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Heritage Provider Network courts PE for $7B-plus deal

Mar 20, 2024
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Illustration: Sarah Grillo/Axios

Heritage Provider Network (HPN), a risk-taking physician organization owned by founder Richard Merkin, is reviving plans to sell itself, Axios confirms.

Why it's matters: Considered a pioneer of value-based care, HPN has been a closely watched asset for years and has come on and off the market since 2022.

Zoom in: First-round bids are due next week for HPN, which is being marketed on $600 million-plus of EBITDA, says a source close to the situation.

  • A deal could value Northridge, California-based HPN at around $7 billion to $8 billion, including debt, as first reported by Bloomberg.
  • HPN reached out to private equity firms Advent International, Carlyle (which was vying for Heritage in late 2022), Hellman & Friedman and TPG to gauge interest.
  • Managed care giant Humana may also be interested and could partner with a private equity firm to take a minority stake, Bloomberg says.

Our thought bubble: It's an interesting time to market a large physician business to private equity firms, given increased regulatory scrutiny and headline risk.

Flashback: HPN, which bills itself as one of the largest physician-owned managed care organizations in the country, launched a JPMorgan-led sale process in mid-2022.

  • Price talks at that time were in the $7 billion to $8 billion range, though a source told Axios then that HPN could seek over $10 billion in a potential sale.
  • Carlyle threw its hat in the ring for HPN in November 2022, but financing markets had already tightened significantly and no deal was struck.

Yes, but: Merkin, now in his 70s, has controlled every aspect of HPN for 40-plus years and is under no obvious pressure to transact.

  • Any private equity buyer would likely need to install a management team and do a fair amount of corporatization.
  • Also, in late 2022, HPN affiliate Regal Medical Group experienced a data breach that exposed the personal details of patients across its network.

What we're watching: A Humana-PE partnership — to which the insurer is no stranger — would make sense, given Humana's Medicare Advantage (MA) foothold.

Reality check: Federal regulators are cracking down on vertical integration.

  • The Justice Department is investigating UnitedHealth-owned Optum's acquisitions of doctor groups, and how owning physicians and a health plan impacts competition
  • Plus, Humana has plenty on its plate already, given troubled MA primary care operator Cano Health is now part of its CenterWell division.

Advent, Carlyle and TPG declined to comment. HPN, Hellman & Friedman and Humana did not respond to a request for comment.

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