It’s Nice to Have Options
Orthopaedics is among the busiest, highest-volume, and most profitable specialty practices. The demand for orthopaedic procedures continues to increase, and reimbursement has not declined as rapidly as some other fields. Many groups have added an array of profitable services including imaging, urgent care, pain management, DME, and physical therapy.
And . . . many have managed to retain their independence.
This does NOT mean that the future is all roses. To survive practices still need to adapt or consider new strategies. Most groups are, in some way shape or form, discussing or formally evaluating their options – options that include remaining independent, moving to hospital employment, merging with other groups, partnering with health systems, or selling to a private equity firm.
Their unique status has made them a prime target for private equity investment.
Forcing Practices to Examine their Futures
Most groups have had at least some interest from PE firms. This is forcing then to evaluate their future. Unfortunately, many are not in the best position to evaluate these offers, or to understand the other options.
Most haven't done any recent work to understand their needs, goals, strengths, or threats. They’re not sure what they need to do to remain competitive. Without this information, it’s almost impossible to fairly compare options.
A Common Scenario
A group is plugging away. They’ve had vague discussion about how to grow the practice or the changes they might need to make to ensure long term success – but they have no clear plan.
The private equity call comes. The deal they are offering sounds appealing – especially to some of the partners. They start trying to evaluate the offer – but what are they comparing it to? To the current state? To what the group could/should be if they wisely invest in their long-term success? To other Private Equity offers (which are frequently hard to compare as each firm takes a different approach)? How do they know if the PE firm can deliver on its promises of improved business operations and a big pay-off? What are the other options?
They talk to colleagues who’ve gone down the path. Some have been thrilled. Others weren’t.
A More Deliberate Approach
Kristi Crowe, President, and Founder of Ambulatory Healthcare Innovations is often in the position of helping independent groups to evaluate their options. Her expertise spans both hospital orthopaedic service lines and ortho physician group strategies and operations.
This gives AHI the unique ability to provide holistic advice on how to evaluate the options.
“These groups are in a unique position, but they’ve not been forced to extrapolate out into the future, what the practice COULD be with the right investment in growth, process and technology - making it hard to make an informed decision about the right strategy. In some cases, private equity investment is the right move.
While hospital partnerships, as another option, have not always been appealing or even successful – the new market dynamics mean that health systems might be willing to be more innovative, aggressive, and committed to making a partnership mutually beneficial.”
AHI’s approach brings discipline to the process. It starts with three important big steps:
1. Define the group's goals.
2. Understand the options.
3. Be deliberate in understanding the private equity deal, and comparing it to the other options, in light of your goals.
Start at the Beginning: Define Your Goals
In the next few weeks, we’ll discuss various options, and how to evaluate a proposed private equity deal. For now, let’s start with step one - What are your goals?
When a group starts to evaluate a PE investment offer, they’ll be doing the math, and trying to understand the long-term financial implications (which will be different for each physician). They’ll start thinking about what it will mean for their daily lives, and for organizational dynamics.
But, according to Crowe, “They’re evaluating all of this in a vacuum because they’ve not started by understanding what the group WANTS. Nor have they done the work to fully understand their options. This is not “current state” vs. “PE deal.” This is “PE Deal” vs. “several other potential future states.”
She also notes that, “The offer can create stress and bring up old, or create new, divisions among the group. We often end up facilitating a frank discussion to prioritize goals." The goals might include:
· The need for capital investment
· A desire/need for financial security
· The ability to respond to growing business demands, payer contracting, technology, etc.
· A need for recruiting assistance, and how to attract and retain talented physicians and staff.
· The degree of professional, and clinical, control
· Not wanting to lose focus on meeting the needs of the community
· Maintaining, or changing, the work environment/culture”
“We start by defining the practice goals – that’s the foundation. Then we look at the market dynamics that impact those goals. Finally, we explore the resource gaps that would need to be addressed. THEN, we can evaluate the options to fill these gaps and identify the best way to achieve the practice’s goals.”
AHI's Structure for Evaluating Partnership Options
Even the most successful and secure practices are facing this dilemma. The decisions they make will impact the community, their employees, and the careers of every physician in the group.
In the coming weeks, we’ll explore options, including remaining independent, merging with other groups, strategic health system partnerships, employment, and private equity. Then we’ll walk through the important questions to ask, and AHI’s “Rules of the Road” when evaluating a proposed private equity deal.
To learn more about how Ambulatory Healthcare Innovations is helping hospitals and physician groups to design, and deploy, strategies for long-term success, visit https://ambulatoryhealthcareinnovations.com/
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