“There’s still tremendous green space within gastroenterology.” – Interview with Gabriel Luft, Dr. Mehul Lalani & Jerry Tillinger of US Digestive Health
US Digestive Health is one the eight private equity backed GI platforms in the country.
In this open-ended conversation, Dr. Mehul Lalani (VP, US Digestive), Gabriel Luft (Principal, Amulet Capital Partners), and Jerry Tillinger (CEO, US Digestive Health) talk about how the platform has evolved.
It was interesting to learn that from the PE platform’s perspective there’s plenty of room to grow. We talked about whether PE in GI platforms would go public and how long they see the model to continue in GI.
We went back and forth on a few points – especially on whether the company expects disruption from digital health.
Don’t miss this unique deep dive interview that brings together the GI physician, the CEO and the PE partner.
Key insights from this interview (45+min):
◘ “As a physician, is it easy to work with private equity organizations or is it hard? What was it that Dr. Mehul did not expect?”
◘ What is Amulet Capital’s exit timeline? (second bite)
◘ “We never want to be in a position where the market is dictating what we need to do for our business and partners”
◘ “The nice thing about being regionally focussed is when we talk to a payor, we can approach within a wide space in their market”
◘ “There’s still tremendous green space within gastroenterology. There’s still tremendous growth opportunity regionally and nationally”
◘ From a gastroenterology practice perspective, how is US Digestive different from other private equity platforms?
◘ What happens if the business of GI is disrupted with new technology? (e.g. Cologuard or AI)
The Transcribed Interview:
Praveen Suthrum: Mehul, Jerry and Gabe from US Digestive Health, I am so happy to see all of you again and I want to warmly welcome you to The Scope Forward Show.
Dr. Mehul Lalani: Praveen, I wanted to first thank you for all the work you’ve done in helping educate gastroenterologists, you know via multiple media avenues, including books, conferences and telecasts. It’s been a pleasure learning from you. And I am just grateful for the education that all the gastroenterologists across the country have been able to receive. Secondly, it’s an honour privilege for three of us representing US Digestive to be on your show today.
Praveen Suthrum: I am so glad to hear that. Let me first start by asking you, US Digestive Health was formed in 2019, it’s about a couple of years now. So, what has been the story so far?
Dr. Mehul Lalani: We initially began by combining two groups in the same county in Pennsylvania to form an organization called RGI. This, took a tremendous amount of time and resources to merge together. After we were successful in this merger, we began to think more broadly of how we could consolidate further in the state of Pennsylvania. And that led to discussions with two other larger groups, which were not in our counties about how to best prepare for the future. And we really realized pretty quickly that in order to come together, to thrive in a healthcare market with large consolidated healthcare systems and market dominant payers, we needed a good capital partner with the resources and experience in healthcare to make the merger successful and to grow quickly. And that’s
Praveen Suthrum: What are some recent updates on what’s been happening with US Digestive?
Jerry Tillinger: Since we formed up, we’ve grown pretty dramatically. We’ve got about 60% more physicians in the group; we’ve added six new organizations to US Digestive Health. We have also put a tremendous amount of energy into building a strong management team with deep operational experience and that’s been a strong focus. We’ve developed a lot of consolidated resources, a consolidated pathology lab, for example, that does the pathology for all of our practices on electronic data warehouse that covers all of our EHR’s. So, each practice remains on its native EHR that they use when they came on, but we’re still able to manage it across the network and have immediate access to the data we need to lead the group. So, by investing in all that infrastructure, we’ve really poised the organization for another wave of growth and we see that coming this year. As groups got out of COVID, and we’re able to focus more on the same opportunities that Mehul is describing.
Praveen Suthrum: These partnerships that you have formed with other groups, the six groups, have they all been regional or have they been out of state as well?
Jerry Tillinger: Thus far, they’re all within Pennsylvania. And I know we’re going to talk about strategy later in the discussion, but that plays into that exact view of how we build value for the organization.
Praveen Suthrum: I want to go back to Mehul before getting to Gabe. I’m sure you must have had certain assumptions about private equity. But once you got started as a physician working in private equity led organization, what was it that you did not expect? Was it easier than you thought? Was it harder than you thought? Because a lot of gastroenterologists out there have this very question, they have notions about private equity. So, they would want to know from you. Is it easy to work with private equity companies? or is it hard? or what didn’t you expect from that standpoint?
Dr. Mehul Lalani: I think we did our due diligence when we picked our partner and we picked Amulet. One of the things we liked with Amulet was that they weren’t heavily concentrated on many different investments, we were one of their prime investments. So, we knew that getting involved with them, they would have the resources and time to put into our business. And that was very, very helpful, especially in a time of crisis. We essentially had great communication with them on a regular basis. Emails, zoom calls, they were available really whenever we needed them. So, that was what we expected, growing into the merger, but that’s actually what panned out in reality also.
Gabriel Luft: I just want to say, having gone through the last couple of years with our physician partners, our management team, I could not be more impressed with the group of people that we partnered with. They’ve achieved pretty significant progress. They’ve developed a platform from three separate medical groups initially to a platform with administrative scale, where there’s greater visibility into what’s happening on a daily basis, throughout the organization, including with the providers, and then yet to Jerry and his team, they navigated through a global pandemic. And I think actually, frankly, COVID, one of the shining silver linings uncovered was the trust and the partnership that it allowed us to develop.
We obviously, as you can imagine, in many challenges we had to navigate through, we did it together in a spirit that we all had intended. But you never really know that about GI’s, assessing private equity, it is a big decision, it’s a major transition. I think there are similarities across investors and there are also differences. And so, like Mehul described, one of our core tenants is that we do have a more concentrated fund. So in for our first fund we only invested in four companies, for a second fund will probably be five or six. But that can compare with 10 or 12, for other for the average private equity fund. And so that means that we that all of our investments have to work and that we also can allocate more of our time and resources towards each one.
That said, we also have a physician first approach to our digital practice management investments, and that’s enshrined in our clinical governance agreements. And so, I think that’s another thing I would say that, yeah, if I were to advise, GI is thinking about this, not all those are equal. We think that maintain that bright line around kind of Clinical Decision-Making clinical governance is really important. And I think that’s what’s allowed. Yeah, and that’s what enables really successful partnership, is it allows the doctors to do what’s right for their patients and maintain the autonomy over their clinical practice.
Jerry Tillinger: One of the one of the moments for me, where I realized, what Amulet had really brought to the table was when COVID first started. They were supporting us all through our growth. Obviously, we started with two of us and the MSO. So, we were very much building from scratch, and they were filling in a lot of blanks. As we built our team, Amulet was backstopping us in a lot of ways. But when the wave of COVID started arriving in March, they were the ones that actually said, you guys need to be prepared for a massive shift and potential shutdown. Most of us in healthcare have never seen that. You know, we’ve been through natural disasters where a hurricane might roll through town and shut us down for two or three weeks, or some other disaster might arrive. But we’ve never had systemic blow to the industry the way we did with COVID.
The broader experience that the Amulet team had across multiple industries, had them much more mentally ready for what might happen to us if this pandemic truly panned out. So about 10 days before the shutdown arrived, Gabe and his team were telling us, you need to have a plan ready for that. So, the day the governor of Pennsylvania announced the stay-at-home order in the shutdown, all but urgent and emergent activities. We already had the plan ready to go. We already had our HR team ready; we had our ops plan ready; we had a communication plan ready and we would not have been there without Amulet prodding us.
Praveen Suthrum: Gabe, what was the original thesis when you set forth, when you started looking at gastroenterology and then when you finally partnered with Mehul and team?
Gabriel Luft: I think a little bit of context might be helpful. So, our experience has been across a variety of areas in healthcare, one of which is in managed care, which is pretty unique for a firm our size, particularly given where you have consolidated managed care is today. But we’ve and managed care organizations, I’ve worked in the managed care organizations I’ve worked in on both. If you’ve resource and value-based payment, you’re contracting out from the other side of the table. And so, the way we look at our investments, particularly ones that involve commercially reimbursed healthcare services is really from the industries organization on our local and regional level, and then how you interact with those various players. And so, that was really what underpinned our thesis was can you create a scaled group within a region or however you define, however those local payers and health systems are kind of organized, can you create a skill group in that region so that you have a more even negotiation stance, and actually be a better partner for those organizations. And so far, it’s really worked out. We have been able to successfully grow our business within Pennsylvania, we’ve been able to parlay that into benefits with both the health system level and the managed characterization level. And I think we’ve been able to be a better partner for both of those organizations.
On the thesis, the other piece was really around gastroenterology. We chose GI as one of our first ones for that fund. The things we like about GI is obviously, a specialty that as I said performs procedures and the lowest cost of care. It serves both a procedural endoscopy and a chronic disease component with IBD, which have a nice kind of balancing and from a portfolio perspective. And, on the procedural side, your colonoscopies, are both preventive and curative, which is kind of unique in healthcare. And then on the IBD side, it’s a chronic disease that requires, it’s a sensitive patient population that requires ongoing maintenance. And so, those were kind of the things we liked about GI.
I think, we saw the 70% penetration rate amongst the screening colonoscopies as an opportunity for growth, to be able to serve that additional 30% of people who are not getting required screenings. And we also saw the beginning, when we first did the investment, (there were) beginning signals of the expanding market opportunity, with the guidance around 45- to 49-year-olds. And then on the on the GI side, we’re seeing increasing acceptance for the payers in the 45- to 49-year-olds, and we’re taking a more sophisticated approach to increasing our screening rates.
Praveen Suthrum: So most private equity firms have also a timeline in mind, three to seven years averaging at about five. We saw gastro health recently get the second bite, and it was timed very well, it was exactly five years since they got started. With COVID, how’s that timeline playing out for you? Or do you not worry about it at all for the moment?
Gabriel Luft: I think COVID definitely created additional work and then additional challenges. But as far as growth goes, I think we’ve by and large, hit our plan. I think we are where we would have expected it to be. Like I said, there were definitely things in the interim that we had to kind of get through. But I think we put in a lot of the infrastructure that we expect to put in, we’re in a position to start to scale, and we’re starting to see the real benefits in Pennsylvania. And then we’re also starting to look out into our next date where we can replicate a similar strategy.
So, I think from a timing perspective, I’m not sure that we’re too far off. And sometimes it has been benefited from COVID. I think some of the smaller groups who were independent, who maybe like Jerry said, didn’t act as quickly or as they ramp back up had to kind of push some of their own savings back into the practice to fund working capital, that may have helped facilitate some of the growth of experience. It’s hard to say because you can’t prove factual, but generally speaking, I think we’re not too far off from where we expected.
As far as timing goes, it’s pretty fairly unique for us in our fund documents. We have the ability to hold for a long period of time. On average, we’ve held we underwrite to five years, we’ve I think we’ve exited in about four. But we never want to be in a position where the market is dictating what we have to do for our business or for our partners. We also use very low leverage relative to other private equity firms. And it’s for a similar reason, we want the ability to pursue our growth strategy in any environment. So, I think going into COVID, our portfolio, on average was levered around three times, and there were significantly more. We had simply more access to debt. We just think there’s enough growth opportunity to healthcare that you don’t have to financially engineer returns and it works both ways. If everything’s going great, the mathematics show you make more money. If things aren’t going great, then you have to be you’re doing your lenders, returns, you can have the opposite effect on returns. And sometimes in difficult environments, the best opportunities for growth present themselves. And so that’s just a little bit about our flavor.
Praveen Suthrum: I’m going to get to you Jerry and get to some of the execution aspects of it. I know we spoke around the time of Scope Forward and at that time, you had just joined US Digestive and one of the things that you told me was that it could give you leverage, or it could give the physicians leverage with the regional hospitals with negotiating on insurances and so on. Now two years out, curious to know did it play out?
Jerry Tillinger: I think it did. In fact, it played out even better than we had anticipated when you and I spoke two years ago. Our relationship with the payers and the hospitals have never been stronger. We’ve got agreements, all varieties with the health systems in our communities. In some cases, their call coverage, in some cases, their co management. We have lease agreements to support advanced endoscopy services, we’re releasing physician time to them to make those services available to more patients. All of those are working well. And I think the health systems appreciate the fact that we bring a more robust group to the table.
Praveen Suthrum: I wanted to ask from their point of view. So now in Pennsylvania, they are a large health system very, very consolidated. So why wouldn’t they do this on their own? How are they negotiating with you? What’s in it for them?
Jerry Tillinger: The cost to build a medical group in a health system, particularly with high end specialties, like GI is enormous. And so, when we approach them with a much more modest cost to stabilize management and call coverage for their facilities, they usually end up saving a dramatic amount of money by partnering with a group like ours. And again, it’s almost impossible for them to get that kind of stability in the market.
Even for health systems that cover a wide geography, it’s not really feasible for them to take, say, a gastroenterologist who’s working in downtown Philadelphia, and say, “well now you’re going to go work in Central Pennsylvania for three months”. That’s on paper, that sounds fine. But in reality, that’s not really an option. So, to have strong local groups that are providing services at your medical center and we’re taking on the heavy lift of making sure that the operations run smoothly, that the improvement and replacement process happens without them having to worry through that, this is something they’re generally happy to outsource.
Praveen Suthrum: How about negotiating with insurance companies?
Jerry Tillinger: The payers, and Gabe touched on this really well. Prior to US Digestive Health coming on board, a group of our scale would have required nine different agreements with nine different medical folks. When we negotiate our contracts, they get 140 providers across a wide swath of the state with a single agreement. That’s a tremendous value for them. Just on the operational and administrative side, it brings value to them. Then you look at the next level of what they’re trying to achieve in value contracting, and potentially moving into risk bearing environments. A small group has neither the economic resources nor the expertise to participate in those agreements. And we do, we’ve got the experience from my background, from Gabe’s background and the resources that Amulet has brought to the table, to capitalize us to go into those agreements.
In fact, we’re leading those discussions with the payers, pushing them towards value pathways where we see opportunity to bend the cost curve to the benefit of the patients, the payers and ultimately the medical group. That’s something you just can’t do without scale. If you’re going to assume risk, you have to be able to cover a geographic area effectively, so that the leakage of patients outside the group is minimized. And again, we’re able to do those across wide swaths of the geography in a way that no other GI group in the state of Pennsylvania can. Not even the health systems have the geographic and service scope that we do.
Praveen Suthrum: How do you see these conversations evolve with value-based care?
Jerry Tillinger: What I found, is that the expertise at the payer level is widely variable. We are actually collaborating with them in one case to actually bring in a third party with deeper expertise to work on GI specific pathways together. They have the data across the broader cost spectrum. We know what our patients cost when they come through our door. We don’t necessarily know how much that same patient is spending on a GI related condition when they go to the emergency room, the hospital, other specialists, other treatment modalities.
The payers have that data, but they don’t necessarily have the expertise to manage that cost in a cohesive way. So, we’re coming to the table with them and working towards pathways where we can assume more responsibility, have better direction for patients, move them from high-cost treatment locations into lower cost settings. And even then, the cost curve clinic, there’s more and more information about the way you’ve bend the long-term cost curve with either aggressive early treatment or screening treatments and other conditions. If you can partner with the payers down that pathway with the scale that’s needed to actually affect the whole population, you can bend that cost curve overall and that’s what the payers really need as a partner.
Praveen Suthrum: So, are you hoping to do this in the coming year or are you having these conversations already?
Jerry Tillinger: We are having the conversations now. COVID definitely put a delay on that of all the priorities that were on everybody’s scale, building a new value contract fell behind managing COVID, and getting operational again. So, we put a pause on that for a couple of months. We’re actually in negotiations with one of the largest payers in the state to build that kind of program now. And we’re hoping to take that exact dialog to the other major payers and replicate that across the state.
The nice thing about being so regionally focused is that when we talk to a payer, we can approach it with a wide space in their market. It doesn’t really help that much if Blue Cross Blue Shield of Pennsylvania, one of the big blues carriers here, we’re talking have a big footprint in another state. That doesn’t mean anything for them. They need to focus on the membership that they have in Pennsylvania, and we’re able to do that with them very well.
Praveen Suthrum: Okay. Let’s switch gears and talk about your growth strategy and all your organizational strategy. How’s it different than the other private equity platforms which are out there? And I want to add a little bit to the question here, which is, in the beginning, many platforms talk about doing a regional play, and you are also talking about it now. But then very quickly, they change tact and they moved on to different states, everybody started acquiring practices in different geographies. I’m curious to know, what is your strategy now and what’s it going to be in the coming years?
Jerry Tillinger: I think our strategy is pretty consistent in that we’re focusing on building regional scale to create value, not regional scale for its own virtue. But because it allows us to work with the payers, it allows us to consolidate services to make them more efficient. Our Pennsylvania centralized pathology lab is an example. We brought the cost per unit down by nearly 30% compared to the local labs that most of our groups were running prior. That’s not something that’s that you can necessarily do when you’re scattered across multiple states and multiple regions of the country. So, in any geography where we might expand beyond Pennsylvania, our focus is going to be to replicate the success we’ve had here. We’ve successfully built value for all of our stakeholders by doing that with depth in the market.
So, as we look at potentially a second state footprint, we’re going to look for an opportunity to do the same thing, where we can start with a major group in the market so that we’ve got a good strong base, and take the infrastructure we built within our management team, and use that infrastructure to create the same value for additional groups in the state to join. For smaller groups joining a platform that’s already within the state, they need to see value coming from that. That’s it’s critical that there be creative improvements in the way they perform.
I was actually involved in some of the PPMs back in the 90’s. And saw with crystal clarity that while they built scale, they didn’t build value beneath that scale. And so that has definitely coloured the way we view this investment, that it’s not simply to grow stronger and grow revenue. The revenue growth is great, but I need to grow my actual profitability per unit below that so that my physicians and my investors all see growth in value for the dollars we’re putting out. As a strategy, I think that’s critical for the industry, that is we look at the other platforms around the country, we want them all to be successful and executing on that. Because we see the future of GI, based on these platforms, the ability to execute at an operational level is going to define success for these organizations. There’s still tremendous green space within GI, where it’s somewhere between 10 and 15% of the gastroenterologists in the country are involved in these platforms. That’s a very small number, so there’s still tremendous growth opportunity regionally and nationally. So, we don’t see slowing down in this approach anytime soon.
Gabriel Luft: Just to kind of build on that a little bit, I think what Jerry said is exactly right. I think we want to grow in a way that creates industrial scale that accrues back to your organization. That we’re not looking to grow by acquiring EBITDA in different markets. If we’re going to do that, we want to make sure that we can leverage that scale through to exit in a better place. For our business and also for our physician partners, at least from the investor perspective, I think it’s really positive. And there are somewhat when it signals is that the value proposition is resonating with GI groups, and then there’s ability to transact in a lot of other physician’s specialties, it’s been a much slower pace and so that kind of factors into people’s decisions, when they’re thinking about what can they achieve over their investment horizon.
Sometimes the best entry points into a state are not necessarily the biggest urban markets, it could be a second-tier city, if you have a strong group there and it’s a growing market. There’s a variety of things that kind of go into that. And I think if you look across the country, there’s still very long list of opportunities to go after both for us and other groups.
Praveen Suthrum: Mehul perhaps you can answer this question, for the average GI practice out there, in this region, there’s at least one other private equity platform, one strategic platform, and if you go further out, there is another private equity platform. So, for them with everybody knocking on the doors, how would they tell you apart from the others?
Dr. Mehul Lalani: I think, Jerry and Gabe mentioned some of the traits that our organization has that may be different from some of the other platforms. We went through this process, two years ago and we really had to interview multiple platforms, multiple investors, and try to figure out what the best approach for us was. Our theory was that if we’re able to grow regionally and scale and actually provide services, which we could not provide prior to doing this transaction, we would be successful.
So, all the platforms, I think maybe there is a misconception amongst gastroenterologist across the country, that all of the PE platforms are all the same, and they’re really not the same. There is no one size fits all for a gastroenterologist. I think, the one thing about these platforms that you need to really do is take your time and get the pitch from each of these platforms, understand what they’re trying to accomplish, because they may be trying to accomplish the same thing. But they’re approaching in a different way. And our focus was not to just grow nationally for the sake of growing, we wanted to provide services that we could not otherwise provide in our market to begin with and we defined our market as Pennsylvania. So, I think, every group really needs to understand, obviously, the pros and cons of private equity. But they also need to understand that each of the platforms has its unique characteristics and there is no one size fits all.
Gabriel Luft: I’d also just say kind building on that is a big decision. I think with us, at least, when we enter a market, we really want to deliver for that market. So, it should be I think they should just think about what they want to achieve, and what their existing position is. And we’ve already put a lot of effort into Pennsylvania, so it’d be a lot of bandwidth that we can dedicate to that. And that may resonate with some people, and it’s certainly different than some of the other platforms out there. And there’s other value propositions for the other groups as well. Not to kind of understate that the clinical governance is really important in all these deals that’s been enshrined, right can’t change without physician approval, or consent. And so, I think that’s another thing that these doctors should look at. There are certainly different approaches, some groups have different terms and others they have a different level of involvement in some of these activities and it’s within the kind of practice. I think that’s an area of due diligence it’s just they look at as well.
Praveen Suthrum: Let’s switch gears again, and I want to talk about some of the recent announcements, not private equity announcements, but digital health announcements in gastroenterology which might impact the current way of doing business in GI. Let’s take an example from today, I saw an announcement from Mahana Therapeutics, that has a digital therapeutics platform for chronic conditions like IBS, so they’ve raised $61 million. And last week, there was an announcement Artificial Intelligence company in gastroenterology raise $30 million to do a better polyp detection. Today again, it was interesting that Google put a paper out there, it could be very recent. But the whole point of that was the AI algorithm is now able to detect accurately, if it is correct 97% accuracy in detecting a polyp and so on.
Then you have companies like exact sciences doing several acquisitions, getting very heavily into the aspect of using tool desks, beyond genetic tests to screen populations with many others that are working in the space of liquid biopsy, not just for one cancer, but multiple cancers. A final comment that I heard, though I don’t see the announcement about it, but Blue Cross apparently cut the colonoscopy reimbursements by 20% down south in one of the states.
So, when I look at all this together, I want to ask all of you if this thesis does not hold or pave, the industry makes a shift. What is the plan B? What happens to the EBITDA assumptions, which have been made on number of procedures and physicians coming on board expected to do certain number of procedures in the future? But what if the procedure itself takes a turn and GI as an industry goes to its next level? What happens then?
Jerry Tillinger: I’ll take first stab at that one. We’ve always believed that there’s a role for digital health and these new technologies within gastroenterology. Frankly, anything that improves the screening rate of 60 to 70% that we see across the country would be a tremendous benefit is we are looking at these technologies and modalities. We are trying to integrate them into the practice in a way that brings the best service to the patients and meets them where they want to be met. We’ve already started on our program to integrate AI into our colonoscopy procedures. We see that as a huge advance in the industry. Anything that raises our detection rate and number of polyps located is going to continue to advance the way colonoscopy remains the gold standard in the industry.
As Gabe mentioned before, it’s one of the only treatments in all of healthcare that is both diagnostic and provides treatment at the same time, none of the other modalities can provide that kind of treatment to the patients. And even in an environment where we might see in advance, some of those other detection models. The patients who have positive results in those still need to come in and have those polyps removed. So, while we see these things changing the industry, we also see them as a collaboration in the industry. We still think that at this point, none of those technologies are ready for primetime. We don’t see that the liquid biopsy and stool-based tests are at a level they need that it competes with the quality and performance of colonoscopy. And if AI continues to raise our detection rate, I think that’s going to raise the bar even higher.
So, in the near and medium term, we don’t see that changing the way we work. As we look at the way the industry is evolving back, it’s moving in the other direction, we’ve now added millions of people to the screening population in the 45 to 49 demographics. We think that’s a huge advance and frankly, I believe that number is going to continue to go down. We’ve had too many people in the 35 to 45 range, who have come down with colorectal cancer that could have been prevented. And we see over time as we advanced the technology that that number is going to continue to grow. So even if there’s an adjustment in the way people are using those other technologies for screening, I don’t see it moving the needle in terms of demand for high quality gastroenterologists performing colonoscopy services.
Gabriel Luft: Jerry really well said. The only additional thing I’d add just on us is as I mentioned before, our approach in general is to have more conservative balance sheet. And so, for this or for any kind of risk, it allows us to have flexibility. I am in 100% agreement with Jerry, I think that really as it relates to colonoscopy, we’re very excited about the outcomes from the use of artificial intelligence. I think colonoscopy is going continue to get better. And I do think that if there are opportunities to add additional solutions to the mix allows us to bridge that gap from 70% screening to closer to 100 and ultimately deliver better care to our community. That that’s our mission.
Dr. Mehul Lalani: Praveen, I would just add that technology is always going to advance, right? Whether it’s healthcare or non-healthcare, there’s always going to be advancements in technology. You’re always going to have to embrace technology and change and adapt as much as you can going forward, that’s going to be a necessity to survive. The one thing that you can’t take away in health care is the cognitive ability of physicians, right? You can’t take that away with technology. So, there’s always going to be a demand for service for gastroenterologists across the country. There’s only what, 14,000 to 15,000 gastroenterologists across the country. The cognitive ability there, that’s always going to be a need. So whatever advances in technology, it’s still not going to diminish from the demand of gastroenterologists and other Physicians across the country.
Praveen Suthrum: So, for the gastroenterologist to apply the cognitive ability, they need time, but they’re very busy inside of the endoscopy room, largely doing colonoscopies. That’s why I’m asking what is the plan B? Doctors are busy, and while maybe the industry is shifting a little bit from underneath their feet, so if that happens, then how do we tap into the cognitive abilities of the gastroenterologist? I have these conversations weekly. And what I see the tendencies that I see for the average GI practice out there is to find more number of ways to do more cleaning, because that’s easy, or it’s established. And that’s the way the business of GI has evolved in the last 15 years. My question is, what if you know, this is disrupted and it changes now, then what?
Dr. Mehul Lalani: Well, I think there’s always going to be disruption, right? I mean, you had stool fit testing that came into the market, they said that was going to disrupt things. You had virtual colonoscopy, you said that’s going to disrupt things, there’s always going to be disruption in healthcare. So, right now colonoscopy is the gold standard, one day, it won’t be the gold standard, right? We just don’t know exactly when that’s going to happen. But I mentioned, cognitive service is not going to go away, chronic disease management is not going to go away. You’re still going to need to have a physicians use their brains to navigate these kinds of situations.
And if colonoscopy goes away, there may be other technologies that gastroenterologists are going to have to employ. But we don’t see colonoscopy going away for a long time. I mean, it’s still remain the gold standard. So obviously, there are new modalities that are coming up that are improving, we expect that they’re going to improve. But the demand for gastroenterology services, whether it’s procedural or non-procedural is not going to go away.
Praveen Suthrum: So, I want to further our conversation and ask you about your vision for the future of GI. Where do you see all this go for the next five years?
Jerry Tillinger: I think for the gastroenterology industry, we’re going to see consolidation continue to happen. That the advantages of being in a group like this where you’ve got shared resources, and the ability to leverage size and strength to improve operations is only going to grow. I think the platforms that are developing now have real legs, and you will not see them breaking apart. That the ones certainly the way we’re approaching this, the value creation that’s happening with the doctors, the ability to bring higher quality care, and a more efficient operation. And the ability to let them still practice in an environment that suits them personally, respecting the local culture is a key tenant of what we do. So when we bring groups on board, we do not have homogenize them into a single, this is how you have to do it, because this is our guidebook. We leave a lot of individual freedom within the local practice environment, whether that’s scheduling or other decision making, not only because we think it’s more efficient, it’s about quality of life for the doctors.
The physicians, in smaller practices and medium practices, part of the reason they chose that life, instead of joining a health system is that they wanted the freedom to be entrepreneurial, to have some level of control over their lives. And keeping that there is critical for us to attract the best talent and the best doctors as successors to those current members. And by embracing that we’ve really got a very well satisfied physician group. They’re happy with the way they work. And if you interview deeper into our organization, what most of them will say is that the USDH MSO does not mess with them, so to speak, we don’t come in and tell them, hover over them and tell them how to operate. We bring a lot of expertise to the table. And in the background, we’re making things very efficient. But on the day to day lives, the way they see patient’s environment in which they work, they still exercise a lot of control in that space. And I see that as the secret sauce for this wave of consolidation. It’s not just about the numbers, it’s also got to be about the quality of life for the providers and the quality of care for the patients.
Praveen Suthrum: I want to ask Gabe a question from a private equity standpoint. Do you see five years from now, PE funds investing in GI groups or do you expect the market to saturate by then? And would PE funds start putting together GI groups with other specialties? What would happen? What is your view?
Gabriel Luft: I think they’ll continue to be consolidation. I think there’s any runway well beyond five years. I mean, Jerry mentioned 10 to 15%. I think if you exclude the ASC businesses, it’s still closer to 10% of the gastroenterologist who are involved in in groups like this, I think there’ll be consolidation. I hope that consolidation we hear less about that example you gave the group Blue Cross plan he tried to you know, I guess push around whatever groups were in that state, I don’t think that would happen in Pennsylvania. And I’m sure it wouldn’t happen in a variety of other states that didn’t have large consolidators.
I think that, our groups are going to continue to professionalize or invest in technology, I hope that the screening rates improve in the next five years. Remember people were dying from colon cancer each year, continue reduce based on that, I think that you were going to see, going into kind of a multispecialty environment. I think, I’m not sure that that’s exactly where things are going to go. It just depends on how ultimately, who the owners of these businesses are. You do see some of the platforms moving downstream, so I know that some of larger platforms have their colorectal surgeons, for instance. I think for each group it’s going to be a kind of market-by-market determination. The Imperialist release they know the kind of their health system partners and others, that where you have kind of bolt on market contact.
Praveen Suthrum: Do you see any groups going public?
Gabriel Luft: My opinion today is different than it was a couple of years ago. I think there have been some recent vision practice management IPOs that have traded, that are trading at a pretty incredible valuation. Businesses like Life Stance, which is really a traditional practice management business focused on on-site training at a high revenue multiple, so that may entice people into doing it on the GI side and or on other kind of vision specialties. I’m not sure that it’s necessarily the best platform for the upper GI. But I’m very interested to see how that ultimately plays out.
Praveen Suthrum: Any final words of wisdom, from one gastroenterologist to the others who are listening in Mehul?
Dr. Mehul Lalani: I think, GI groups will need to continue to embrace change in healthcare. You know, the groups that are the most adaptable will be the most successful. You know, telemedicine has and will continue to evolve to a place in every practice. We’re going to see continued growth in GI nurse practitioners and physician assistants at every level of GI practice.
Our colleagues across the country, as you know, Praveen are very cordial, and opening to sharing ideas. So, if you’re interested in private equity, talk to them they’ll inform you of some pros and cons, make the best decision for your group. Obviously, first and foremost, you have to keep patient care as your priority and continue to do what’s best for your patients. But then after that, you have to do what’s best for your practice. Whether it’s you and that should include your younger and older partners, because you want it to be fair, if you’re not fair to your younger partners it won’t be successful.
Praveen Suthrum: Anything else before we close that you wanted to talk about?
Jerry Tillinger: Follow on to what Mehul was saying. I think the younger partner factor is really important. This can’t simply be a retirement vehicle for the senior Doc’s. I would also advise groups to look a little bit further ahead. Some of the groups that have approached us about joining have done so because they felt they were under threat. Either the payers were assaulting their ability to maintain a revenue stream appropriate to what they needed to keep the practice running, or their health system was threatening them saying join us or else kind of approach. When you reach that point, you are at a sort of a desperation moment. And in those cases, those groups were their timing was perfect, because we were in the market and able to step in, and really help protect them from that kind of assault on their integrity.
The smarter move is to look a little bit further down the line and find a platform where that security is already a part of your practice before those threats materialized. There’s no wiser move they can make them to join the right platform in their area that brings them that strength and support. So, they have it in their back pocket if it’s ever needed.
Praveen Suthrum: Excellent. Thank you so much Gentlemen. This was fantastic, I thoroughly enjoyed this conversation. And thanks for encouraging the segways of our conversation. It was totally fun for me, and I look forward to chatting with you all again.
Dr. Mehul Lalani: Thank you very much.
Jerry Tillinger: Thank you Praveen.
Gabriel Luft: Thank you, really appreciate.
By Praveen Suthrum, President & Co-Founder, NextServices.