Are ASCs warming up to private equity?

A few years ago, private equity was a dirty word among some circles of physicians and surgeons. The idea of accepting investment dollars in exchange for autonomy was unattractive for physician owners at best, and dangerous at worse.

Some feared injecting private equity money into healthcare would lead to corporate executives making decisions about patient care and driving volume-based decision-making to turn a profit instead of doing what is best for patients. Those fears are valid and persist today among the fiercely independent. But others looking to take their business to the next level see opportunities with private equity.

Private equity has become pervasive among gastroenterologists and GI-focused ASCs, with large chains such as Gastro Health, which supports 360 physicians nationwide, supported by private equity backing. GI Alliance, which is also backed by private equity, has more than 650 independent gastroenterologists operating in its network. Regional managed service organizations backed by private equity firms such as United Digestive, U.S. Digestive Health and PE GI Solutions are also growing.

The next generation of physicians is seeking a work-life balance, competitive pay and a high degree of autonomy in work schedules that employment models often don't offer. Private practice is an attractive option, and joining a large private equity-backed organization diminishes the risk of being a solo practitioner while offering the fellowship of experienced physician partners.

"Private practices can offer additional income opportunities with partnership in ASCs, imaging centers, pharmacy services, real estate and even potential equity in a larger private practice organization," said Eugenio Hernandez, MD, vice president of clinical affairs for Gastro Health. "Given the current competitive labor market and the anticipated physician shortage, the total value of private practice is more important than ever."

Ophthalmology deals also heated up in 2022, with nine firms, including some backed by private equity companies, adding practices over a one-week period in January.

Orthopedic groups are also warming up to private equity firms, with some of the largest in the nation backed by corporate money. The CORE Institute was an early adopter of the model when it formed HOPCo with Linden, a private equity firm, in 2019. In December, Atlanta-based Resurgens Orthopaedics took on private equity investor Welsh, Carson Anderson & Stowe to start a venture which got its name last week: United Musculoskeletal Partners.

Alex Bateman, Resurgens CEO, said the practice will expand regionally and nationally with the investment.

"Resurgens has been a very successful organization for 30 years, and we think the way to remain successful is to remain independent, but partner with like-minded entrepreneurial groups. We believe we will not only survive, but also thrive by coming together," Mr. Bateman told Becker's. "This is not solely a liquidity event. There are other groups out there that, unlike us, are very focused on getting dots on the map rather than really aligning and creating value for the groups that join. It's one thing to participate in a private equity transaction, but the most important thing is to find a partner that can drive value to the practice going forward, whether that be through value-based care, new revenue strategies, cost takeouts, synergies and health system alignment."

For physicians who prize autonomy but need additional capital, private equity is a more attractive option than taking on a hospital partner. Surgery centers and practices with solid financial footing, however, are still hanging back to see how the first wave of deals pan out.

Avi Bhandary, MD, founder and owner of Mana Spine in Orlando, Fla., said he isn't necessarily looking to sell, but if he did, private equity would be his top choice for the buyer.

"A sale would be largely contingent on the iterative process of the parent company, operational acumen, and taking on a role that leans toward value creation rather than that of captured value," he told Becker's.

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