The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference is authored by our colleague Leah Eubanks and Arvind Rao of RSM US.

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Creating Scale in Inpatient Behavioral Health: 5 Key Takeaways

By Leah Eubanks and Arvind Rao

Maintaining consistent quality of services and messaging across different markets is important when creating scale in the behavioral health sector according to experts who spoke on a panel at the Annual Healthcare and Life Sciences Private Equity and Finance Conference in Chicago earlier this year.

Experts included David Fitzgerald, Partner at Petra Capital Partners, Dr. Jillian Lampert, Ph.D., M.P.H, R.D., L.D., F.A.E.D., Chief Strategy Officer at The Emily Program, and Joe Procopio, CEO at Newport Academy. Ryan Engle, a partner at IT Capital Partners, moderated the panel.

Here are five key points from the panel discussion.

1. Understand Local Needs. Expanding into a new market requires behavioral health companies to analyze the local regulatory environment, perform a community needs assessment, understand the payor environment and have a line of sight into the competition to determine the best programs to offer in that market. In addition to the current state, planning for the next 3-5 years is important to determine what the next iteration of the offered programs might be.

2. Consistency. Overall consistency as well as customization for the local market is important when entering a new market. Consistency is important in both the quality of services offered and messaging to both referral sources and payors, but a certain level of tailoring and customization is necessary to meet the needs and comply with the regulatory requirements of the local market. One panelist illustrated this with a comparison to Target: If you walk into Target stores across the country, the bulk of the store and layout is about the same, but what is offered on the end caps looks different depending on the local market. It was also emphasized that there is a need for some local clinicians to be retained from the areas being served, in order to maintain trust within the community.

3. Legislative Advocacy. Legislative advocacy has led to law and policy changes in Washington D.C., which has created a tailwind in behavioral health; unfortunately, that tailwind is not moving as quickly as providers hoped and, and in some cases, has created new challenges. For example, the Mental Health Parity and Addiction Equity Act (MHPAEA) helped people understand that behavioral health is as important and should be treated equally or at least on parity with physical conditions; however, when the MHPAEA was first passed, it contained no penalties related to payors failing to provide services similar to medical care and it also left some confusion as to what should and should not be covered. For example, the MHPAEA was interpreted to exclude eating disorders from coverage, and it took persistent advocacy to get the 21st Century Cures Act to be passed in order to make it clear that eating disorders should not be excluded. Because of such legislation, a shift in policy by some healthcare service businesses has led to an increase in volume coming in through managed Medicaid but at lower than expected payor rates. This type of policy shift created a challenge for facilities to think about how to manage the costs and expenses of a hospital and to operate at a large enough scale to be able to treat patients regardless of their insurance coverage.

4. Market Entry Considerations. There are two main ways to enter a new market—by building from the ground up, or through an acquisition of an existing practice or facility. Each has its pros and cons. Building from the ground up is more cost efficient and allows you to control the quality of the facility and programs; however, organic growth involves a much longer lead time as far as permitting, licensing and construction is concerned, and also a longer lead time to build the trust of the community. On the other hand, acquiring an existing facility that is already operating at scale may come with a large price tag and involve retraining of staff and reconfiguration of programs, but you can hit the ground running with providers that already have the trust of the community.

5. Continuum of Service. It is important not only to the patient, but to the business, to be able to provide a continuum of services that spans the entire recovery process. Remaining connected to patients, whether through social networking or volunteering, helps maintain brand loyalty, which can lead to those patients becoming great brand ambassadors. Payors are also looking for providers that can provide a continuum of services because offering a continuum of services may mean that you treat a certain patient for years and provide holistic care, rather than just over a few weeks for a certain challenge that they are facing.

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference is authored by our colleague Cindy Lu and Matt Garvey of RSM US.

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Investments in Dental Services Organizations – 5 Key Points

By Cindy Lu and Matt Garvey

Differentiation is critical when navigating the DSO acquisition landscape, according to experts who spoke on a panel at the 17th Annual Healthcare and Life Sciences Private Equity and Finance Conference on February 19 and 20 in Chicago.

Experts included Fletcher Boyle, Vice President of Business Development Strategy at Chicagoland Smile Group; Josh Gwinn, CEO, Hero Practice Services; Brandon Halcott, CEO at Tru Dental; Kurt Harvey, Managing Director at Caber Hill Advisors; and Andrew Olsen, Principal at Boathouse Capital. Maria Melone, Managing Partner at MORR Dental Transition moderated the panel.

Here are five key points from the panel discussion.

1. Acquisitions in DSOs continue to be competitive. Doctors are inundated with direct solicitation these days; DSOs are a competitive industry and it is becoming more difficult to find doctors that are un-affiliated. There is lot of pressure to consolidate. When looking at smaller platforms (less than $20 million in enterprise value), talk to those providers about post-closing synergies and opportunities. Try to find a partner that understands these opportunities and that will help accomplish those goals. Bring in experienced and knowledgeable people to get through any challenges. Look for differentiation between your model and others, and look beyond liquidity to find providers who are not simply looking to retire and cash out.

2. Experts agree that solid culture is “table stakes” in attracting potential partners. Of course, delivering value is fundamental. But equally as important is understanding who you are doing business with, and making sure culture, goals, and values are aligned. This is particularly true where incoming doctors will play a large role in the platform. The key to lasting success is to match the practice’s culture with the culture of the firm.

3. With so many options for doctors in the marketplace, private equity firms must elevate their offerings to attract and retain talent. Again, “culture is table stakes.” Salary and benefits packages are also important. However, private equity firms can set themselves apart by also providing regional density so that doctors can work within a platform on a broad spectrum of cases; clarity into career path (e.g., opportunities for progression over time); consistent messaging of mission across all levels; and by removing day-to-day administrative roadblocks so doctors can focus on providing a great patient experience. Find out what practitioners are missing in their practice and match that with what the platform can offer. Finally, equity or financial incentive programs are crucial in attracting and retaining talent.

4. Equity programs are crucial in attracting and retaining talent. Clearly set forth the criteria for attaining equity, such as length of tenure and full-time/part-time status. Provide a matching program where the platform will match a percentage of dollars invested. Remove as many obstacles as possible on the pathway to equity. Doctors will appreciate a platform with transparent culture and that they are sharing in value creation, which provides for a necessary alignment of interests between doctors and private equity firms.

5. Optimize fee schedules with payors wherever possible. Find pockets of need based on geography – understand where payors are underrepresented and leverage the practice’s presence in those geographies for better fees. Leverage the fee schedule of an affiliate practice. Focus on codes that are most important to the business’s revenue as opposed to negotiating the entire fee schedule. Understand which payors are more friendly in your states. Engage a third party to assist with the research and negotiations. Experts also suggest reviewing fee schedules every one to two years. Higher fee schedules lead to higher doctor pay, which leads to greater retention.

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference is authored by our colleague Nesko Radovic and Lou Brothers of RSM US.

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Healthcare IT Investments: Data Analytics, Remote Patient Monitoring, Tech-Enabled Services & Other Innovations – 5 Key Points

By Nesko Radovic and Lou Brothers

Value-based or performance-based care offers incentive payments to providers for the quality of care and the related outcomes. For investors targeting this healthcare sector, effectiveness of IT systems is key to planning, achieving, measuring, and reporting those results to ensure proper billing.

At the Annual Healthcare and Life Sciences Private Equity & Finance Conference in Chicago earlier this year, we spoke to a panel of experts who provided important considerations and key points required to make successful healthcare IT decisions.

Experts included Scott Brown, Partner at The Edgewater Funds, Ravi Ganesan, President of Core Solutions, Inc., and Karthik Sashan, Chief Executive Officer of Neuro Alert. The panel was moderated by Matt Hartzman, Chief Information Officer at RedMane Technology LLC.

Here are five key points from the panel discussion:

1. Highly adaptive platforms are necessary. The rate of regulatory change and payment mechanism change is high, so having products that can quickly enable new features, functions, and reporting is critical. Technical debt and effort spent on routine maintenance is a foregone business opportunity, negatively impacting long-term revenue growth.

2. Reducing human labor is critical to improving EBITDA. Most healthcare back-office operations are routine or “nearly routine”, permitting robotic process automation (RPA), or adaptive artificial intelligence (machine learning (ML) to drive efficiencies.

3. Decision-making processes should be aligned with value-based care incentives. Rather than working one way with patients and an orthogonal way in the back-office for billing, the entire patient engagement and treatment protocol should be aligned. The right systems and platforms, leveraging ML, can help. By combining ML with electronic health records these technologies can even reach into the front office to help guide practitioners in evidence-based care decisions, alert them to data and research they may not have seen, or catch potential safety issues such as duplicative treatments or medication interactions.

4. Investors who have operations and technology capabilities or partnerships will outperform financial investors and win more bids. Healthcare companies are looking for expertise and insight to help them transform – so an investor who can help with that is much more attractive. Options include an executive bench who have successfully transformed other companies, technology providers who can enable RPA and ML to lift efficiencies, and operations providers who can set new patient engagement models. Of course, investors and their partners need to know the sector and have credentials in the healthcare sector, with a track record showing that they can make the right investments in growing in this dynamic industry with its complex web of relationships and interactions.

5. Due diligence is key to minimizing risks in any technology platform or product. The key parts of the risk assessment should include: (i) confirming issues related to technology debt; (ii) confirming that the user experience for provider and patient is relatively optimal; (iii) reviewing the roadmap for achievability and sufficiency; (iv) reviewing the architecture for adaptability and flexibility; (v) reviewing the use of AI, ML, or RPA. And, of course, any review needs to examine PHI and HIPAA compliance, potentially alongside PCI, CCPA, and other compliance areas. A good strategy for deal teams in fast-moving processes is to tie any prior period security issues that may be discovered to escrow releases or buy-out payments, thereby protecting the investment without delaying the deal.

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 continuing our series of profiling women leaders in private equity. 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. We are pleased to feature Ann Ferreira of Lake Country Capital. Access her profile by clicking here.

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

This podcast provides timely and relevant discussions with specialists and professionals of the healthcare private equity and finance industry. We’ll share latest developments, provide insight, identify issues and offer takeaways.

It’s expected that distressed transactions in the healthcare sector will continue months after the economic decline resulting from the COVID-19 pandemic. On Ep. 2, Bart Walker, Charlotte partner, discusses executing tuck-in transactions including the effect on smaller practices, how to scale down the process, what sellers should look for in a potential partner and tips on how platforms can rework their existing processes and systems to accommodate this type of acquisition. Listen here.

Hosts: Holly Buckley and Geoff Cockrell

Comvest Partners has raised more than $127 million for its growth fund, reports PitchBook and PE Hub, which cite an SEC filing.

Comvest, based in West Palm Beach, Fla., is a middle-market private equity and credit investing firm. Its private equity strategy is to pursue control investments in multiple industries, including healthcare services. The firm seeks to make $35 million to $125 million investment per transaction in companies with revenue between $50 million and $1 billion.

Healthcare companies in its active private equity portfolio are Dura Medic, Interamerican Medical Center Group and D&S Community Services.

NewSpring Health Capital and Veronis Suhler Stevenson (VSS) announced the completion of an investment in BRC Recovery Family of Programs (BRC).

BRC, based in Austin, Texas, provides treatments to adults with substance use disorders, such as alcoholism, drug dependence and other addiction disorders.

NewSpring, based in Radnor, Pa., is a private investment firm that seeks investments in growth companies with large market opportunities. Founded in 1999, the firm invests in several industries, including healthcare. One of its investment funds — NewSpring Healthcare — specifically targets healthcare companies across the healthcare services, specialty pharmaceutical and medical technology sectors.

VSS, based in New York, is a private investment firm that invests in healthcare and a few other industries. Founded in 1987, the firm partners with lower middle-market companies and makes control or non-control capital investments.

Following the investment, BRC Healthcare was formed. This new entity serves as the holding company for BRC and future acquisitions.

Financial terms of the private transaction were not disclosed.

As a reminder, the McGuireWoods COVID-19 Response Team is keeping clients abreast of the most significant legal and business issues affecting healthcare during the pandemic. All coronavirus webinars (recorded and upcoming) and thought leadership pieces are accessible here.

Two private equity-related resources worth reviewing can be found here and here. If you’re not already on the McGuireWoods email list, subscribe here.

A blog from Private Equity Info (PEI) identifies those private equity (PE) firms that exited portfolio companies during the first two months of the year and the early part of March — i.e., before the novel coronavirus began to greatly impact the United States. It was on February 29 that a patient infected with COVID-19 in Washington state died, marking the first death due to the virus in the United States. Washington Gov. Jay Inslee declared a state of emergency that day, with many states following in the days after.

As the March 23 blog notes, seven PE firms had two exits during this time:

  • Carlyle Group
  • FSN Capital
  • Graycliff Partners
  • HIG Capital
  • Summit Partners
  • Victoria Capital Partners
  • WindRose Health Investors

PEI also identified 80 PE firms with one exit to date.

Access the PEI blog by clicking here.

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference is authored by our colleagues Trey Andrews and Jeff Alberg.

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What Investors Should Understand About Investments in Hospice, Home Health and the Broader Post-Acute Sector – 3 Key Points

By Trey Andrews and Jeff Alberg

The post-acute care sector, with a focus on home health and hospice, continues to attract high levels of interest from investors due to organic growth opportunities and consolidation drivers. This is the case despite recent reimbursement changes affecting home health agencies that have been brought on by value-based care models implemented by the Medicare program, according to experts who spoke on a panel at the 17th Annual Healthcare Private Equity & Finance Conference in Chicago on February 19, 2020. The experts’ discussion highlighted current market conditions and trends for acquisitions in the post-acute space, attractive subsectors and markets for investments, and preliminary reactions to the implementation of the Patient-Driven Groupings Model (PDGM), the newest government reimbursement scheme for home health agencies.

Experts included Jonny Miller, Vice President, Revelstoke Capital Partners LLC; Jim Moskal, Managing Director, Livingstone Partners; Aaron Osmundson, Managing Director, Quadriga Partners; Whit Polley, Chief Development Officer, Angels of Care Pediatric Home Health; and Pete Tedesco, Principal, Health Enterprise Partners. The panel was moderated by Trey Andrews, Attorney, McGuireWoods LLP.

Here are three (3) key points from the panel discussion that investors should understand about the state of the current post-acute care market:

1. Implementation of the Patient-Driven Groupings Model (PDGM). The implementation of PDGM, on January 1, 2020, marked the most significant change to the Medicare program’s payment methodology for home health services in nearly 20 years. Consistent with the trend seen across the health care industry, PDGM shifts the reimbursement model for home health agencies from volume-based care to value-based care. As a result, investors interested in home health agencies have recently adjusted their investment strategies to allow the changes stemming from PDGM to take effect. Investors are in a “wait and see” mode resulting in a pause in investment in the home health sector. However, investors are also being presented with attractive opportunities for investments in the home health sector at discounted multiples due to an uptick in home health sellers that are not in a position to weather the reimbursement changes of PDGM. In sum, investors may have hit pause on actively shopping for home health agencies to wait and see how PDGM plays out, but when presented with opportunities, investors are still very active in the home health space. The panel experts predict that any potential slowdown in the home health sector will likely only be temporary, as the industry observes the practical effects of PDGM.

2. The Continued Rise of Interest in Hospice. Although investors could be throttling back on investments in home health agencies during the first half of 2020, they are not abandoning the post-acute space as a whole. Panelists instead indicated that they have shifted their sights towards the hospice sector based on an investment strategy keen on U.S. population demographics and an increased focus on post-acute care in general. Panelists indicated that the hospice sector continues to be highly attractive due to its lack of consolidation and continued fragmentation in regional areas. They also mentioned that the increased need for providing palliative care services to patients, the shifts to value-based contracting, and an aging U.S. population, all play into the attractiveness of investing in hospices. While PDGM could have an impact on home health investments, it appears that investors seem to be shifting their interest to the hospice sector, which has already been extremely active over the last six to twelve months.

3. Post-Acute Sleeper Sectors. When discussing ancillary or sleeper sectors in the post-acute space, the panel experts indicated that other areas of the post-acute care sector, which have traditionally garnered less investment and attention, particularly such pediatric home health, non-medical home care, and palliative care, are increasingly attractive investments in non-traditional post-acute care providers. First, the panelists highlighted the significant consolidation opportunities for investments in pediatric home health providers. Panelists expressed interest in pediatric home health providers as a gateway for offering patients additional services, such as private duty nursing, therapy, and even hospice services in some instances. While value-based care has not yet been implemented in pediatric home health, panelists emphasized that pediatric home health providers are building important relationships with payors now in order to be ready for its eventual implementation in the market. Second, panelists found attractive opportunities in the non-medical home care sector, which, despite not being covered by Medicare, offers investors the upside of less regulation and more robust reimbursement rates than those seen throughout the rest of the post-acute sector. Non-medical home care, like home health care, has experienced rapid growth as an aging U.S. population base seeks new post-acute services to allow them to maintain significant independence in their own home. Panelists also noted that there is growing interest in palliative care providers who bridge the gap for healthcare services between home health and hospice—currently a significant gap in the post-acute care model. Although not currently a reimbursable service under Medicare, investors are continuing to look at palliative care as a service offering to patients that is necessary and in high demand.