Just because a surgery center or private practice is successful doesn't mean center leadership should stop seeking out opportunities to grow or secure financial stability.
Managing the strategic partnership process was the subject of an Oct. 16th session during Becker's ASC Review Virtual Event sponsored by Merritt Healthcare.
The speakers were:
- Rich Searles, partner and managing director of Merritt Healthcare Advisors
- Dr. Jay Pruzansky, vice president of development of Merritt Healthcare Advisors
Here are four key takeaways from the session:
1. Why seek out a partner. Successful and stable physician practices and surgery centers seek out potential partners for two reasons: growth and stability. Merritt has assisted several successful practices in finding a strategic partner. These physicians run viable clinical practices but want to bring in a partner to ensure they're capitalizing on the growth initiatives in their respective markets. "[Practices are] looking for a partner who can come in and help them achieve the goals they don’t have the resources to achieve on their own," Mr. Searles said. Then on the flip side, practices seek out partners to avoid risk. While most practices are thriving, their relatively small size could threaten their longtime viability. "So it's about seeking a partner who can provide that stability and viability of the practice long term," he added.
2. Why partners matter. With more new physicians opting for employment models, private practices are fighting an uphill battle around reimbursement, recruitment and relevancy. In California, for example, major health systems dominate the marketplace, followed by teaching hospitals and hospitals with a large medical group presence and then private practices. All three systems are competing for the same patients, and when a major player exists, it siphons off resources from the other circles. Even when successful, practices have to fight for cost-of-living increases from payers, and if those negotiations fail, the practice's share of the pie shrinks further. "Unless you have some size, or you can beat them, you join one of the big groups," Dr. Pruzansky said. "It's a no-win situation."
3. Your surgery center's "for sale" sign. Surgery centers typically sell to strategic buyers, Dr. Pruzansky said. These buyers are companies that are either in the business already and have large numbers of surgery center clients; are a large hospital system looking to diversify; or are with private equity firms looking for a sound investment. When beginning the sale process, Merritt meets with an ASC's management team to assess their goals, their relationship in the market and to explore potential partners. All three entities have an array of pros and cons. "And that's … where due diligence comes in," Dr. Pruzansky said. "You really want to make sure any partner you bring into your surgery center has similar goals … and really helps you grow post-transaction."
4. The allure of independence. One model allows practices to retain their independence better than the others: private equity investment. PE investors approach the space in one of two ways: is this a platform deal or a bolt-on deal? When firms invest in a practice for the first time and create a management services organization, the firm and practice create a growth-focused platform, and when a practice joins that platform post creation, it's viewed as a bolt-on transaction. Unlike selling to a health system and becominning an employee of the hospital, or selling to a management company and handing over full control, PE allows practices to remain independent. "One of our goals is to keep as much independence to the physician group as possible," Dr. Pruzansky said. "The physician group still manages all the medical aspects of their practice, and … now [it has] a financial partner that has the same goal, of increasing the reputation of the group, increasing the footprint and bringing dollars to the table."
View a copy of this session here.