abundant—but only for those who act with their eyes open and a strategic mindset.

Whether evaluating potential transactions or remaining independent, practices must ensure their financial reporting and compliance systems are robust enough to support strategic decisions. Many consolidation opportunities require detailed financial due diligence, making accurate accounting and tax planning essential components of any strategic evaluation.

Ready to Evaluate Your Practice's Strategic Position?

Navigating healthcare consolidation requires more than just understanding market trends—it demands precise financial analysis, strategic tax planning, and meticulous compliance management. Whether you're preparing for a potential sale, merger, or planning to remain independent, having trusted financial partners who understand the unique complexities of healthcare practices is essential.

Contact Baldwin CPAs today to discuss how our specialized healthcare accounting services can position your practice for success in this evolving market.