Equity acting: Investment capital, other factors changing health practices’ ownership model, experts say

WITHUM Healthcare Symposium

By Meg Fry
Woodbridge | Jan 16, 2020 at 4:45 am
From our print edition

After practicing health and hospital law for more than 30 years, John Fanburg, managing member of Brach Eichler, said recently at Withum’s inaugural Healthcare Symposium at the APA Hotel Woodbridge that the capital structures and ownership models of specialty health care practices have drastically changed. 

“Private equity is happening all over the place, and very aggressively in the specialties of dermatology, urology, ophthalmology, orthopedics, gastroenterology and more,” Fanburg said. “We also have the formation of large single- and multispecialty groups dealing with the same, and then there is physician participation with hospitals in order to collaboratively work together for patient health.” 

The added value of not-for-profit organizations and public companies in the health care space, too, creates more options to contend with. 

But Walter Wengel, executive director of New Jersey operations for Aetna, said these changes have been mostly good.  

“We are not fighting anymore over fee-for-service rates as we once did, and we are now looking at collaboration,” Wengel said.  “We’re able to have greater access for our membership, too, because in many cases, (our prospective partner) is tied to an accountable care organization (ACO).” 

ACOs are groups of doctors, hospitals and other health care providers who come together voluntarily to give coordinated, high-quality care to Medicare patients. 

“Those patients are carefully watched throughout the course of their care,” Wengel said. “Furthermore, you are bringing together like minds and technology that improves patient outcomes — and those are things we like to invest in.” 

Michael Rucker, CEO of Ivy Rehab Physical Therapy, a 200-site, private equity-backed physical therapy outpatient business, said the firm he works with has also been willing to invest in quality. 

“They want to make sure we’re in a position to be able to do things with our partners at Aetna or Horizon Blue Cross Blue Shield that are not just fee-for-service-based, but rather more proactive and value-based as it relates to the way that we structure our contracts going forward,” Rucker said. “For example, we want to be on the hook for reducing the number of residents in New Jersey who have issues with pain management and opioids, because there is an awful lot of literature about how physical therapy can drive down the cost of managing lower back pain. We also want to share the risk around the overutilization of MRIs, because, by going to physical therapy first, in some situations, we’re only going to wind up driving costs down and continue to grow our business.”

Rucker said he is no stranger to positive partnerships in the health care space. 

“Harkening back to my ambulatory surgery center days at Surgical Care Affiliates, a private equity-backed organization, we were able to successfully establish partnerships with 40 different health systems in just about as many states across the country, where we were partnered already with local surgeons, us being the business partner, and with local hospitals and health systems to develop networks of free-standing, lower-cost, high-quality outpatient surgery venues, where our friends from managed care organizations would wind up paying 40% less in terms of a facility fee,” he said. 

Kevin Lenahan, chief financial officer and chief administrative officer for Atlantic Health System, said that, when his organization makes capital investments, every affiliation and partnership must now be tied to the four pillars of its strategic plan: population health, innovation, research and performance, and growth. 

“We need to spread out the capital and spend it wisely to be in different areas,” he said. “We don’t have the expertise in everything — others can do it better — but we need to make sure we work with them.

“We also need to ask ourselves three questions prior to: Are they a quality organization? Would they help add to our brand and mission? And are they the right fit for our culture? Then, we try to figure out if we can get the numbers to work.” 

Dr. Nirav K. Shah, medical director of Princeton Brain and Spine, said that, while his practice started as one of the largest out-of-network neurosurgery groups in the state, it recently switched over to a more managed care model. 

“We were a victim of our own success in that we grew very quickly and covered a number of hospitals — which is how you do well in an out-of-network model, when there are emergency surgeries to be done, but the problem is then developing an outpatient practice,” Shah said. “My partner and I were able to develop good, quality referral sources, but then we had to recruit more doctors to cover the hospitals, and then they didn’t have the ability to grow an outpatient practice because they were stuck acting as residents, running from hospital to hospital.” 

Shah said his practice therefore had difficulty recruiting and retaining neurosurgeons. 

“Neurosurgeons really want an elective-based practice supported by emergency room coverage, and not the other way around,” he said. “And we realized this was not the way that we wanted to practice medicine.” 

So, Shah said his practice met with a number of provider organizations and ACOs to discuss contract opportunities. 

“We finally went in through a Princeton provider organization where we were able to get access to Horizon Blue Cross Blue Shield and Aetna’s network, and a variety of others,” he said. “And we’re now getting to a point where, when we see a patient in the office, we’re going to direct them to a specific MRI vendor or surgery center because we know exactly what their cost and quality is.

“And that is the model that is going to allow us longevity in this business.”  

However, Shah said his practice also has met with a few private companies to discuss future options. 

“As a smaller private practice group trying to compete against hospital-based systems of employed or consolidated groups of doctors, we often need help with professional management, infrastructure and negotiating contracts,” he said. “Furthermore, a lot of these private equity groups also have very strong analytic models where they can evaluate your data and see what kind of quality measures can be done, whereas we have to expense that now, using our own time, effort and resources to do so.

“When private equity companies come in, they often have the synergy and wherewithal to help us with those things.”

Read more from ROI-NJ: