Podcast: Transaction Healthcare

In a soon-to-be-released podcast by Merritt Healthcare Advisors (available on Airsnext in Q1 of 2022), hosts Matt Searles, Partner and CEO of Merritt Healthcare Advisors, and Jay Pruzansky, Vice President of Merritt Healthcare Advisors, welcome a distinguished panel of industry experts to discuss accelerating consolidation in specialty medical practices and what physicians, practice owners, investors, and advisors should consider when evaluating M&A opportunities.

 This panel included:

  • Rob Jardeleza, founder and CEO of Partners First Cardiology, in Austin, Texas
  • Herd Midkiff, partner at JTaylor, a consulting firm in Fort Worth, Texas
  • Julie La Plata, senior manager, consulting services, JTaylor

Key Points

  • Regulatory and reimbursement changes can create new revenue streams and expand opportunities for provider entrepreneurship.
  • Consolidation among systems, payers, and primary care sources makes growth important for specialty practices that need to level the playing field and take advantage of alternative payment models, but growing organically can be impracticable.
  • Acquisitive growth gives physicians the opportunity to scale and increase revenue, but it also can implicate concerns about independence and autonomy that investors and advisers should address.

Regulatory and Reimbursement Changes Allow New Revenue Streams and More Entrepreneurship

Rob Jardeleza discussed consolidation and its role in different surgical subspecialties. He said a sea change in the delivery of cardiac and other specialized care is driving consolidation in specialty practices. Specifically, regulatory and reimbursement policies now allow practitioners to perform Centers for Medicare & Medicaid Services-approved procedures in ambulatory surgery centers rather than on an inpatient hospital basis. This opens up a significant pathway for practitioners to tap into a new revenue stream and grow their businesses in a different direction.

Before these changes, specialists were almost entirely hospital-driven “because there really was no mechanism for being able to live in a world where there could be physician-driven, physician-centric businesses,” Searles said. Doctors can now be more autonomous in private practices instead of being beholden to hospitals or large systems. But in the absence of size, controlling sites of service and robust data collection and management, it can be difficult for small practices to be consistently profitable, especially with alternative payment models.

“Size matters in healthcare, and it’s very difficult to compete and grow a small private practice with increasing consolidation of health systems, payers, and primary care and other referral sources,” Jardeleza said.

Organic Versus Acquisitive Growth

Practices can grow organically or acquisitively. But the former can involve bringing on new practitioners/shareholders or expanding ancillary services, both of which require an initial investment of time and money and take doctors offline from seeing patients because they need to put on their business hats. This can make organic growth impracticable or unattractive.

Jardeleza discussed acquisitive growth and the characteristics that make a specialty practice an attractive investment platform.

“Investors are attracted to providers that know the specialty, have a history of success, and understand the demonstrated best practices of executing upon that success,” Jardeleza said.

Autonomy Versus Opportunity and What Providers Should Look for in a Partner

Herd Midkiff and Julie La Plata, who advise practice owners and investors on M&A opportunities, agreed with Jardeleza regarding the market pressures driving consolidation in specialty practices. Noting that deal count and deal value are breaking records in consolidations, they said that structural pressures — whether regulatory or economic — are pushing toward consolidation in a highly fragmented industry with many fixed costs.

The panelists also touched on physician concerns about consolidation and acquisition, as essential as such deals may be for viability and growth.

“The challenge for doctors in private practice is how to balance their desire for autonomy with the ability to access capital or take advantage of scale so they have a level playing field,” Searles said.

Pruzansky echoed those concerns.

“You hear it constantly: ‘I don’t want to go work for a hospital system or a big medical group. I don’t want to become an employee,’” he said.

The panelists said investors and advisers must recognize the tension practitioners feel between necessary growth and desired autonomy and its role in the decision-making process for doctors when presented with acquisition opportunities.

“There’s a lot that you’re dealing with on top of negotiating financial terms,” La Plata noted.

All agreed that for physicians, choosing a partner they’re comfortable with is an essential part of evaluating proposed deals.

“There is an emotional component to these deals, and our goal is to provide sound, objective data to help guide people through the process and make them feel good about what they’re doing,” Midkiff said.

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