We were recently at the GI Outlook 2019 conference in LA. As with GI Roundtable, the conference attracts GI leaders interested in the business of gastroenterology.
Topics and discussions gave plenty of insights of what concerns the GI industry at this time. Big insurances. Private equity. Colonoscopy. Private equity. Burnout. Private equity. MSOs. Did I mention private equity?
I couldn’t attend all sessions because we had a busy time. But I still managed to pause and capture 43 takeaways and then some. Here they are.
1) James Weber, MD (Texas Digestive Disease Consultants): When we were 60 doctors, we still didn’t get the attention of big insurance companies. After we expanded to 100-200 doctors, they are reaching out to us.
2) James Robinson, PhD (UC Berkeley School of Public Health): Doctors have to give up their autonomy so that they get to keep their autonomy as a group.
3) Lawrence Kosinski, MD (Illinois Gastroenterology Group): There’s a hunger, they (big insurance companies) want us to do it (consolidate).
4) Jack Lewin, MD (Lewin and Associates): Questions to consider on the future of GI:
– Will solo GI be gone?
– Shared risk and revenue?
– Telemedicine and e-consulting
– Extender use
– AI and big data
– Empowered patients
5) Jack Levin, MD: 3 key forces affecting health reform:
– scientific progress and demand for new and expensive services for aging population
– general economic factors
– politics on things
6) Ramya Raman (Medical Science Liaison, Exact Sciences): Cologuard 2.0 is in the works (early stages) – tests will be done with a blood sample, not a stool sample.
7) Abe M’Bodj (Provident Health Partners): The biggest risk for the large PE-funded platforms is that nearly half of the money they raised is leveraged debt. If the business doesn’t generate sufficient cashflows every year to pay the interest, bankruptcy could happen.
8) Abe M’Bodj: There have been 200 PE deals in ophthalmology, 20 of those are platform deals. With GI, we can expect to see at least 10 PE platform deals. At this point, there are at least 16 transactions underway, including acquisitions.
9) Lawrence Kosinski, MD: If all partners agree to take a 30% cut then you can use that money to sustain your independence (instead of raising money from PE). Now, try having that conversation with your partners.
10) Scott Ketover, MD (Minnesota Gastroenterology): (question to physicians during a session on burnout): Do you take a lunch break and not work during that time? (2 hands went up)
11) GastroHealth numbers: 140 physicians, 48 APPs, 69 locations, 891 teammates, 15 acquisitions.
12) Nexus Health Capital: Recent transactions/active engagements (investment bank):
Closed: Texas Digestive Disease Consultants
Impending close: inSite Digestive Healthcare (largest in CA)
Active engagements: Arizona Digestive Health (largest in AZ), GastroOne (largest in TN), Allied Digestive Heath (largest in NJ), Associates in Gastroenterology (largest in Nashville), Gastroenterology Health Partners (largest in KY, S. IN)
13) T.R. Levin, MD (The Permanente Medical Group): Value based health care will continue to grow to meet the IHI Triple Aim of Population Health, Experience of Care, and Per Capita Cost:
– Payment will reward quality over quantity
– Quality will directly impact reimbursement
– Population health management will increase
15) T.R. Levin, MD: Kaiser Permanente Northern California FIT outreach program:
1) PCP Pre-letter mailed
2) FIT Kit mailed
3) Robb-Call reminder
4) Reminder Postcard > Review prompt at office visit
5) Secure Message
6) MA calls
16) Impact of organized screening:
Screening up to date: screening eligible changed from 50% (2007) to 80% (2015)
Colonoscopy: screening eligible changed from 15% (2007) to 30% (2015)
FIT: screening eligible changed from 5% (2007) to 40% (2015)
17) T. R. Levin, MD: Guidelines for surveillance colonoscopy are being revised. Most likely outcome: colonoscopy intervals will be lengthened for 1-2 (possibly 3-4) small adenomas
18) Jack Lewin, MD: U.S. Health care is way too expensive and complicated:
$10,000 per capita per year in 2018
$22,000 per family per year in 2018
18+% of GDP
19) Nexus Health Capital: Need for scale/negotiating leverage:
– Lowered reimbursement risk
– Hospital competition pressures (employment of GIs and referral sources)
– Increasing infrastructure requirements to succeed with MIPS and Value-based care
– Many consolidators recruiting GIs at premium, competing for referrals, competing for preferred payor relationships
20) Nexus Health Capital: Favorable wealth creation environment:
– Premium values for top tier practices
– limited window to consolidate sectors and build platforms
– Shared wealth-creation goal with physicians
– Opportunity to maximize equity “upside”
21) Joseph Garcia (Gastro Health): Often times your EHR is different from your PM system. And your financial reporting system doesn’t talk to any other system. So we knew early on that as our business was scaling, we needed better dashboards. We’ve been using Microsoft Power BI and have been on the project for 1.5 years now.
22) Joseph Garcia: When you are acquiring practices, there’s a lot of scrutinizing of financial reports that goes on. So to keep doing that manually is tough.
23) Joseph Garcia: Dashboards can provide a ton of information from multiple teams. It provides visibility and ability to track. It goes into performance reviews. Brings about great efficiencies.
24) Joseph Garcia: To build dashboards, do the following:
– Identify what you need to run the practice (Data and KPIs)
– Conduct a gap analysis (current reporting vs required reporting)
– Evaluate – build vs buy strategy (outsourced RCM or data analytics vendors)
25) James Leavitt, MD (Gastro Health): What drives PE’s interest in healthcare?
– Dry power of $1.8 trillion
– Healthcare growing faster than GDP
– Healthcare outperformed other PE investment sectors
– Provider fragmentation, lack of professional management
– Create value by increasing efficiencies
– GI of interest because of diverse revenue streams
26) James Leavitt, MD: By affiliating with an MSO, physicians can take upfront value of future earnings.
27) James Leavitt, MD: With a PE structure, physicians can treat their practices as more than just an ATM. They can be part of a structure that creates real value and equity above and beyond the revenue they withdraw as salary from the practice.
28) James Leavitt, MD:
– Understand who you really are
– What is best strategy to meet your needs
– Not everyone is a platform or needs to be a platform
29) Joseph Vicari, MD (Rockford Gastroenterology Associates): With PE, we have to understand who has control of the commodity that we’ll become? Who and what drives decision making as we become a commodity? Will we still be patient advocates? Will we still put quality first? Or, will PE drive decision making? What happens if you don’t meet those 20% growth goals?
30) Joseph Vicari, MD: If we sold or resold, it’ll become like a mortgage. What does it mean for young partners and patients?
31) Joseph Vicari, MD: What happens if the growth of ancillaries stops? What happens if we treat IBD with oral medications and we don’t need infusion centers?
32) Joseph Vicari, MD: If this (PE) goes bad, how does this “unwind”? Who gets what? What happens to the physical structure? What happens to patient records? What happens to ancillaries? If this falls apart, will we truly look at it as a business? What happens to our patients? What happens to us as physicians?
33) Glenn Littenberg, MD (inSite Digestive Health Care): PE is not a cure for:
– a stagnant group that’s unable to grow
– payor pressure
– financing your kid’s tuition
– “kick a mule all you want, it’s still not a race horse!”
34) Glenn Littenberg, MD: people are willing to put in a lot of money into us and want to make a lot more money out of it.. what is that going to do to us or for us? And that’s probably the question
35) Glenn Littenberg, MD: meetings, meetings, meetings, phone calls, emails, more phone calls…
36) Glenn Littenberg, MD: Some physicians are not educated enough but will still come behind you because there’s lack of trust there often based on very inaccurate information, misconceptions on how this could work.
37) Glenn Littenberg, MD: If you are going to do this, you have to become focused, stay focused before, during, after the process.
38) Glenn Littenberg, MD: The question is will they respect you in the morning
39) Glenn Littenberg, MD: What’s the end game? Because second bite is not the final bite
40) James Weber, MD: We anticipate our next partner will be a larger private equity firm with a longer horizon. The third partner may be somebody like Optum or Apple or Google or Amazon or a bigger private equity firm.
41) James Leavitt, MD: There are different types of private equity firms. Lower middle market – start of with $10-20M EBITDA. They grow it from $10M to $50M EBITDA. That’s a 5 times growth. Then there’s the upper middle market – they’ll take it from $50M to $100M. For example, Mednax – they did a PE play and suddenly they were a billion dollar company. They didn’t have a private equity partner to go to and they went public. But that’s four bites down the road.
42) Lawrence R. Kosinski, MD
Major drives of healthcare business model change
– Cost containment (e.g. declining fee for service)
– Structural changes (e.g. Affordable Care Act)
– Consolidation (e.g. PE in GI)
– Demise of independent primary care (e.g. employment of PCPs)
– Disruptive technologies (e.g. EHRs, social media)
– Management of chronic disease (e.g. VCs in this space)
– Consumerism (e.g. patients taking on cost burden)
43) Lawrence Kosinski, MD
[It can’t be] a coincidence the burnout of physicians occurred at the same time as the EMR revolution. We sit there, we watch a screen with procedures, we watch a screen with patients – we are constantly getting hammered with that.
When I reflect on the entire conference, here’s what I finally took away:
1) GI is getting bigger faster. The structure of the industry is permanently changing. The industry is at the cusp of an exponential curve. We’ll see the hockey stick soon.
2) A very small portion of gastroenterologists comprehend these changes. It’ll take most of the industry by surprise. Most will respond based on emotion or hear-say or simply saying yes to whatever comes their way.
3) Plenty of disruption is underway (e.g. Cologuard 2.0) but we will be slow to recognize it. Dependency on colonoscopy reimbursements will be a big risk.
4) Technology will play a major role in shaping the future of gastroenterology.
5) GI practices will make less and less money from direct GI care. And more and more from ancillaries.
6) The need for GI care will keep increasing. How we finance and address that need will dramatically change.
Many summers ago, my buddies and I lost our way while boating in Lake Minnetonka in Minneapolis. It was fun! That lake freezes with over a foot of ice during winters when everything stands still.
GI is a bit like that lake right now. Back in summer, there were no rules. You could be solo or midsize or big. You could do anything you wanted. Life was more predictable.
But now, GI is advancing towards winter – when the ice freezes and rules are set. Once those rules are set, they stay that way for a long time.
Until of course a summer comes by and melts everything all over again.
By Praveen Suthrum, President & Co-Founder, NextServices.
The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily represent those of NextServices and its employees. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained.
Our new book Private Equity in Gastroenterology – Navigating the Next Wave is still available for download. Here was the best compliment we got to date: “I need my entire board to read this!”