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The Healthcare Investor

Insights on Issues & Trends that Impact Investments in Healthcare & Life Science Businesses

Smart Investing in Primary Care Centers: 5 Key Takeaways

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on opportunities for investment in primary care centers. It is authored by our colleagues Holly Buckley and Josh Reynolds.


Smart Investing in Primary Care Centers: 5 Key Takeaways

By Holly Buckley and Josh Reynolds

According to experts who spoke on a panel at the 15th Annual Healthcare and Life Sciences Private Equity and Finance Conference on February 22nd, 2018, the practice of primary care is changing, which allows for investors to implement certain innovations to facilitate these changes. Smart investors can provide support to clinics, physicians and even patients in order to run a better and more profitable practice.

Experts included Todd Squilanti, Managing Director, InTandem Capital Partners; John Pircon, Vice President, New Harbor Capital Management, LP Arion Robbins, Principal, Revelstoke Capital Partners LLC; Susan Ford, President, Semma Health; and Marc Cabrera, Co-Head of Healthcare Investment Banking, Oppenheimer& Co. Inc.

Here are five key points from their discussion:

1. Primary care practices remain appealing for investing due to the size of the industry, the current high rate of fragmentation, as well as the opportunity for innovation within primary care practices, including the implementation of new delivery models, and concierge medicine.

2. The current patient mix who visit primary care physicians is in a state of change due to evolving demographics. New millennial patients do not want the same doctor as their parents and their health care preferences are much different. As for the growing elderly population, ease of access is now an emerging area where clinics are focusing on delivering prescriptions directly as well as providing transportation to and from the clinic.

3. Primary care physicians are starting to play a greater role as care coordinators, and investors can bring resources to these practices so that the physicians can provide efficient coordination. For example, a practice can arrange for a specialist to be present at the primacy care clinic once a week to see patients rather than either referring outside the clinic or hiring a specialist full-time.

4. The future success of primary care practices will depend on changing patient behavior. Getting patients away from urgent care clinics when symptoms have become dire and having them examined at a primary care clinic will put less strain on urgent care centers and emergency rooms. The sickest 10% of patients account for 35% of total healthcare costs.

5. Opportunities exist to actively engage patients which can lead higher collection rates. One option is to promote price transparency through primary care physicians talking directly with patients on pricing. Many clinics struggle with collecting the patient portion of bills, and part of this issue may be due to the lack understanding of the treatment price at the time the patient decides to obtain treatment. The panelists discussed how the best person to communicate the price of a procedure to a patient is their primary care physician.

Dermatology Spotlight Panel: 5 Key Points

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on opportunities for investment in dermatology. It is authored by our colleagues Tom Zahn and Chris DeGrande.


Dermatology Spotlight Panel: 5 Key Points

By Tom Zahn and Chris DeGrande

Dermatology continues to be an area of strong interest for private equity investors, and both platform and add-on investments continued at a robust pace in 2017. This activity as well other trends in the field of dermatology were explored by experts who spoke on a panel at the McGuireWoods 15th Annual Healthcare and Life Sciences Private Equity & Finance Conference on Wednesday, February 21.

Experts included Dan Conroy, Chief Development Officer of United Dermatology Partners; J. Kyle Brown, Director of Brown, Gibbons, Lang & Company; Samarth Chandra, Partner at Enhanced Equity Funds; and Elizabeth Campbell, Principal at LLR Partners.

Five of the key topics discussed were as follows:

1. Dermatology remains highly fragmented relative to other fields, with roughly only 5% of the industry currently consolidated. During the last 12 months, there has been strong M&A activity for both platform practices and add-ons, and the panelists expect to see continued add-on growth. Many dermatology practices are becoming more sophisticated with regard to investment strategies, and so it is becoming more difficult for investors to differentiate themselves to dermatologists looking for investment partners.

2. The dermatology field is an attractive field due a variety of factors, including the fragmented nature of the industry and the field’s added retail element. In addition, the productivity level for dermatologists tends to be very high, and profitability can be further increased by owning lab/pathology services in addition to a dermatology practice.

3. Effective use of midlevel providers can be a key to increasing the success of a dermatology practice. It is still very important to use board certified dermatologists to drive the practice, but midlevels can be used to provide services so long as these services are appropriate. Practices should be aware that different states may require certain ratios of physicians to midlevels or may have additional supervision requirements.

4. While the panelists did not report a giant leap forward in negotiating favourable contract terms with payors (as a result of growing platforms obtaining more leverage), they did report minor successes in this area. The presence of larger, diversified practices has in many instances at least resulted in the prevention of cuts to reimbursement rates by payors, and in some cases resulted in minor rate increases as well. One key element is the increased ability of the personnel brought in by investors to better negotiate with these large payors, as these personnel are often professional individuals experienced in such negotiations.

5. Marketing is a major focus area for almost all dermatology practices. Online marketing is a key source to drive patient flow, and the use of online feedback surveys is useful to understand the success of the practice. Online marketing and scheduling can help to get a patient in quickly for his or her first visit in order to encourage the patient to come to the practice long term.

Women in Private Equity to Know: Carolyn Galiette

Posted in Healthcare Services Investing

McGuireWoods has long been an avid supporter of the advancement of professional women. As part of our initiative seeking to expand the leadership of women in private equity, we are profiling women leaders in private equity throughout 2018. We are hopeful that this series will serve to inspire other women to pursue their careers in private equity in a way that best challenges and motivates them, which these impressive women have all done. This month, we are pleased to feature Carolyn Galiette of Ironwood Capital. Access her profile by clicking here.

To recommend a woman for a future interview, email Amber Walsh at awalsh@mcguirewoods.com.

Investments in Dental Services Organizations: 5 Key Considerations

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on opportunities for investment in dental services organizations. It is authored by our colleagues Bart Walker and Amanda Roenius.


Investments in Dental Services Organizations: 5 Key Considerations

By Bart Walker and Amanda K. Roenius

Dental services organizations (“DSOs”) continue to experience consistent growth in both market share and revenue in the dental industry, making them a continued area of interest for investment and expansion. Experts at the 15th Annual Healthcare and Life Sciences Private Equity and Finance Conference, hosted by McGuireWoods on February 21, 2018, explored trends in DSO investments as well as insights as to what potential investors should look for to best align themselves for success.

Experts on the panel included David Friedman, Vice President of Silver Oak Services Partners, James R. Davis, Jr., Managing Partner at Blue Sea Capital, Craig Castelli, Founder and Chief Executive Officer of Caber Hill Advisors, Sean Roberts, Partner at Huron Capital, and Ken Doyle, Partner at The Halifax Group.

Here are five key considerations from the panel discussion:

1. The investment market is active and competitive. As DSOs continue to thrive, so too does the competition for investments. The dental services niche remains fragmented. By most estimates, approximately only fifteen percent (15%) of dentists are associated with a DSO. Panelists opined that private equity-backed platforms with a wide array of healthcare experience, including in the dental field, are amongst the biggest competitors for investments. Nevertheless, operators who have little to no dental experience are also entering the market with success. Given the strong pool of competitors, potential investors should consider looking at smaller practices that may allow for successful consolidation and should strategically select a market that will allow for growth and expansion.

2. Consistency and integration are keys for success. When considering an investment in a dental platform, panelists emphasized the need for consistent and integrated policies and strategies across the platform, such as those related to hiring and training, branding efforts, and service offerings. The more integration and consistency that exists, the more value the investment will bring. As such, whether investors are looking at pre-established or de novo investments, these core considerations should be emphasized from the start.

3. Stay aware of changes in reimbursement, specifically with regard to Medicaid. Although the panelists noted that Medicaid reimbursement has remained fairly consistent over the past several years, investors must keep in mind that reimbursement varies from state-to-state (and market-to-market). Services that are reimbursed by Medicaid in one state may be reimbursed at a much lower rate (or not at all) in another. Investors should pay attention to lobbying efforts in their selected markets and continue to focus on building connections with state managed care organizations to best align themselves for success.

4. Consider the market’s regulatory landscape prior to investing or expanding. When considering whether to expand or invest in a particular market, panelists emphasized the need to consider the market’s reimbursement rates, regulatory structures, and competition. For example, North Carolina often poses challenges for DSOs from a structural and Medicaid reimbursement standpoint. Panelists noted that the difficulty of a market may sometimes lead to enhanced value when properly structured, citing Texas as a state that, even with the hurdles, can be very profitable.

5. Align investment incentives and goals with those of the dentists. The quality and motivation of a platform’s dentists are key factors to success. Panelists stressed the need to keep the investors’ and dentists’ interests, incentives, and goals aligned. This can be done through various compensation and staffing models as well as flexibility on the part of the investor. Investors should position themselves to help dentists meet their end goals in an acquisition, which, in turn, will help the investor meet its goals as well.




The Next Wave of Consolidation in PPM Models: Oncology, Urology, Vascular & Neurology

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on opportunities for investment in oncology, urology, vascular, and neurology. It is authored by our colleagues Erin Dine and Holly Buckley.


The Next Wave of Consolidation in PPM Models: Oncology, Urology, Vascular & Neurology

By Erin E. Dine and Holly Buckley

After experiencing high returns during the first wave of consolidation of physician practice management (PPM) models in dermatology, vision, and dental sub-specialties, investors are now contemplating what the second wave of PPM consolidation will look like. Investment opportunities in oncology, urology, vascular, and neurology specialties could lead to a continuation of the active deal flow in PPM transactions in the next few years. Following are some considerations for investors related to the second wave of PPM consolidation, according to experts who spoke on a panel at the 15th Annual Healthcare and Life Sciences Private Equity & Finance Conference on February 21, 2018.

Experts included Nandan Kenkeremath, Senior Health Policy Consultant at Marwood Group; Brent Kitts, Chief Operating Officer at AC3 Health; Steve Aguiar, Managing Director at Provident Healthcare Partners, LLC; and Eric Coburn, Managing Director at Duff & Phelps.

Here are five key points from the panel discussion:

1. Second Wave Sub-Specialties Investment Breakdown. Urology is a heavily fragmented sector. There are currently 12,000 urologists practicing in the United States, but the nation’s top 5 urology groups only encompass roughly 300 urologists. Thus, investors have the opportunity to consolidate small groups and build an attractive platform across regional markets to achieve necessary scale. Many investors, however, seem to shy away from urology due to its high percentage of Medicare and Medicaid reimbursement.

The oncology space circles around a patient population that is 55 years of age or older, a population that by 2040 will balloon. This population statistic has caused the government much concern regarding how it will handle this patient population. Thus, funds that can devise a successful model to efficiently and effectively treat this patient population will be winners.

Vascular transactions seem to have garnered a “lukewarm” reception in the investment community due to their heavy Medicare reimbursement and tough patient mix. But investors that can integrate and capitalize on vascular-related ancillary services, such as vein treatment, will likely prevail.

Neurology is not highly lucrative from a professional fee perspective. Thus, it is important to structure any neurology deal with a strong physician alignment model. Aligning with younger, entrepreneurial physicians and partnering with physicians who strive to achieve high returns could constitute a successful foundation for a neurology platform.

2. Follow the Money. Policy developments and regulations, specifically concerning reimbursement, inevitably drive various waves of consolidation. Evolving reimbursement frameworks and alternative payment models are currently driving PPM consolidation. Private equity funds can transform a practice to be more efficient and more valuable, achieving scale and size so as to position it to succeed in value-based bundled payment models and thrive in the current and future healthcare landscape.

3. Reimbursement Diversification. Diversifying a practice’s reimbursement mix increases stability. The sub-specialties in the first wave of consolidation (dermatology, vision, and dental) all have relatively low government reimbursement. Oncology, urology, vascular, and neurology, however, have high government reimbursement and do not have the layers of commercial and self-pay reimbursement that the first wave experienced. But payment diversification still plays a major role and investors looking to take part in this second wave of consolidation should look to ancillary services to diversify a practice’s payment portfolio, as discussed below in Item 4.

4. Capitalize on Ancillaries. As the second wave of PPM consolidation evolves, it will be important for investors to capitalize on associated ancillaries aligned with the specific specialties of oncology, urology, vascular, and neurology. Because practices in these sub-specialties produce less fee-for-service professional revenue compared to other specialties that have attracted investment dollars in the past, ancillary service revenue will be important for the overall value proposition.

5. Adjustments for Out-of-Network Business. Amidst volatility in the stock market, rising interest rates, and some political uncertainty, experts are still confident that EBITDA multiples will stay fairly constant throughout 2018. There is approximately $1 trillion in private equity dollars ready to be invested. Certain characteristics of targets can impact the multiple, such as the percentage of out-of-network verses in-network funds. Investors are adjusting a practice’s EBITDA to only encompass a practice’s in-network reimbursement and are excluding all out-of-network funds because of the risk attached as payor networks continue to narrow and close in.

15 Private Equity in Healthcare – An Updated Review of Selected Niche Investment Areas

Posted in Healthcare Services Investing

Every few years, our team at McGuireWoods analyzes the healthcare PE investment market as we participate in healthcare PE deal flow. Now available is the latest version of our analysis, titled “15 Private Equity in Healthcare – An Updated Review of Selected Niche Investment Areas.” This report provides observations and insights on key investment niches, and some initial thoughts on the market as a whole.

The report is co-authored with our colleagues Scott Becker, Bart Walker, Holly Buckley and Sarah Mick. You can download it by clicking here.

Healthcare & Life Sciences Private Equity Deal Tracker: Riccobene Associates Partners With The Beekman Group

Posted in Healthcare Services Investing

The Beekman Group has announced it has partnered with Riccobene Associates Family Dentistry.

The Beekman Group, based in New York, is a private equity firm that seeks investments in lower middle-market companies in several industries, including healthcare. Within healthcare, businesses targeted include those in dental, dermatology, diagnostics and monitoring, emergency room and urgent care, eye care, hospital outsourcing and physical therapy.

Riccobene Associates, based in Cary, N.C., provides general and multi-specialty dental services in a network of 16 North Carolina dental offices.

Beekman’s investment in Riccobene Associates creates a regionally focused dental services organization to support the network.

Behavioral Health Investments: 5 Key Points

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on opportunities for investment in the behavioral health sector. It is authored by our colleagues Cindy Lu and Anna Timmerman.


Behavioral Health Investments: 5 Key Points

By Cindy Lu and Anna Timmerman

An increase in the diagnosis of autism and intellectual/developmental disabilities, paired with public awareness and a growing willingness of those affected to seek treatment, has created many opportunities for investment and growth in the behavioral health sector, according to experts who spoke on a panel at the 15th Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago on February 21 and 22, 2018.

Experts on the panel included C. Russell Bryan, Managing Director and Partner at Brookwood Associates; Mitchell A. Davidson, Managing Director at Post Capital Partners LLC; Steven Goldsmith, Managing Director at Sterling National Bank; and Tom Schramski, PhD, CMAA, President and Managing Partner at Vertess Advisors LLC.

Five of the key topics discussed were as follows:

1. Seller Motivation. Currently, the autism and intellectual/developmental disabilities sector is fragmented with few large platforms. Many sellers began their business motivated by a passion for the industry—to help family members or a desire to take care of children—not to deal with administrative burdens or to necessarily capitalize on affected individuals by building a business with sale in mind. These operators generally have low EBITDA and do not necessarily have the investment capital needed to sustain themselves or grow with respect to technology, labor, administration, etc. As such, these sellers may need help building value and could benefit from an investor’s experience.

2. Organic Growth. The infrastructure for organic growth of an autism business starts with recruiting and retaining talented board certified behavioral analysts (BCBAs). Other ways to promote organic growth include providing adequate support to BCBAs, obtaining good contracts for the provision of services (e.g., with school districts, etc.), and diversifying funding sources, including by reaching out to the advocacy community which is well informed about autism treatment and in a position to recommend particular treatment providers to those seeking assistance. Businesses should also look to contain turnover within the paraprofessional segment. Most paraprofessionals are younger workers who are performing a demanding job, which often leads to high turnover. Businesses may look to manage such turnover by providing training opportunities and trying to develop the job into a career for individuals.

3. Inorganic Growth. As noted, this is a highly fragmented space with few providers of scale, and inorganic growth by add-ons may require acquiring many individual providers. Many providers have lower revenues are comprised mostly of BCBAs or other clinician owners, and are not capitalized or structured for scale.

4. Technology. Technology is a considerable opportunity for investors. There is very little technology in this market that is provider and consumer facing, but the demand is significant.

5. Additional Opportunities. An opportunity exists to build long-term, sustainable businesses based on clinical quality, and growth in this industry could improve access for affected individuals as well as create standard processes across providers within a business. Also, because reimbursement varies by state and insurance reform positions, investors should investigate and consider the reimbursement climate of each state prior to entry and, in general, consider any guidance with respect to federal reimbursement and trends. Finally, investors should focus on the infrastructure of any potential target. Higher performing providers require a good workforce, IT and information systems for measuring outcomes and performing other data collection.

5 Key Points on Retail, Specialty, Compounding, and Other Pharmacy Investment Opportunities

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on investing in pharmacy businesses. It is authored by our colleagues Tim Loveland and Holly Buckley.


5 Key Points on Retail, Specialty, Compounding, and Other Pharmacy Investment Opportunities

By Tim Loveland and Holly Buckley

The pharmacy industry has been experiencing significant vertical and horizontal integration in recent years with retailers acquiring specialty pharmacies, pharmacy benefit managers (PBMs) acquiring long-term care pharmacies, and wholesalers acquiring pharmacy services administrative organizations (PSAOs) to name a few. Despite evolving regulatory challenges, there remain good opportunities for investment in various pharmacy businesses, according to experts who spoke on a panel at the 15th Annual Healthcare and Life Sciences Private Equity and Finance Conference on February 22.

Experts included Helen Figge, Adjuct Professor – Health Analytics, Massachusetts College of Pharmacy and Health Sciences, Paul Heldman, Managing Director, Heldman Simpson Partners, Michael Fieri, President and CEO, Orsini Healthcare, and Royce DuBiner, Associate, McGuireWoods LLP (formerly at Acella Pharmaceuticals).

Here are five key points from the panel discussion:

1. Evolving Regulatory Challenges. D.C. and various states have increased their focus on drug pricing, resulting in overtures by the Food and Drug Administration (FDA) to take a more substantial role in pricing oversight and regulation. The focal point of this discussion has thus far been on rebates and expanded transparency, however, the industry is concerned that regulators may take affirmative steps to “prescribe” permissible profit margins.

2. Dynamic Technologies are Shifting the Industry. The increasing presence and sophistication of technology in the pharmacy industry is resulting in reduced human error. The panelists noted that large conglomerates are taking the lead in innovation relative to technology. However, opportunities abound to innovate in this arena, as variation in state regulation, differentials in negotiating power with manufacturers, and federal government restrictions on direct reimbursement ensure that one system doesn’t fit all needs.

3. Delivery Models are Anticipated to Shape the Industry. Amazon’s market entry is anticipated to have a significant impact on mail order delivery and may further shape logistics and delivery models in other areas of retail pharmacy. The panelists indicated that the application of new logistics and delivery models to areas such as specialty medicine and drug compounding, however, will take much longer and will thus delay the impact of any industry shift on such investments.

4. Best Practices Should Drive Investment in Compounding Pharmacy Space. In the years following the death of more than 70 people from contaminated drugs compounded in a Massachusetts pharmacy, increased federal and state oversight and new regulations have dampened growth in the compounding sector. However, with baby boomers retiring, the estimated $8-$9 billion compounding pharmacy market continues to grow, particularly around Medicare Part D. When approaching a compounding pharmacy in any potential acquisition, investors should conduct careful diligence surrounding sterile compounding practices and other compliance issues.

5. Transition to Biologics and Genetically-Modified Medications May Present Opportunities for Compounding Pharmacies. The panelists discussed that modifiable medications are typically compounded at the manufacturing plant and subsequently sent to pharmacies. An example of such manufacturer-modified medication, Kymriah (approved by the FDA in August 2017), is a biologic therapy for leukemia occurring in pediatrics and young adults in which a patient’s T-cells are collected and re-programmed to identify and destroy mutated cancer cells. Compounding pharmacies are uniquely suited to produce and distribute such biologics, thus disrupting this structural dynamic and driving down costs.

5 Key Takeaways on Top Surgical Specialty Investments

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on investing in surgical specialty practices. It is authored by our colleagues Royce DuBiner and Holly Buckley.


5 Key Takeaways on Top Surgical Specialty Investments

By Royce DuBiner and Holly Buckley

Investment and consolidation of physician’s practices is still on the rise, but approaches differ on strategy. At the 15th Annual Healthcare and Life Sciences Private Equity and Finance Conference hosted by McGuireWoods LLP a panel of investors and strategists spoke to colleagues about their success stories and lessons learned from investing in surgical specialty physician practices. There are a number of principals on the panel highlighted key considerations when investing in this space.

Experts included:

  • Jeanne Proia, Director, Cross Keys Capital, LLC
  • Roy Bejarano, Chief Strategy Officer, Physicians Endoscopy, LLC
  • Jason Ficken, Partner, Quadriga Partners, LLC
  • Michael Stroup, Senior Vice President for Acquisitions, United Surgical Partners International
  • Andrew Barnet, Operating Partner, CommonView Capital
  • Gregory Hagood, Senior Managing Director, SOLIC Capital Advisors, LLC

Here are five main takeaways:

1. The key to a successful platform is driving down costs and/or being a lower cost, better alternative. Further, finding the right mix of physicians and back office staff to enable a good practice is critical.

2. One core aspect of any model is calibrating the right mix of equity and salary for physicians so that incentives are aligned pre-closing and post-closing to keep moral high within the practice. Physicians are used to knowing where their income is coming from on a predictable basis. When a transaction takes physician compensation off the table, sponsors need to decide how to keep physicians aligned on a prospective basis. We are seeing more creating compensation models to this end.

3. Ancillary services are often important to the practice. In evaluating a platform, it is important to assess whether the company has an ambulatory surgical center, pharmacy, or lab and how the revenue for these services factors into the overall business. This is also an area that can create some regulatory risk and a careful diligence review is important.

4. There is a tendency for investors to engage in overbidding, in is important to stay focused on the true value of the practice and not overpay. Multiples have continued to increase in the physician practice management space and processes are increasingly competitive.

5. Physician loyalty is key. It important to articulate the value proposition to physicians, i.e. How does the transaction and compensation structure work? The platform is dependent on physicians post-closing and if they don’t understand the value proposition the platform will struggle to succeed.

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