Fall 2017 Emergence of the Mega Group Practice and


Role of ASCs By Henry Bloom


While the federal government remains stalemated on the future of the Affordable Care Act, private equity investors have flown under the radar, rapidly investing billions of dollars into health care services. I am not writing this to critique our political leaders nor am I interested in doing so. I would rather take this


opportunity to educate physicians on the forward-thinking partnerships we see forming all over the country. Ultimately, I believe these partnerships are setting us on the path to providing the highest quality, lowest cost to patients and taxpayers.


Mega group. Aggregation. Rollup. Consolidation. These are terms being thrown around today’s health care business arena, and justifiably so. Independent physicians are increasingly coalescing in response to catalysts such as quality-based payment systems, regulatory reporting requirements, evolving technologies, and expanding and consolidating hospital-based health systems. In my nearly 30 years working with independent physicians, never before have I heard them unilaterally say that “bigger is better” like they are today.


Private Equity as an Emerging Player The formation of large physician groups is not a brand new concept. Pioneering, entrepreneurial physicians have been creating large groups for decades. However, historically, the growth of the mega group has been slow. It takes many years of hard work. But over the past few years, private equity firms have supercharged consolidation.


Private equity firms and the operating partners that represent these firms make a living buying and growing businesses quickly. Much like the large group practice, private equity firms are not a new concept. The new trend is partnerships that harmonize the strengths of quality physician leaders and the professional business folks behind private equity.


In the 1990s, I saw the rise and fall of the physician practice management company (the “PPMC” days as we know it). Many PPMC models were destined for failure. Physicians were getting extremely rich valuations and selling their practices for, typically, stock in the acquiring company. The problem was that physicians were truly selling their entire business and gave up control. Physicians sold 100% equity, went on salary and passed management power to outsiders. Not surprisingly, it all came crashing down.


Physician Engagement Crucial Today’s money is smarter. Investors understand that engaged physicians with the proper incentives are the key to success. Investors build business around physicians with a managing voice and significant “skin in the game” when it comes to equity and compensation. For example, group practice models we are seeing are structured as a management services organization (MSO). The MSO is a vehicle into which physicians can contribute a minority share of their annual


2 ASC PHYSICIAN FOCUS


take-home dollars. The MSO then serves as the vehicle through which physicians can monetize equity and create partnerships with investors who can create growth. For the right opportunities, and because money is still “cheap,” many physician group practices are seeing double-digit valuation multiples on their business.


One of the critical components of the large group practice is robust ancillary services such as pathology, imaging, radiation therapy, anesthesia, pharmacy, physical therapy, clinical research and, as the title of this article alluded to, ASCs. In the last decade, we’ve witnessed the emergence of a core group of strong buyers, including Surgical Care Affiliates, AmSurg (Envision), United Surgical Partners International (Tenet), Physicians Endoscopy, Surgery Partners, Covenant Surgical Partners and private equity firms. These firms have spent years fine-tuning formulas for a successful ASC partnership.


I foresee a future where ASCs will thrive by embracing the concepts of the large physician group and partnerships. The lifeblood of an ASC comes from its physician partners and, in turn, the affiliated practices. Likewise, ASC management companies, private equity and local health systems provide the management, leverage and support needed to maximize long-term stability. Whether you are on the clinical or business side of the equation, it’s the party that best delivers real value to their partnership and passes value onto patients that will have the most success.


Henry Bloom is founder and president of The Bloom Organization, a health care transaction advisory firm in Aventura, Florida. Write him at hbloom@bloomllc.com.


The advice and opinions expressed in this column are those of the author and do not represent official Ambulatory Surgery Center Association policy or opinion.


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