For this community roundtable, Colin McDermott and Cordell Mack, both Managing Directors at VMG Health, joined me for an hour on where physician practice management (PPM) goes from here. We covered why the 2021 playbook broke, why the drug distributor mega-deals aren’t the signal people think they are, and why the next exit probably looks like a carve-up.

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The 2021 PPM boom was a perfect storm, and it’s now a hold-period problem. PitchBook counted almost 800 PPM deals in 2020, roughly 1,200 in 2021, and nearly 1,100 in 2022. Cheap money, peak leverage, and a pandemic that pushed independent proceduralists (orthopedics especially) toward partnership all lined up at once. Colin’s math on vintage was the clearest part of the session. A sponsor who bought at a 10x in 2018 and exited at 12x in 2022 hit roughly 3x invested capital and a 30% IRR. A sponsor who bought near the 2021 peak faces higher debt costs, slower growth, and bids a turn or two below entry. A typical five-to-seven-year hold means that tranche is now coming due.

Interest rates alone don’t explain the freeze. Colin and Cordell think it’s something bigger, and that the exit door runs through the health system. Colin pointed out that PE has roughly $1 trillion in dry powder and healthcare still has strong tailwinds, so the lack of exits points to something more fundamental. His open question was whether PE still sees PPM as investable. Add in the Fed’s September rate hike, tougher lender underwriting (diligence now probes physician attrition and EBITDA levers), and state-level scrutiny. Cordell cited, based on the most recent data he reviewed, 26 or 27 states with enacted or pending laws on transaction review or healthcare PE specifically.

Underwriting EBITDA by cutting physician comp has hit its limit. Colin was blunt about this. Late-career physicians tend to drive the sale, while early- and mid-career docs feel the rug got pulled, especially when hospital employment usually comes with a raise. With organic growth in a services business capped by hours in the day, the remaining levers are scale: back office, purchasing power, and managed care rate negotiation. Tech came up as an underwriting story only in narrow cases. Cordell saw it mostly in value-based care roll-forward assumptions, and Colin said the only clinical AI use he hears about is documentation.

The drug distributor deals are real, but not representative. Mega-deals with drug distributors got a lot of headlines, but Drew Wozniak made the point that these buyers are acquiring drug spend, not practices, and are largely agnostic to the underlying PPM economics. That’s why those multiples can look impossible in a spreadsheet. Colin’s read: they were simply the first and easiest strategic buyers to the table. I pushed on whether that leaves them exposed if drug spend economics shift, and the answer was a candid “TBD.”

The next exit is likely a carve-up to regional strategics. Platforms that stitched together assets in far-flung markets can often be worth more as parts than as a whole. The examples:

• Optum divesting assets in Florida and New York.
• Harbor Health buying Village assets in Texas.
• Horizon BCBS buying Summit assets in New Jersey.
• A DC-area orthopedic carve-out that went to a local hospital.
• NextCare’s market-by-market urgent care sales.

Buyers will care about regional fit, network gaps, specialty depth, and easy integration (clean payer contracts, a short sign-to-close, a workable transition services agreement). Sellers want a clean, fast exit. That’s a built-in tension.

Health systems may be the last chair in the game of musical chairs. If sponsor-to-sponsor sales and IPOs are rare and Optum is getting pickier, Colin’s thesis is that health systems are the obvious strategic buyer left. Cordell offered the Tenet/USPI deal as a template. It had an upfront liquidity event, then structured puts over several years, so the system doesn’t need all the capital on day one and the sponsor keeps some upside. Colin guessed the Bain/Surgery Partners/Bon Secours Mercy deal announced Oct 26 may have something similar, though he didn’t know the terms.

“Sticky” means physicians who feel fairly paid. Both guests came back to retention. Doctors will want parity with peers, three-to-five-year contracts, clarity on how comp evolves, and a view on future investment in their service line. The wrinkle is that higher post-deal comp eats into valuation, and physicians often aren’t fully at the table during a transaction negotiation.

Payers are selective about urgent care for a reason. When asked why payers don’t buy more urgent care, given the ER diversion upside, Cordell and Colin said the unit economics are tough even at regional scale. Many JVs still need subsidies, nearly every big urgent care operator they’ve seen is underperforming on rate or volume, and real estate costs are punishing. Drew added that these centers compete for prime retail space without a retail tenant’s pricing power.

Long-term care: PACE is where the private capital is going. In response to a question asked in the chat, Colin said assisted living and senior housing deals tend to look like real estate plays. He sees more private capital moving into PACE, the capitated CMS program for very sick, often dual-eligible seniors.