Harris Meyer August 31, 2019 01:00 AM
Dr. Andrew Rocca said it wasn’t
easy bringing his orthopedic group colleagues to consensus on selling their
business to Varsity Healthcare Partners, a private equity firm.
To get the deal done in November
2017, the 25 physician shareholders of the Orthopaedic Institute in
Gainesville, Fla., had to agree to accept a sizable upfront cut in pay that
would be contributed to equity in the new management services organization, in
which they would have a minority share. All the doctors had to think through
how the deal would affect their individual financial planning given their age
and where they were in their careers.
“We had to work that through the
digestive systems of 25 guys—and surgeons have strong opinions on things,” said
Rocca, the group’s chief medical officer. “The fact that our group got to a
resolution speaks to the fact that most practices probably are looking at their
options.”
Physicians involved in these sales
to private equity firms say they and their colleagues were willing to accept
the tradeoffs because they increasingly feel the need for capital, scale and
business expertise to survive in a world of bigger players and new, risk-based
payment models. They often considered, and rejected, the option of selling out
to a local health system or insurer.
“We would have given up more independence selling to a
hospital or insurer. We’ll still be able to privately practice medicine, with
no one interfering with our clinical judgment.”
Dr. Steven Morris, co-founder and chief medical
officer, Atlanta Gastroenterology Associates
“We would have given up more
independence selling to a hospital or insurer,” said Dr. Steven Morris,
co-founder of Atlanta Gastroenterology Associates. His group closed a deal last
December with Seattle-based Frazier Healthcare Partners to form a management
services organization platform called United Digestive, of which he’s now chief
medical officer.
“We’ll still be able to privately
practice medicine, with no one interfering with our clinical judgment,” he
added.
The goal of the 33-physician
Orthopaedic Institute, one of Florida’s largest orthopedic groups, was to
expand in other Florida markets and move into at least two other states.
The management services
organization hired a new CEO and chief financial officer, along with merger
specialists and a physician recruiter. The management firm already has helped
the group expand from 33 physicians in seven locations to 44 in 11 locations,
through practice acquisitions and new hires.
The group is scheduled to soon open
a large new clinic near The Villages, a major retirement community in central
Florida. And it’s renegotiating all the group’s managed-care contracts and
launching four bundled-payment deals. The revenue growth target is 25% per
year.
“We’re looking to join with
like-minded, high-quality groups that want to be part of something larger,”
said Dr. Richard Gilbert, the new CEO, who touts the many different revenue
streams associated with orthopedic practices as making that specialty a smart
investment. “It portends ongoing growth to a multistate organization.”
While critics warn that private
equity investors may unduly pressure physicians to see too many patients, Rocca
said he and his colleagues welcome the management firm’s focus on measuring the
number of visits with new and established patients.
“We were a well-run practice but
metrics weren’t a high priority,” he said. “It’s a high priority for them, and
it’s helpful. We’ve seen total throughput increase.”
Frazier and Atlanta
Gastroenterology partnered in United Digestive
with the aim of establishing a powerful network of gastrointestinal services in
three or four Southeastern states.
The lure for Frazier was that the
96-physican group already made up nearly a third of all gastroenterologists in
Georgia, had its own ambulatory surgery centers, and provided all ancillary
services including pathology, pharmacy, infusion and anesthesiology.
“You can sit with a payer and say
we provide quality medicine with broad geographic coverage at reasonable
rates,” said Nader Naini, managing partner at Frazier. “You have leverage to
negotiate.”
For their part, the doctors
welcomed having a management company handle their business operations and
provide capital to expand, with the management services organization serving as
a hub for new GI groups that sign on.
Morris said the Frazier partnership
will better position the group for value-based payment arrangements and enable
it to get “fairer deals” from insurers as it acquires other practices and gets
bigger.
Still, he acknowledged uncertainty
about the future given the limited time frame of private equity investors.
“There’s always apprehension about the second owner and the second bite of the
apple,” Morris said, referring to the moment when the first private equity
owner sells and the doctors receive their second cash payout. “You’re still
going to be looking for someone who wants to be a good steward and grow it even
more. There still should be significant bandwidth to expand.”
That uncertainty also weighed on
Rocca and his colleagues in Gainesville when they were negotiating the deal
with Varsity. Nearly two years in, he’s feeling more confident.
“One thing we told them was, ‘We
all want to practice medicine the way we want. Will you tell us to do it
differently?’ ” he recalled. “They said, ‘No.’ Thus far I’d say that’s
accurate.”
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