Private equity investments in MSK: How to position your physician group for success

Increasingly, private equity (PE) investors see physician practice management (PPM) and ASCs as attractive investment opportunities. This is because ASCs are well positioned to capitalize on some of the most important trends in healthcare, such as value-based care (VBC).

During the Becker's ASC Review and Becker's Spine Review 19th Annual Spine, Orthopedic and Pain Management-Driven ASC Conference, in a session sponsored by William Blair, two of William Blair's physician practice management group leaders — Ed Nakayama, Managing Director, and Andrew Hranka, Director — led a roundtable discussion about key considerations when evaluating a PE investment into physician specialties and ASCs.

Four key takeaways were:

  1. PPM is a growing industry that is appetizing for investors. The disruptions taking place in healthcare are making it increasingly challenging for independently owned ASCs to sustain themselves. As a result, many are looking to join a PPM company that can offer operational support and unlock growth.

 On the other hand, the surgically oriented subspecialties commonly represented in PPM-affiliated ASCs are making PPMs an attractive sector for investment. "Sellers appreciate the value of these partnerships, buyers appreciate the value of the partnerships, so articulating what's different and stable about your story and what's going to drive continued strong financial performance are key elements of positioning yourself for success," Mr. Nakayama said.

 Specific attributes that potential investors focus on include whether a practice operates under a fee-for-service versus a VBC model, runs on a regional versus national platform and provides high-acuity versus low-acuity treatments. Payer mix is also an important factor.

  1. PPM investors have overlapping priorities when they consider ASCs and VBC. Regarding ASCs, top capabilities are providing outpatient care, offering a wide range of procedures and driving success against the Triple Aim, a VBC concept that targets improved health outcomes and better patient experience at lower cost.

 With respect to VBC, investors prize assets that are successful under a fee-for-service model but have adequate data capabilities to pivot to a VBC model in the future, strong payer relationships with commercial and government payers, vertical integration and a broad services suite and the right purpose and culture to deliver against a VBC framework.

  1. The large addressable musculoskeletal (MSK) market is drawing investor interest. "The trends are bright for MSK operators and there's a lot of reason to be sanguine about the broader MSK space," Mr. Nakayama said, citing two converging trends:
  • Rising rates of obesity, aging populations and increasingly active populations. At present, more than 115 million American adults are living with an MSK disorder and approximately 20 percent of all medical diagnoses are attributable to MSK conditions.
  • Highly fragmented orthopedic industry, ripe for consolidation. There are over 30,000 board-certified orthopedic surgeons in the U.S., but fewer than 20 orthopedic practices with 75 or more physicians, from a total of about 5,800 orthopedic physician practices.


  1. PE deals have important benefits for practices if there is cultural alignment. Cultural fit, expressed initially as an overwhelming majority vote when deciding whether a practice should go through a PE transaction, is paramount. "If you move the vote through a two-thirds majority, no PE fund will invest in that — they do not want to have a third of the doctors upset with the arrangement, so they're going to need to be near 100 percent approval to move forward," Mr. Hranka said. "They'll look very closely at how your physicians are working together right now and how they're thinking about growth in the future."

 In addition to cultural fit, considerations to guide physicians in selecting a PE partner include compensation structure, partnership track for new providers, provider and staff recruiting, capital expenditures for growth, alignment on strategic plan and sector expertise.

The bottom line for physician group leaders considering a partnership with a PE fund is that under a well-designed and managed transaction, day-to-day operations, clinical decision-making and culture stay the same, while the company benefits from additional resources and growth.


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