Private equity targets orthopedic ASCs: 5 details

Orthopedics has a unique position within the healthcare ecosystem as a highly fragmented industry ripe with potential for standardization and value-based care. There is a strong demand for affiliation with orthopedic groups, according to a new report from VMG Health, and more transactions could be on the horizon.

"Many orthopedic groups are considering whether now is the right time to pursue an affiliation or acquisition and how much their business could be worth to a potential buyer," wrote Sydney Richards, Clint Flume and Patrick Speights in the July 25 report.

Private equity companies are among the most persistent suitors for orthopedic medical groups and surgery centers, especially those with imaging, physical therapy and other services to complement surgery. Surgeon owners with aspirations for regional growth are particularly suited for private equity investment.

Five things to know:

1. Moving total joints from hospitals to ASCs could reduce the cost of care by 40 percent and commercial payers are taking notice. Medicare has also approved total hip and knee surgeries in the ASC for beneficiaries.

2. Medicare-certified orthopedics ASCs have grown 165.2 percent from 2015 to 2021, the second-fastest growing specialty behind cardiology. Orthopedic and pain management ASCs grew 69.2 percent from 2015 to 2021.

3. Orthopedic surgeon owners are also open to new deals amid inflation and rising costs of capital. The shift to value-based care, labor shortages and rising supply costs make partnerships desirable for owners as well.

"In choosing the most appropriate alignment model for partnership, physicians will be interested in monetizing their business' equity and structuring their compensation package and strategic partner's future vision," the authors wrote.

4. Potential buyers examine many factors, including the orthopedic group's competitive position in the market and growth trajectory. They will also compare productivity to national benchmarks and whether the group appropriately leverages mid-level providers.

5. Private equity deals for orthopedics-focused ASCs have increased in the last five years, and orthopedics has been one of the most active targets for private equity, according to VMG.

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