Nashville, Tenn.-based Covenant Surgical Partners announced on Jan. 21 that it is shifting its strategy from an ASC-focused company to a physician services company, and it has a new partnership to underscore the change.
The KKR-backed Covenant Surgical Partners is now Covenant Physician Partners and completed a partnership with Corpus Christi-based Texas Eye Care Network, an organization with locations across the Corpus Christi area including an ASC. Since launching in 2011, Covenant has focused on ASC development and management, and that will still be a large aspect of the company's services; however, it will now also offer services for physicians to expand their practices and strengthen their market position.
"As a physician services organization, Covenant partners with physicians in a more comprehensive way to understand the needs and opportunities of their practices — not just surgery centers — and then builds a broad array of services to fuel growth while also advancing clinical experience," said President and CEO Lew Little. "This integrated model is now reflected in our name and we're excited for this next chapter."
Over the past five years, Covenant has reported a 20 percent annual growth rate and now includes partnerships with more than 60 partnerships in 19 states. In 2019, the company reported more than $200 million in acquisitions through six partnerships. Going forward, the company plans to add partnerships in existing geographies for both physician groups and ASCs. That way, the company can leverage existing relationships with payers in those states.
"The strategy is to either build out the locations or regions that we are in or to make acquisitions that allow us to be a regional platform in that location," said Mr. Little. "It would be much less likely that we would do one-offs in the future. ... Our goal is to be thoughtful, but also opportunistic."
It will also continue to focus on its core specialties of GI and ophthalmology. While other companies have expanded more into high acuity cases like orthopedics, total joints and spine, Covenant sees real opportunities to pursuing the high volume, low acuity specialties.
"I think orthopedics is a great sector and one that is very active these days," said Mr. Little. "We still think single specialties like GI and ophthalmology are highly fragmented and there is still a significant opportunity in those two markets. We built expertise there so we can actually add value for our partners instead of just being a financial partner. If we are in a specialty, we want to be knowledgeable and have expertise that differentiates ourselves from the competition."
Future growth will likely look a lot like Covenant's partnership with Texas Eye Center Network, which offers medical and surgical eye care, including cataract and refractive surgery. Its ASC also offers orthopedics and pain management procedures in addition to ophthalmology, facial plastic surgery and general surgery. There are also challenges with the current strategy that could lead to pivots down the road.
"The biggest challenge that we face in our two verticals is the level of competition and the entrance of significant investment dollars in those two areas," said Mr. Little. "I think that might lead us to look for other specialties that aren't highly sought after today by private equity firms. But the thing I like so much about GI and ophthalmology is that they continue to do well in [an economic] downturn."