By Francesca Mathewes

As independent practices continue to fight for survival in a challenging healthcare and economic environment, there are several market factors prominently shaping the future of physician practices.

Consolidation

“One of the most significant is the increasing consolidation of practices, with a notable shift of physicians moving from independent practices to employment under hospitals or corporate entities,” said Brandon Ortega, MD, an orthopedic surgeon at Long Beach (Calif.) Lakewood Orthopedic Institute. “As of early 2024, nearly 80% of physicians were employed by such organizations, continuing a decadelong decline in independent practice.”

Around 25% of 2024 physician group deals took place in Florida, Texas and California, correlating with their large populations and growth potential, according to VMG Health’s 2025 Healthcare M&A Report, released on April 22. Several states introduced or expanded regulations that may limit private equity partnerships with physician practices through management services organizations.

Some specialties saw higher transaction volumes, including 29 internal medicine deals and 242 dental deals in 2024. Dental consolidation continues to gain momentum, with rising interest in primary care, cardiology and orthopedics heading into 2025.

The technology race

Technology is a double-edged sword for many physician practices. The VMG report found that outdated EHR systems and other technology can amount to hidden costs for physician practices, reducing productivity and lengthening visit times.

However, the speed at which technology is developing and the upfront cost required to acquire and implement new technologies can be a difficult investment for physician practices already struggling with narrow margins and evolving regulatory requirements.

“The rapid advancement of digital health technologies, such as telemedicine and remote patient monitoring, is reshaping patient care delivery,” Dr. Ortega said. “While these innovations enhance accessibility and convenience, they also necessitate significant investments in technology and training, posing challenges for practices striving to keep pace with evolving patient expectations and regulatory requirements.”

Operational costs

Operational costs continue to be a central concern for physician practices, particularly as the healthcare industry braces for the possible effects of tariffs on medical devices and supplies.

The tariffs are expected to shrink the U.S. economy, which could indirectly impact healthcare delivery. Currently, 143.2 million individuals receive their health insurance or subsidies for health coverage through the government, encompassing approximately 45% of total healthcare spending, with the rest covered by private businesses. “An economic downturn will inevitably lead to a decline in healthcare delivery,” .

The level of investment needed to support physician practice operations — measured as median investment per physician full time equivalent — rose to $347,053 for Q1, according to software company Strata Decision Technology. That marked a 5.4% increase from the fourth quarter of 2024 but just a slight 0.2% increase from the first quarter of 2024.

Per-physician expenses also continued to climb, contributing to the increase in needed investment. The median total expense per physician rose to $1.2 million in Q1 of 2025, up 3% from Q4 of 2024 and up 10.3% from Q1 of 2024.