In the last two gastroenterology-focused private equity deals, the involved PE-firms and practices created practice management companies.
Becker's ASC Review reached out to several sources to gain their insight into how the new practice management companies will compete against existing ASC management companies.
Note: Responses were presented alphabetically and edited for style and content.
Question: How will the PE-backed management companies compete in the existing ASC management company space?
Becker's ASC Review Publisher Scott Becker: Many non-hospital based practice management companies need ancillaries like ASCs to really work. [This is driving PE-investment to] focus on practices and ASCs. The new GI-focused practice management companies will create more competition for existing companies.
Austin (Texas) Gastroenterology and American College of Gastroenterology Practice Management Committee member Harish K. Gagneja, MD: The new [management services organizations] will find value in adding ancillaries other than ASCs. Most of the deals are keeping ASCs out of MSO as most merging groups have different ASC ownership structures. It is very difficult to fold ASCs into MSOs due to the complexity of multiple partners involved.
Edgemont Partners' Luke Mitchell: What we are seeing across a range of office-based specialties is the existing ASC management companies are getting increasingly aggressive pursuing the practice side of groups that have a heavy reliance on ASCs, including GI and ophthalmology. They see the PE-backed single specialty platforms as new competitors and are playing both offense and defense. On the defensive side, they want to maintain the ability to grow the facility-based part of their business and thus need to be competitive on the practice to still win those deals.
Offensively, they have a tremendous track record and can prove to sellers how they are able to improve operations from day one for the sellers’ primary profit center (usually the ASC), and can leverage their existing client relationships to get in to the practice side, which also offers additional routes for growth and service diversification. I do not believe any of the current ASC operators are hesitating to expand to the practice side in markets or specialties that are important to them.
Wichita Falls (Texas) Gastroenterology Associates Managing Partner and ACG Practice Management Committee Chair Louis Wilson, MD: I certainly agree that alignment across groups will be critical in the future, I’m just not sure if PE backed deals are the best way to do that. One question I have is why the recent groups accepting these arrangements could not figure out a way to do their deal together rather than separately and whether those issues are signs of problems to come. If hundreds of practicing groups eventually make separate and then competing PE-backed practice management companies, then they may not be able to also deliver on their promises to achieve better contracts or contain costs. That would be a critical problem. I am dubious of those claims and there is little evidence to support them. Furthermore, since those deals will differ in structure, they may be hard to merge in the future without substantial disruption.
Digestive Health Associates of Texas partner and ACG Practice Management Committee member Jay Yepuri, MD: To grow and add value, I expect the new MSOs that form as a result of these private equity transactions to build and develop ASCs when and where the opportunity makes sense.