How the Capital Digestive Care, Physicians Endoscopy partnership will help practices stay independent

Physicians Endoscopy and Capital Digestive Care entered into a strategic partnership Aug. 1, which could shake up the entire gastroenterology specialty.

Jamison, Pa.-based Physicians Endoscopy and Silver Spring, Md.-based Capital Digestive created a management platform that could offer independent practices the chance to grow while retaining their independence, according to the president of the yet-to-be named venture, Kevin Harlen.

To understand how the platform will work, one must understand how Capital Digestive and Physicians Endoscopy got here to begin with.

Capital Digestive formed in January 2009 when seven existing mid-Atlantic practices merged. The resulting practice featured 50 clinicians. Now, a decade later, Capital Digestive is the largest practice in the mid-Atlantic region, with more than 70 clinicians and 25 care locations.

The seven practices merged just as the first threats to independence were beginning to emerge. A decade later and current Capital Digestive President Michael Weinstein, MD, and Mr. Harlen recognized that the changing reimbursement landscape and surging private equity-backed platform development ventures meant that Capital Digestive would have to change once again.

"We were a big group with a sophisticated back office operation," Mr. Harlen said. "It was because of our size, location and services, that we were approached by several private equity firms wanting to make an investment.”

To figure out its next step, Capital Digestive began a strategic planning process in late 2018. They wanted to answer the question, "What do we want to be in 2030?" Four options emerged: establish a platform on their own, partner with a hospital to create a platform, take on a private equity investor or enter into a strategic partnership.

Two criteria proved to be greater than the rest in the final decision: Capital Digestive wanted to retain its independence, and it wanted a partner that would add strategic and operational value. Enter Physicians Endoscopy.

While the ASC management company has long been backed by private equity, its robust leadership experience and corporate values were well suited for what Capital Digestive sought to accomplish. The groups entered into a due-diligence period and announced the partnership Aug. 1, forming the management services platform.

"The unique nature of this is what's important," Mr. Harlen said. "Unlike some of the other arrangements, Capital Digestive will remain as it is - self-governed and not beholden to other parties."

What the platform offers
The selling point in this venture is independence. The platform will utilize the combined management service organization expertise of Capital Digestive and Physicians Endoscopy and will initially offer its services to other practices in the mid-Atlantic region.

The mid-Atlantic region is Capital Digestive Care's home base, and Mr. Harlen said it remains fragmented with many small to medium size practices. The Capital Digestive Care/Physicians Endoscopy platform will grow as Capital Digestive Care grows thru practice expansion, mergers and strategic partnerships with practices, handling MSO services on their behalf and helping them fuel future growth, while the practices retain ownership and independence.

"It's important we support the young careerists and give them a path of independence long into the future," Mr. Harlen said. "Our partners are not employees; they were the owners of their practice prior to the transaction, and they'll continue to be owners of their practice after."

What the future holds for GI
Gastroenterology is in the midst of a transformative, consolidation-focused period. In the past two years alone, three private equity-backed platforms emerged, two of the first private equity-backed practices have expanded out of their home states, and Physicians Endoscopy and Capital Digestive Care established their alternatively focused platform. But to predict what's next, Mr. Harlen looked no further than what has happened in the past.

"Twenty years ago, the GI industry was comprised of small groups and solo doctors," he said. "Ten years ago, we started seeing recognition that size mattered and groups were getting bigger. Over the past several years there was a great level of consolidation. Now we have lots of these platform developments going on. I expect we will see further consolidation in the coming years."

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