'Surviving and thriving through healthcare reform' — Gastro Health's Dr. James Leavitt on consolidating markets

Miami-based Gastro Health has been able to expand over the past 11 years due to its willingness to adapt, especially as new legislation continually comes into the mix. Founded in 2006, Gastro Health is Florida's largest gastroenterology provider, with a network of more than 90 physicians staffing 27 Florida locations.

James Leavitt, MD, president of Gastro Health, shared his thoughts on the evolving legislative environment and the company’s rapid expansion, through acquisitions, recruitment of talented physicians, organic growth and new business development deals.

Already taxed by the demands of their caseloads, small practices may struggle to compete in the move toward value-based reimbursement. The enormous amount of legwork and resources required to meet the many reporting requirements at play is the biggest challenge in small gastroenterology practices face, according to Dr. Leavitt.

"How can groups of five or less gastroenterologists, afford the resources, time and professional management needed to meet all those [reporting] requirements?" says Dr. Leavitt.

Value-based care reporting requirements are going to be a part of the healthcare landscape for the near future. And, to "survive and thrive in this regulatory environment," Dr. Leavitt believes the market needs to go through a consolidation period.

GI groups act as if they are in competition with each other. However, in general, Dr. Leavitt said practices are all so busy that if the competing group disappeared, the remaining group would not have the resources to take over the new patient load without hiring a similar number of care providers.

Therefore, he says practices have to understand who the real competition is and band together through consolidation thus combining a number of groups into a single more effective coherent whole.

A large part of Gastro Health's business model is tied to acquisitions, partly because of Gastro Health's private equity firm partner. However, a strategy focused on acquisition is also a way to adapt to the market.

Gastro Health purchases and takes over management of gastroenterology practices and provides the necessary infrastructure to survive in the value based healthcare environment of the future. This strategy increases Gastro Health's negotiating influence with health insurance companies and maintains reasonable reimbursement rates. It also allows practices to continue serving their patients without making additional costly investments into infrastructure, thus keeping the cost of care delivery in check.

Before Gastro Health associated with its private equity partner, the company was growing, doubling its profile after five years. After Gastro Health brought in the private equity partner, Gastro Health doubled its portfolio again within the first year and is still expanding through both acquisitions and organic growth.

"With the backing of an equity partner, we are able to merge practices under the Gastro Health name," Dr. Leavitt says. "They don't have to spend money to join us. We buy them. … [then] we use the increased revenue created by the acquisition to fund the growth of the company and provide better overall patient care."

With the revenue, Gastro Health can add more physicians and make necessary infrastructure investments to handle the growth. Gastro Health acquired its most recent location in August 2017, and Dr. Leavitt says it's not stopping there.

Private equity investors have been following the consolidation trend for years and are recognizing an opportunity to affect consolidation and deliver many of the benefits of scale to the independent physician market.

The administrative resources of a large group could become a valuable asset with ability to attract outside investment and participate in capital markets.

For many high quality physician groups today, that arm of the business simply represents a necessary expense. Management service organizations take the administrative capabilities and turn them into a highly valuable company.

By affiliating with a management service organization, in addition to an ongoing earnings stream, a partner physician can receive a multiple of the practice’s future earnings upfront at the time the relationship is formed.

In this way, physicians can treat their practices as more than just an ATM. They can be part of a structure that creates real value and equity above and beyond the revenue they withdraw as salary from the practice.

Gastro Health has been so successful because it's been able to narrow the market. Instead of creating partnerships, Gastro Health's private equity partner gives Dr. Leavitt the power to purchase practices, supplement the practices with needed infrastructure and together they both flourish.

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