I'm a healthcare transactions attorney. I've been doing healthcare M&A for physician groups for 33 years. This is what I've done my whole life. The reason I put this QR code on here is that I've given this presentation for four or five years, keep updating it. Everyone's like holding their iPhones up and taking pictures of slides. If you just hit that QR code, you have the full deck. So, but it's nice to be here. I'm with Epstein, Becker & Green, which is a national healthcare firm. Oh, I'll go back. I see some folks trying to get the QR code, but it's on that card that's going around also. And Epstein, Becker & Green is a national healthcare firm. We have 160 healthcare lawyers in 20 states. It's now 20. We just added in Portland, Oregon, around the country. And there's a subset of us, like 63 attorneys who just represent doctors and ASCs on mergers and acquisitions, including private equity. I've spoken at ACUS, spoken at AAOS, ICJR, Becker's all on this topic. So what's going on? The title of the session is, is it right for you? And it's not right for everybody. But if you look at reported transactions over the last seven years, there's been a substantial increase year after year in transactions. 2021 was a little bit of an aberration, but it was a makeup for the COVID year, but it's on the rise. And these are just publicly reported transactions involving physicians in general, but you can see where the industry is going. So that's why everyone's like, what's going on? How does this work and whatnot? There's 18 platforms, different private equity platforms, meaning different investors that are consolidating orthopedic groups and trying to make them better and to help physicians. These are the last seven of them, the most recent seven. And you could see there's a bunch of them. On the bottom there is USOP. I know we're gonna have some speakers later from USOP, but it also gives a sampling of their major affiliated groups. But if you go back to five years ago, these are the ones that started in 2017 or 2018. You could see how many more major affiliated groups they have, including HOPCO, Orthopedic Care Partners, OrthoAlliance, a lot. Growth Ortho was on the prior page. And I know some of the folks are here from Growth Ortho too. But it just shows, wow, all these groups for surgeons, Panorama, all these big groups that I know other doctors in are actually deciding to do a deal and join one of these platforms. So is it right for you? It's not right for everyone, okay? But before you make the decision, is this right for you? You should get the details. You should understand, you should explore. That's what we talk about. I think that the doctors and groups that explored five years ago, I would say 50% or less actually went forward, okay? Since 2021, I think that that percentage has gone up significantly. I think it's really starting to snowball. And we'll try to talk about why, but the key here is before you say, eh, private equity, it's not right for me, which is the attitude still a little bit, and it was definitely three, four years ago, just get the facts. Just once you hear how they can help you and what's involved, it's not about the money. It can't be about the money, but the money can be lucrative, okay? And usually is lucrative, but that's not why you do the deal. There's many other reasons why the groups I work with do these deals. And by the way, this is not just, and I'm gonna talk about this later, for private practicing physicians. We are now working with groups that have PSAs with hospitals or groups of orthopedic surgeons that are employed by hospitals, looking at their options to extract out, separate, and in connection with the separation, land with a private equity platform. So that is the hot new thing that is keeping me, I would say about 30% of the groups I'm working with now are tied to a hospital in a professional services agreement, which means they're billed through the hospital affiliate or employment at a hospital. So independent groups, what are their challenges? Why are they, what are the headwinds they're facing? So market consolidation. I mean, all these big companies around them are growing and it's causing more larger, well-capitalized competitors, including hospital systems keep adding physicians. And they're not only adding primary care physicians, they're adding specialists now. They're adding orthopedic surgeons. You know, they've always had cardiologists, but they're adding urologists and all the other specialties. There's uncertainty in reimbursement regulations. You know, the Medicare fee schedule has gone down. I think it was close to 3% last year. It probably is gonna continue to go down. Payers are following suit. I think I would say 80% of the orthopedic surgeons I talk to say they made more three years ago than they did last year. And number three is really a big reason. In some of the larger markets, power players acquiring referral sources. So if you get your referrals from the big primary care groups, there's not that many independent primary care groups anymore. They're with Optum, VillageMD, big hospital systems, right? So, and now those same large companies are now employing orthopedic surgeons. So in a lot of markets, we're starting to see groups that are starting to see the writing on the wall, starting to see, geez, not getting as many referrals from those primary cares I used to. You know, I'm still getting some, but they're being forced to kind of keep it in their family with the hospital doctors and the Optum, VillageMD. And value-based payment is key. Value-based payment is really here now. It's, you know, the freight train left the station. It's more than halfway there somewhere. Everything is kind of now slowly transforming to value-based care. So to position yourself for value-based care, you need a sophisticated executive team, C-suite, and sometimes capital to invest in things like data analytics. Direct contracting is also expanding direct contracting like with the Walmarts of the world. Capital for expansion is, you know, IT, virtual health, focusing on the outpatient setting. I know folks are gonna be talking about ASCs shortly. Now, it's not on here, but the considerations facing groups that are in PSAs with hospitals or who are just employees with hospitals is they're just frustrated. They're just like, oh my God, the hospitals, they don't let us do what we want us to do. I think, you know, Kevin was talking how they market themselves, but do they really even care about the doctors? I think they just, I think not all hospitals, some I think are doing it right, but the majority are not doing it right. They're just focusing on their bottom line, what generates revenue for them, and they wanna lock up the doctors and then kind of just know they're locked up and not really focus on them. That is not what the approach of these private equity platforms is. So I think there's a lot of frustration there with doctors and hospitals. So the top three reasons, the groups I've represented, 17 orthopedic groups going to private equity over the last five years, okay? And I'm working with a bunch now. So the number one reason they decide to move forward is this, the benefits of the larger corporate infrastructure. You know, not only access to capital, you know, for expansion and opening new offices and physician recruitment, new ASC, new other ancillaries, but it's that second box on the top right. It's the experienced corporate stewardship and executive team. You know, you have your own CEO, CFO. You have a person who just specializes in managed care contracting, marketing, IT, HR, now if you're in a mid-sized to large group, you may have some of those resources, but it's, and if you're a big group, the private equity firm will take those executives and help expand it to work with other groups on the platform. But that's the number one reason that I see. And in addition to the investment of capital, cost savings, lower operating costs, you know, buying malpractice for 30 doctors is a lot more expensive than for 100 doctors. Same with health insurance. You know, 50 employees versus 500 employees. So there are real savings there. The future risks and uncertainties. I mean, this is really becoming real. If you don't think that there's uncertainty in where your practice is gonna be three to five years from now, then maybe you don't care about this. But most doctors do care and are concerned with like, what's gonna happen next? And so it's all those challenges I discussed before, you know, being part of a larger organization with people who are MBAs and everything like that, you know, really helping you, you know, get through these challenges in a successful way. And number three is really the last reason, which is, you know, there really is a monetization opportunity. Again, whether you're private or not, or in a hospital, you don't realize it. But if you're a well-recognized surgeon and you have a lot of patients and whatnot, you know, there's real value in that. But as an independent practice, you know, the value, if you retire or become disabled, you usually get a very minimal buyout. Your capital account, trailing AR, not much. But the private equity platforms actually really value, like, what's the real value in the market of your group? And it's usually, you know, five to 10 times what you would get if you retire. And sometimes even more than that, but some groups, you get bupkis upon retirement. So this is kind of an added bonus that you get the true value recognized. Usually you get 60 to 70% of that in cash, okay? Tax advantaged, long-term capital gains, not ordinary income. So it's a lower tax rate. You're taking chips off the table with the uncertainties moving forward. And when you do retire, or God forbid, become disabled or whatever, you know, you get bought out that remaining equity. So if you get 70% in cash, the 30% or 40% is rollover equity in the platform. You're gonna get that, the real value of that when you retire. So the way these transactions work is that, you know, usually there's a big group that's what's called a platform investment. They start with a big group like Resurgence was the first group with UMP, United Musculoskeletal Partners. So, and then they add on other groups. And so the theory is you add on groups, you grow the base, the corporate infrastructure provides benefits to all of them, especially in that corporate stewardship and strategy. And then it increases the value for everybody once you're part of a bigger organization that's well-managed and the like. So the question, some of the questions I get a lot are like, well, you know, how about the younger, you know, partners? And, you know, is it good for them? Or is this just about the older founder partners who are in their late 50s and early 60s cashing out? And the answer is it can't be, it cannot be. Every deal I've done, it was equally beneficial for the younger partners. And the younger partners have to be educated on this and educated what the benefits are to them because all of these benefits like rollover equity, in fact, in a bunch of groups, the younger partners do better because they're in there for the second bite, the third bite. Second bite and third bite are when there's an additional liquidity transaction and you take more money off the table, almost like dividends on your rollover equity. And, you know, otherwise it's got to, again, this is just a sampling of things, but it's got to be equally beneficial for younger partners and education will get them there. So I'm gonna talk a little bit about this whole thing about what if you're at a hospital, in a PSA or just a hospital employment. And, you know, we're working with a bunch of those right now and there have been some, we call it extractions, hospital extractions, where you have a group of orthopedic surgeons, or we just did it with cardiologists too, you know, that are in a PSA or they're all employed by the same hospital and they explore the same options that private practices can explore. And, you know, you look at your, you have a right to terminate your agreement, right? So you look at the grounds to terminate the agreement, you know, and everybody gives 90 days, once you have a deal lined up, you know, and signed and sealed, everybody gives the 90 days notice, whatever, and the private equity firm basically has the office ready to go, staffed and now you've kind of freed yourself, you've gotten out of jail, at least that's the way some of these doctors feel who are employed by hospitals, again, not all. And you look at the, obviously you need to look at the termination clauses and you need to look at the post-termination non-competes. I would say about half of the non-competes that I've seen, maybe even a little bit more than half, don't prohibit a doctor from going into private practice, you know, in the same community, as long as they're in a private medical practice. They don't want them joining the competing hospital, okay? So for those, it's relatively easy to do these deals, just to give the notice and move on. But sometimes it's that more broad non-compete of, oh, you can't practice anywhere, period, you know, in a range of 15, 20 miles, whatever it may be. And then we have to kind of look at it a little bit more and try to choreograph something that works. We're working with one right now where, well, this is like, you know, the 12 orthopedic surgeons. I mean, if they did this, the hospital wouldn't have, they don't have any others, so they wouldn't have a choice, but, you know, kind of waive any type of non-compete that may be there. And because they don't want them to leave town, the hospital would close is what they tell me if they weren't there anymore. So you got to look at your leverage points too in that regard. But hospitals usually are not happy about this, but they also come to reality that they need the orthopedic surgeons. Listen, if it's just one or two, you know, and there's 20 others that are staying, that's a different story in an employment situation or a PSA situation. So those are the main considerations on that. So, you know, I spoke about, there's also issues about some groups actually, when they went to the hospital, they own their own offices and staff and they lease them over to the hospital. It's usually in a PSA scenario, a professional services agreement situation. So some of them have easy, easy separation, you know, wind down clauses where, you know, if the PSA ends, the lease of the offices that, you know, the previous offices and the staff, you know, also expires or terminates. And now you're back in private practice, okay? The doctors that don't have that situation, the private equity firm will arrange that during the notice period and make sure you have a smooth landing and get you in managed care. I mean, that's the other thing, you got to get into the managed care plans, you got to get an EMR, but most of the experienced platforms that are out there now don't have an issue with that. They already have relationships, they already have an EMR. It's a little bit more capital intensive in the beginning for them, if they have to start a brand new office, but there's plenty of office space and I've seen this not be a problem in these first few that have happened over the last six months. So that's big, but it's important, don't only talk to others, if you're a hospital employee, only talk to others that you know, they're equally frustrated. Don't like talk to everybody about it, try to keep it a close knit group of people. You don't want the hospital finding out about it until you sign your deal and give them notice. And sometimes that's hard, that level of confidentiality. So you really need to keep the folks that are involved, people that you know and trust that want to get out and aren't gonna just whisper in the ear of the hospital executives. And then choreographing it, like I said before, is crucial. So coming back to the question we started with, is private equity right for you, your group, you as an employee, and again, people ask me, do these always go right, these private equity partnerships? And the answer is, the ones I've worked on, probably 90% have gone right, but nothing's perfect. There's been a couple where they weren't happy. But I think that the key is number one, to ensure happiness, is the fit of the potential partner. Don't do this because of money. Yes, that's a good add on of a tertiary benefit, but the primary thing should be, this makes sense for us. This logically will help position us to be successful three, five years from now. And we like this partner, we like what they're saying. They kind of have our vision, they match our vision. They're not these sharp elbow Wall Street guys that are saying, come on, sign, sign, sign. That's not the way it works. It really needs to be kind of a cultural connection. And when that happens, 100% of the time, these things, at least on the clients I've worked with, they've been very happy. So we're not gonna do questions and answers now, but we're gonna do it at the end. So turn it back over.

mergers and acquisitions

physician groups

private equity firms

cost savings

reimbursement regulations

value-based care