Interview with Dr. Nandi (Pinnacle GI): “We are clearly in the third inning of private equity investments in GI” (not eighth)
On November 30th, 2020, Troy Gastroenterology (Michigan) announced its partnership with H.I.G. Growth Partners to launch the seventh private equity platform in GI: Pinnacle GI Partners.
Dr. Partha Nandi is the President, Practice CEO and Executive Chair of the Board of the new platform. In this insightful interview, he shares why it’s still an early inning for private equity in gastroenterology, how they chose their PE partner and discusses challenges with EBITDA expectations.
My company NextServices recently partnered with Gastrologix and other partners to help launch GastroInfuse, an infusion ancillary.
Watch this exclusive deep dive into GI’s latest PE platform. Do not miss this one (20+ mins)
◘ “Our two key goals: a) Continue to give the care that we’re giving b) Replicate the environment for our providers”
◘ Dr. Nandi reflects on the conflict between clinical goals and business goals
The Transcribed Interview:
Praveen Suthrum: So, Dr. Nandi, thank you so much for joining me today on this conversation. Before we get started I want to congratulate you on being the seventh private equity platform in gastroenterology, you just made the announcement. So, congratulations to you and your team.
Dr. Partha Nandi: Well, thank you so much Praveen for having me. We’re excited and it’s my honor to be able to represent our organization and thank you for giving us the opportunity to talk about a little bit.
Praveen Suthrum: Excellent. So, I want to first start by asking you, how did you arrive at this decision? First to decide that you want to do PE and after that arriving at this decision with H.I.G.
Dr. Partha Nandi: You know when as a gastroenterologist and as an independent gastroenterologist our practice began in 1992 Praveen. So, we’ve been, you know, working and doing well. We started off as a group of two back in 1992 and we’ve now grown to over 19 providers in our practice and with multiple locations. So, for us, the decision was how are we going to be able to give the kind of care that we’re giving and being able to extend that and to other groups? And then second is providing the environment that we have for our providers and how do we replicate that, right? So, those are our two goals. And we felt like organically within our group we’ve grown sufficiently but the next step would require professionalization. Meaning that if we want to get other groups to be involved and really have some of our strengths and strengths of other groups come into the vote. We need to professionalize our organization and we thought how are we going to do that? Now we can do the traditional merging of groups in gastroenterology you know all of us are pretty independent so we said, “Well maybe that may not work.” It could, but it may not work. The second option would be, should we partner with a hospital partner? We have great relationships with our hospitals. So, should we then partner with the hospital? One of the other options, the third option that we picked was private equity.
So, this management services organization concept was attractive because you’re part of an organization and this organization is your common thread with all these other groups that we will be partnering with and yet you’re still maintaining independent practice. That was critically important for us. The most exciting conversations we had about this are – can we develop an IBD center of excellence? Can we finally effectively do obesity management? Can we revolutionize how our endoscopy centers deliver care? Listen I’m not going to be naive and say this is not also a financial transaction. Of course, it is because we could do other things as well. But this to be to me was the best way and our partners at the center for digestive health, we felt this is the right way. So, we began I would say 18 to 20 months ago Praveen, and we started with about 150 private equity firms, and with my partners at KPMG I personally met with 67 of those firms. And then over a course of several meetings in New York, Chicago, Dallas, and Detroit we narrowed it down to a dozen and then to five. And then we did an LOI in the middle of the pandemic in the summertime. So, with that’s how we picked our partners at H.I.G. They’ve been extremely successful in what they do you know their return is tremendous right so that’s a baseline financial but what’s also important is in all the management meetings you know, for me I always said… we have a very simple litmus test for our practice you know if we do something… my mom or any of my partners’ mothers’ or parents should be able to come and get it done, right? So, it may sound very basic but it’s very fundamental. The whole idea that quality standards and being able to do the right thing is important… resonated with H.I.G. tremendously. And they’re extremely conservative and they want to be able to do things right. It was extremely important and they wanted us to be able to practice in the way we have been and to accentuate what we’ve been doing.
Praveen Suthrum: Okay. So, I’ll ask something that I’m sure many in the audience you know would want to know. Why didn’t you join an existing PE platform because largely if you talk to them they would say that these are their goals too: to take care of the patient, keep up with quality, and also financially benefit… so and there were plenty of options. So, why didn’t you go that route?
Dr. Partha Nandi: That’s an excellent question. So, I met with all the platforms early on. Gastro Health, GI Alliance, US Digestive, I think I met every single one that existed at the time. And here’s the fundamental reason why healthcare and the delivery of excellence in healthcare is regional and local. That’s what we want. We want to be able to have folks that understand what the geography means. Michigan is a different environment in California, which is a different environment than Florida, which is a different environment than Texas, which is clearly a different environment than Pennsylvania. There are some national payors and there are some national environments that are common but the regional density and regional focus is critical in this. My goal is to be able to do this you know talk to my colleagues in Michigan and in the Midwest to be able to really do something that we want to. For example, we would like to contract directly with employers. How do you do that? You can’t do that if you have a center in Oregon, a center in Illinois, a center in Massachusetts, and then you say well you know we’d like this practice in Michigan with 19 providers to really be able to give you the employer who has 52,000 employees in Michigan, we’d like to be able to deliver care for you… that doesn’t work. can you please share some growth numbers that you experienced leading up to the transaction itself in 2019?
I can show you that my ASC with the triple AHC survey had zero citations that we were commended for an award from the AAAC. I can say that from a physician’s perspective, right? And then we have partners who can then show the spreadsheets and the financial analysis that show that this can be something that can work and be financially successful for them. So, that… plus payors. You know, there are some dominant payors in Michigan. Could we contract with them? With the national company, with a couple of practices in Michigan? Maybe. But I think it’s much more likely if we have the entire market in Michigan, the majority of physicians that are in gastroenterology and we come with common concerns and a common theme of efficiency I think we’ll be more successful.
Praveen Suthrum: It’s been about a week or so since your announcement. So, what is your agenda for the first 90 days?
Dr. Partha Nandi: As you know as many of the folks even listening may know the first literally first six months two years is one of transition, right? You’re trying to get everything organized and it’s a completely different organization. So, there are two answers… one is organizationally from Pinnacle GI, the management services organization and I serve on the board, so I have a different role for the MSO than from the practice. So, the practice continues on, right? From the patient perspective, there really is no difference. We continue to provide the best care we’re not changing that. We’re not going to dramatically change what we do, because we’ve done it well. However on the MSO side here’s what we’re doing is getting ready to make sure that the organization can run smoothly. Number one…what do we do from all the… so it’s overlooked but all the nitty-gritty… where do the accounts go to, who are the non-clinical entities versus clinical entities, and what are we going to do with our partnerships. We’re blessed that we have a partnership coming on by the end of this year we have another group of physicians that are going to be our partners coming up.
So, we’re planning on how we’re going to integrate with that group so that we can have our common strengths be accentuated, right? So, they can help us, we can help them, immediately. The key to this is it’s not about just you know add two teaspoons of groups, add water, mix, and voila! The critical part of the success of a gastrointestinal platform is integration and how you integrate effectively and that involves planning that involves finding out: What you’re going to do for revenue cycle management? What are you going to do for financial management? Who are your GPOs going to be for your traditional payors? Who’s your CFO going to be? How are you going to be able to manage a completely different organization that’s almost separate from the practice entity in our state? So, we’re doing all that. We’re developing targets for growth… meaningful targets, right?
The one thing that can happen and this is one of the things that that anybody who’s listening knows…hopefully or if they don’t know they should be aware of that you can grow but you can grow in a way that’s not meaningful, right? You can just keep adding people on without any real plan for integration that will fail because all you’re doing is adding layers of bureaucracy and overhead without really having to understand what you can do. So, you know, we have a pipeline of folks that we’re talking to for physician groups that are going to be our partners and finding out what ancillary lines do they have? What can they help us with? Is there a group that does infusion better than the platform group (which is us)? And how can we integrate with them? And what’s the plan for that? And in 2021 first quarter what’s our plan for doing that, right? So, we’ve got to get those things settled. You know if there’s a pathology lab that these folks use, do they use it do they not use it? You know, we were very interested in obesity management. Is there a strategy for obesity management? How can we plan that out? And looking at it from an organizational structure to see how much we need to grow but also from a financial perspective to see what kind of capital expenditures, those CapEx costs are going to be you know important to plan… and in this transaction, I didn’t go through with it but you’ve done that before is that you know part of this is… you have lenders that are involved in this and you have to have the lenders understand that what is going to be the trajectory of your group? What are going to be your financial needs? Those are critical to understand now so that when we get there we have dry powder to be able to accomplish those. But it’s exciting to be able to form an organization that is really going to be able to serve the under-served market in Michigan. I think that’s going to be exciting.
Praveen Suthrum: Got it. So, you know one of the aspects of private equity not just in gastroenterology but all of medicine or the concern is the conflict between clinical aspirations and business aspirations. And even in the book Scope Forward some of the interviews that I’ve done, when I ask people what are your concerns? They bring this up and they talk a lot about keeping the clinical side separate, clinical goals separate from the business goals, and so on. But as we know sometimes this can come in conflict. I’m wondering as you’re getting started with your PE partner, what you’re doing to lay this in place?
Dr. Partha Nandi: That’s a great question and I think that the traditional view that people are petrified for and I think and they should is that there is an inherent conflict between financial goals and clinical goals, right? This is why I spent almost 20 months finding the right private equity partner. Not all private equity is made equally. You have to understand that and you have to let folks know what your goals are. To us clinical excellence, clinical quality supersedes everything. There’s nothing nice about the COVID-19 pandemic, let me assure you… but what was great to find is you had a situation that tested that philosophy, right? Did you have a private equity firm that tried to force things? To continue to go ramp up? Or do things that are unsafe during the pandemic? You heard I’m sure you’ve heard of instances where physicians were asked to practice unsafely because private equity firms were leveraged and they really didn’t do the right thing. Well, what was nice about us is in the top five of all of our choices for private equity, every single one of those firms shut down all their clinical activity during COVID. But again remember what I said before… we have a pretty simple criterion if it’s good enough for my mom, and it’s good for the practice with all of our practitioners, and it’s good for the bottom line, we do it. But if all those three criteria are not met we just don’t do it. But if something is bad for clinical success, but it makes more money, we won’t do it, we won’t, we haven’t and we will not in the future.
In the first quarter of 2020 one of our junior partners, we’re going to have him on the partnership track to be able to be part of this MSO. I want him in 20 years to be able to say, “Wow that was a great decision that really changed our trajectory,” right? So, in your question though, you said, what about some of the expectations? So, here’s why I think the 90-day plan is extremely important as you know you’re…in all of the work that you do, you’re very thoughtful in letting folks know economically how to be realistic in their expectations. You want to be bullish I mean you want to be like… you want to go for it and not say that you’re going to be stymied up but you have to be realistic. You don’t want to make growth such an important part that you forget about what it is that you’re supposed to do we’re physicians, we’re healers and caregivers, right? I’m still excited about taking care of patients and being able to help them. So, our goals for growth are great. We have tremendous goals but when you have a practice that becomes a partner, we want them to continue to do what they feel is best for their practice because we’re choosing these partners carefully.
The criterion is not that, “Do you have a pulse, then come on in.” We’re going to be choosy. First of all, we’re going to pick our partners to be practicing good quality medicine, and then we’re going to say you know we’re not here to impose upon you manners in which you should practice, right? Michigan is a practice medicine state the practice is separate from the MSO their relationships of course. However, nobody’s going to tell us how to practice. Here’s the different stuff if somebody you know knows that they can have a better revenue cycle management so that they can actually collect a few percentages higher than they do and spend a few percent less why wouldn’t they do it, right? Why wouldn’t they do it? If they can they can buy an infusion drug for a few percentages less because the fact that they belong to a GPO that you know that a buyer group that can actually help them why wouldn’t they do that right if they have a financial management system that shows them that this is where you have duplicity and this is where we feel you can actually grow. If you feel like there’s an ancillary line, let’s say you don’t do infusion and you don’t have to metaphorically stub your toe and learn by mistakes that people who’ve already done it and done it successfully can show you as part of this MSO.
Praveen Suthrum: The question around valuation in general which is as I understand, it’s a measure of adjusted EBITDA and when you adjust EBITDA, one of the important factors is physician productivity or physician future productivity. Now just going based on historicals, one big driver for physician productivity is screening colonoscopies and procedures because that is very much tied in and given some of the technologies which are coming and are already here let’s say the trajectory of GI takes a ship and somehow those productivity assumptions are not met so what happens in terms of your relationship with the PE partner if those EBITDA assumptions don’t come true?
Dr. Partha Nandi: Here’s the truth of this, right? So, private equity does not go in with just blinders on saying that, “We’re not going to look and we’re going to just you know be blind everything” that’s going on. They’re making an investment, an investment that’s not without risk, right? So, I mean this is part of the reason why we need partners that are adept financially and are experienced. So, there is no crystal ball saying that you’re absolutely going to be successful is there a chance of failure. Of course in any of these transactions, that’s present in any kind of private equity or other financial transactions there are risks, right? Of industry disruptions that are not only here but can come in the future. That’s in every field that you have.
I mean today Amazon is a dominant market player in consumer products, right? But it’s not to say that there could not be a player that’s coming in three years that’s going to take them off trajectory. So, what I’m suggesting is that are there going to be challenges in gastroenterology, in dermatology, in anesthesiology in every specialty that private equity is investing in, absolutely. Here’s where the challenges can be overcome… as you suggested in many of your writings that you have to be prepared for it, right? It doesn’t mean that you stop investing in endoscopy centers or ASCs you want to be able to invest in all kinds of patient care modalities that really help the patient, right? And of course, endoscopy is a big part of it. But you also want to be able to diversify it so that if liquid biopsies are a huge part of what’s happening in healthcare in five years, if it’s dominant, you have to understand how to incorporate that into your practice. You have to also be able to be flexible enough to say that… Could we add radiology services to our practice? Could we add obesity management to our practice? Could we add revenue lines and ancillary lines that help patients that we’re not doing now, right? Some of this can be an IBD center of excellence managing the entire experience for the patients.
We understand and we feel that the future is bright for patients and how can we be part of that future? Being part of the future is by listening to visionaries like yourself who talk about this every week, every day. About looking at the future and paying attention, listening, and then adjusting your organization accordingly. So, you’ll be able to handle those challenges and thrive not just survive in the future. That’s not a pipe dream it can actually happen you can pivot. If we remember one thing all of those so-called challenges are incredible opportunities for patients and as a consequence, there are opportunities for us, if we have the vision and also the ability to look beyond what’s right in front of us, right?
Having a myopic vision is not a recipe for success in anything especially in these kinds of endeavors. There’s a famous hockey player… Wayne Gretzky. Wayne Gretzky’s always asked, “Wayne, how come you’re so good and you’re always being able to score goals?” He said, “I’m not better than anybody else I just happen to know where the puck is going to be before it gets there and so, I’m there before the puck gets there.” I would offer to you that’s what Pinnacle GI is going to do. We’re going to be able to try to understand where the puck is going to be, where the technology is going to be, where the care is going so we’re there. And so, we’re not only meeting the challenges, we’re exceeding them and our expectations are not actually dampened but they’re exceeding.
Praveen Suthrum: On that note Partha, I want to thank you for sharing your thoughts it was fantastic. So, I wish you all the best and your partners at Pinnacle GI as well as you lay the foundation for this future. Was there anything that you wish to share before we close?
Dr. Partha Nandi: Absolutely, you know, thank you for the opportunity. The one thing I wanted to say was that… some people fear that the seventh platform, are we plateauing? Are there enough opportunities? Here’s what I would offer… in dermatology, there are 17 DMGs or dermatology management groups. And even with those 17 Praveen, it’s still a fragmented dermatology market. We’re incredibly fragmented in gastroenterology and I think there are many ways to be able to do this both regionally and nationally. And I think what this allows us to do is maintain independent gastroenterology practices in the United States, giving this excellent care that we know we can. So, to me, we’re just beginning. Using a baseball analogy, we’re probably in about the third inning of gastrointestinal PE-based investments. We’re not in the eighth inning we’re clearly in the third inning. So, I think that the future is bright and folks who are looking at this and listening to this you know if you think that your practice can really benefit from it I encourage you to look at Pinnacle GI and others to see if it’s a good fit for you.
Praveen Suthrum: Thank you so much.
Dr. Partha Nandi: Thank you.
By Praveen Suthrum, President & Co-Founder, NextServices.