HPE Miami 2023 | Hot PPM Specialties: Spotlight on Cardiology, Ortho/PT and GI

Key takeaways included:

1. Cardiology, orthopedics and gastroenterology are all highly fragmented markets, but they each feature unique characteristics that should drive investment strategies.
   1. Cardiology is an attractive investment area because it presents an opportunity to move care out of the hospital and into the outpatient setting.
   2. Orthopedics as a specialty has experienced organic growth from an aging population and increasing obesity statistics. Plus, more procedures are moving to outpatient facilities and orthopedics often incorporates a high level of ancillary services (e.g., physical therapy and imaging) to provide optimal care for patients. However, this space is experiencing economic pressure from reimbursement rates and inflation, particularly on the ancillary side. Key players in the orthopedic space anticipate that these pressures will drive consolidation to larger platforms.
   3. Gastroenterology is an attractive specialty because income is relatively balanced between practices, ambulatory surgery centers (ASCs) and ancillary services. Consolidation in this sector is more mature, which has resulted in commercially minded physicians who are comfortable working outside of hospital systems.
2. In gastroenterology, a major tool for successful alignment focus is driving income repair for physicians, which requires discipline in diligence and operations. From a diligence standpoint, it is important to develop conservative, supportable projections that can be provided to the doctors. Operationally, investors can add value by providing the opportunity to centralize ancillaries, such as infusion and pathology. Opportunities for income repair often arise in the context of better throughput and via processes that allow everyone to operate at the top of their license and increase physicians’ relative value units.
3. Alignment in cardiology is driven by selecting the right partners. This specialty is still underrepresented by private equity platforms but has opportunities for growth in ASCs, imaging and practice management—as long as investors are willing to make the upfront investment in infrastructure.
4. ASC development is a significant opportunity area in orthopedics, as many physicians already have ancillary services in their practices. Investors are focused on adding value to their current states before expanding to new states.
5. Recruiting and retaining talent remain top of mind across specialties. Gastroenterology has seen early retirements and a corresponding focus on recruiting younger doctors. Since early career doctors are primarily out of fellowships and burdened with debt, the opportunity to earn equity in a practice with peers who are well-respected in the industry can be attractive.
6. Private equity is relatively new in cardiology and may be viewed with skepticism. This makes it even more crucial to select the proper partner for a platform practice that is highly regarded in the market. In orthopedics, physicians are focused on understanding the growth that can come from a transaction and knowing that the “second bite at the apple” is worth it.
7. Cardiology is ripe with opportunity for value-based care, given the senior focus and capitated risk, especially since the prevailing care delivery is hospital-based. Cardiology has increasingly seen payors eager to engage with a value-based care model. A value-based care model fits well in orthopedics, but there hasn’t been enough interest from physicians to develop momentum yet. Large insurers seem to be extremely focused on high-cost providers, although investors acknowledge that orthopedics may be a follower rather than a leader in the value-based care model. Finally, gastroenterology is already delivered at a lower cost since much of the work is preventative and generally outpatient. Inflammatory bowel disease patients are an area of opportunity to deliver value-based care because they often face complexity and failure to control their condition can result in emergency room visits. Several payors have named gastroenterology as one of their top three specialties of interest for value-based care.