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Understanding Practice Models: A Bootcamp
04-28 14-00 GRAND HALL J Behr Colbert... Understan ...
04-28 14-00 GRAND HALL J Behr Colbert... Understanding Orthopedic Practice Models a Bootcamp
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Okay, so first of all, I'm Mike Baer. Thank you everyone for being here this afternoon. I hope somebody won some good prizes because there were some pretty good ones out there. I come from Atlanta, Georgia. At the time we formed our PSA agreement with the hospital system, we really didn't have any immediate threats. We were trying to be proactive. We did see neighboring states where megagroups were forming. starting to come back into the picture, as they did in the 90s, but with a little bit better selling argument than they had the last time through, and groups were already going through first bites and maybe even second bites in a couple places. So we weren't facing an immediate threat, but we knew our healthcare was changing. So in about 2017, we started talking with a healthcare system in town that we picked that would be a good partner. We had three to choose from, but we interacted with one most commonly. And so it took us about 18 months of negotiating with them. Initially they wanted to employ us and we didn't want to lose our independence. So at the end of that 18 months, in February of 2020, we signed a 10-year PSA agreement or professional service agreement. And in essence, for those of you who aren't sure of what that is, we are leasing our services to the healthcare system, really becoming their service line, their orthopedic service line. They have other orthopedic surgeons working at their facilities, but we adopted their name, became Piedmont Orthopedics by OrthoAtlanta. And that's a whole other story on why we elected to do that. But in essence, we became their... Any patient that came in the door was a Piedmont patient. And for the service that we provided to the hospital, they paid us a negotiated RVU rate. And that's a very, very basic overview of it. We are now in our fourth year, and to date we've been very successful. And the hospital is happy, we're happy. It's not all Facebook, right? It's not all perfect. But we can talk about some of the issues and challenges with any model that any one of us have in upcoming questions. But that gives you the overview. That's great. Thanks, Mike. So I think we're working our way down. Next we'll go to Jarrett. I think where I'd love you to start is kind of back a couple of years when you guys were considering what to do, what options did you consider with your group? What ultimately drove you guys to consider partnering with Spire? And then what's the biggest misperception of private equity that you want to clear up for the audience today? So hi, everybody. Jarrett Lamb. And I'm the VP of Operations for Spire Orthopedic Partners. In my past life, I was the CEO of a group called Sports Medicine North Orthopedics, which is the legacy group that we've brought into our private equity portfolio. And kind of similar to Dr. Bear's story, we really weren't facing a lot of threats at the time. But for anybody who was in the private equity discussions we did yesterday, I had sat down right around 2021, just after that little thing we had called the pandemic, with our physician leadership and said, what do we really want to be over the next three to five years? What are our goals for growth? What are our goals for opportunities here? And everyone sort of said the same things. We were seeing in the People's Republic of Massachusetts, where we're from, this downward pressure on all the payers, difficulty continuing to grow, additional DON regulations that were making it difficult to grow some of our ancillary businesses. And so we knew at some point, with the pressures of the big systems that were burgeoning, Mass General Brigham, Beth Israel Leahy Health, Optum moving in from the West, that we were going to be facing a decision point at some point. And we wanted it to be on our terms. And our physicians were fiercely independent. They wanted to remain in a model where they had some clinical autonomy and control. And I don't know that there was the same level of sophistication necessarily with the hospitals that were occurring in Dr. Behr's conditions down in Atlanta. And so we started our RFP process on the private equity side, met with a number of different, highly qualified groups that were all starting platforms or had just initiated platforms recently. And ultimately, the physicians chose to partner with Spire. I would say that the biggest misconception is that private equity has one playbook. We've all read it. We've all seen it. We all see where it crashes and burns in a decade. And I would say that at least the platforms that are informed, thoughtful, strategic, and I'd liken that to the one that we've joined, have a real opportunity to make positive change in health care and not just be something that we see and read in the press. Thanks, Jared. So moving on, Tanner, you've also been with your practice for quite a while. Maybe talk us through how you guys evaluated your options, what chose you to want to be part of Ortho Lone Star and kind of build this mega group, and what other options did you guys consider? Sure. So Tanner Sloan, COO with one of the divisions of Ortho Lone Star, that's Texas Orthopedics. We're based out of Austin, Texas. We have 38 physicians in our division, and we didn't have any immediate threats at our division. We were the largest independent group in the Austin area. We control majority of the trauma, all the level one and most of the level two in town. And so we thought we had pretty good contracts, maybe not necessarily the case in the long run. But we knew that we were still facing threats from the hospitals, though, of gobbling up our referral sources in the PCP groups. And so we thought we'd just have to find a better way and also offset our increasing overhead. We never really considered the PSA model from any of the physicians. We wanted to try to stay Switzerland to the two different hospital systems. But at the same time, there was a lot of disdain to one facility, one system over another, and none of our physicians could quite come to terms and maybe selling out their soul to that. So we were pretty aligned in maintaining our independence, moving forward and control of our own destiny. Our guys absolutely wanted to leave their own legacy, too. And so that also prevented us from going into any kind of a PE model. There was really just a lot of organic discussion that happened with other physicians in the state of Texas, those that they interacted with from fellowship or residencies and just built up that rapport over time. And so we thought we had a great opportunity to have some strengths and numbers and work together to make a big impact in the state of Texas and hopefully maintain that level of independence while still allowing us to have full control. That's great. And maybe, Tanner, just for the group's benefit, what does it mean to be in a divisional merger model? Maybe give folks a little flavor for how much you're integrating economically? What exactly is consolidated up to a central level versus kept at the local practice level? Sure. I think that's kind of also a little bit some of the misconceptions that come with a mega group is that that physician is going to lose full control of their practice and the way they practice. And that's not necessarily the case. We set out to make sure that they could maintain their own independence while having as minimal impact on revenue as possible, but then share synergies for best practices and then centralized functions. And so we moved to one EMR to have one table space, one tax ID number. We quickly spun up a centralized RCM team to help bring everyone up to the highest level possible. We did the same thing with HR, with accounting and credentialing. And so there are still other tasks, roadmap items that we want to do in time, but all that allowed for us to leverage in the reduction of overhead. I mean, our overhead as a percent of net revenue dropped from 55 to 46% over the course of four years. So I think we accomplished that part by leveraging the strengths of each other for that. That's great. But is the right way to think about it, each group kind of maintains their own P&L effectively? Yes. All the finances are completely separated within the divisions. Great, great. Well, that was super helpful, Tanner. Chris, let's turn it over to you. Talk to us about the challenges of being kind of a smaller practice, more rural location, what it's like to have to kind of run a physician-owned surgical hospital. And then what options you guys are considering or valuing as you think about your growing trajectory? Sure. Thank you all for being here. My name is Chris Roy. I'm with Summit Surgical in Hutchison, Kansas. And we are a small specialty surgical hospital, three ORs, 10 inpatient beds. Our four physician owners are two orthopods and two GYNs. One of the GYNs is wife of one of the orthopods. Makes for an interesting group. 90% of our services are orthopedic and spine in nature, and we're trying to grow. Our biggest threat is patients leaving Hutchison, Kansas and going 45 minutes down the road to Wichita, Kansas. 15 years ago, longer than that, actually, when the hospital was built, people in Hutchison wanted to stay in Hutchison. Western Kansas came to Hutchison for care. And the docs didn't have to work really hard to keep patients local. And there are eight, nine orthopedic surgeons in town. Now there's three. We have two, and a large primary care group has the other one. And those three docs rotate through call at the regional hospital that's across the street. So it's a real interesting dynamic. Being physician-owned means that a lot of times they think they know best on how to run the business. And I think because of that, they've had some issues. And now we're in an environment where we are two independent orthopedic practices that are single physician practices. And the two GYNs are still together. All that under one roof. And when we're looking at our usage and our services and how we can grow, we start looking at these different models that are represented up here. So we're currently working on growing through a PSA. We just brought on a paying management provider here last Monday. And so we're starting to find some success in that and getting some traction in that. And we're hoping to be able to bring our ortho in line with that also so that we can rather than each clinic having to run all their own central services, we put those things together for each other. That's great. Thanks, Chris. And then, Andrew, going now all the way to the coast of the Carolinas, tell us what it's like in Myrtle Beach right now. Sunny, a little warm, no snow. Love it for Chris, though. I'm sure he's having a blast. So we at Ortho SE represent the fully independent model. We are the product of a merger that happened in 2018, a very baby merger compared to what we're seeing in our market today, unlike Ortho Lone Star and some of the other groups that are out there. So we were three separate groups, 10, 12 across the board, serving a multi-county area in northeastern South Carolina. And what we were running into was that the area was beginning to grow. If you guys could look up the stats on Myrtle Beach, South Carolina and the counties that we're in, it's a super fast growing area now. The pandemic really accelerated that, but it was growing before that happened. And so we were seeing extreme competition from four hospital systems that were serving that multi-county area that we're in. And so our environment today as such, we've got 32 physicians, I think 96 total billing providers across our mid-level folks, our physicians and everybody else. But we were beginning to see intense competition from four hospital-employed groups that were in the community, a group of incredibly independent-minded docs who wanted to stay that way. And so we worked together to form what is now Ortho SC, started back in 2018. That's great. That's great. I appreciate that. We did get the results in from the polls, which is pretty interesting. So 80% of you in the audience are independent and 76% is considering currently exploring different options right now. Only 8% has gone through a process and 16% is actively in transition. And then in terms of practice size, about 28% in the room is 26+, 32%, 15 to 25, and then 8%, 10 to 14, 8%, 6 to 9, and 24%, 1 to 5. So we got kind of a bell curve in the room, but definitely seems like you guys are in the right place because certainly more than three quarters of you are currently evaluating. So that's great. I think we're going to start the discussion. Now that you have a sense of kind of who's who and what the backgrounds are, we'll start with the discussion of like kind of talking about steps to take to prepare and just how the process works and what the consensus building is like, and then we'll kind of move over into discussion of what it's been like since the partnership and some of the lessons learned. So maybe we'll start with you again, Mike. Talk to us a little bit about what it took to build consensus amongst your partners in getting them to agree to a process and then realistically, how long did it take to work through the process and what were some of the biggest challenges from going through the PSA negotiation and kind of lessons learned and maybe advice you would give the audience if someone's considering a PSA negotiation. So everyone in this room works with physicians and understands for the most part that to get them engaged, they want to feel involved in the process. And so one of the things we did from the very beginning is make sure that the physicians were apprised of every step that we took. They didn't necessarily come to the table. In fact, they weren't at the table very often, but they knew everything that we were doing and we would have multiple meetings on getting approval and updates and those type of things. When we ultimately, just to fast forward to give you a flavor of this, when we ultimately made the decision to sign the deal after 18 months of negotiation, we had a unanimous agreement. So there was no opposition to us moving forward with this. And it was a pretty significant move. But keeping them in the process, I think, is one of the keys. And then before you even start the process, you have to sit down and have a strategy and a goal. If you start in reverse, you'll never get there. So you have to start in advance with an idea. We're not comfortable where this healthcare is going. We don't feel we may be viable in 10 years or we want to make sure we're going to be viable in 10 years. And then you work and say, okay, how do we want to get there? And you got all these models you can choose from. And really based on where you are in this country will help dictate what's available to you as an option. Because not all of these options, well, maybe private equity will go anywhere. I don't know. That I'm not sure of. But a PSA, for example, will not work in every location. You got to have the right hospital partner and talk about that. But so it's you really have to make those decisions up front. Then you start the process. And how did you guys maintain leverage during the negotiation and not just kind of get rolled over by the strength of the health system? Yeah, that's a good question. Anytime. And again, this is 101. But anytime you go into a negotiation, whether it's with at the time the hospital had 12 hospitals, the system, when you're negotiating, if they're not meeting somewhere compromising on where you're trying to get to, you have to be willing to get up and walk out of the room. And during the course of the 18 months, I think we walked out three times. So you have to be willing to do it. And then cooler heads prevail and people come back together. And it worked out really well. So but that's really an important aspect. That's great. And then in terms of the negotiation itself, how much did you play a role? Did you bring other consultants in to help? What would you say is kind of the team that someone needs to build if they want to be successful? Yeah, we were PSA naive when we started the process. So we definitely hired consultants, various consultants actually. Fairmarket value was one consultant. We hired someone who had some experience with negotiating or with setting up PSAs and what we should look for. So no, we definitely – you don't want to cut costs in doing that because again, ultimately, the devil's in the details and if you just ignore that stuff, you end up in a bad place. So – Totally. Yeah. Jared, maybe let's switch gears because I think in many regards, the process you go through to evaluate private equity and prep is probably somewhat similar to a PSA as well. You got to kind of get your house in order. Maybe talk to us a little bit about that process, what it took to kind of get ready and did you evaluate kind of one option on its own? Did you kind of evaluate five or six options and kind of compare them side by side? And what advice do you have for the audience if maybe they're thinking about one option? How do you maintain leverage in the negotiations? Yeah, it is a very similar process probably in all of our cases as you continue to grow scale and you try to negotiate, be it with a hospital partner, a private equity-backed aggregator or even just another group that you're trying to bring into the fold. And it just starts with open dialogue. It starts with doing your diligence in advance, knowing your worth, and I can't speak enough to the importance of knowing what you know as administrators and then fully accepting what you don't know and where you need the additional support to go through these kinds of transactions successfully and have your physicians still love you on the other side. Having the right legal advisors is critical because they're going to read every page where your doctors are not. I promise you that of all the various contracts and purchase agreements. Generally speaking, having third-party advisors that can help define your value for your group because it's probably not an exercise a lot of us get to go through. I was fortunate enough that I had some background in that, was able to do that from having to do it on our surgical center side years before, but a lot of people don't. And so if you don't, there are great groups and great advisors, some vendors even here this weekend who could really help you navigate that process. So once we knew what our value proposition was, what we thought we should be able to gain in the market, we went through an RFP process. We invited a number of groups to come to present to us. I think what's interesting always about that is where the decision points lie, and I think a lot of people assume, particularly when you're going to partner with private equity, it's about whoever comes to you with the biggest purchase price. And we actually did not go with the group that offered us the largest sum of money. So in fact, the guy who does this, we joked and we called him the bag of money guy at our board meetings because he kept talking about this bag of money he was going to put in front of us. But yet there was no strategic alignment, there was no understanding or vision for what it takes to grow an orthopedic group on an organic level as opposed to just aggregating dollars. So those are, I think, the key things that we navigated through. And I think, you know, again, I say it over and over again, make sure you do your diligence, make sure you get the additional expertise where you need, and then make sure your physicians who are ultimately going to make the vote and the decision are leading with the right values and not just with the dollars. That's great. And then did you guys have to walk away from the table at all in the process? We had to maybe step back and maybe not respond to so many emails just to show some pause. We never formally stepped away. I think, again, you know, part of the process and probably similar is we did have an LOI that was non-binding that we signed in advance of that. Don't be fooled. Those are the terms by which you're assuming to pursue the deal, right? So you don't want to be sitting in a seat where you're trying to change the terms on somebody you want to partner with, just like you wouldn't want them to do so on the other side. But you do iron out a lot of the macro-level details at that time. And so, no, we had a number of very thoughtful conversations prior to that and took appropriate pauses just to, you know, just like in any courtship, you got to kind of give a little space, right? Yeah, go ahead, because Jared made a really important point with the LOI. In our LOI, we thought it was really important to have as much of the detail in that LOI as possible, because if you have it spelled out by the time you get the LOI, then beyond the LOI, you've already done a lot of the legwork to get it in the LOI, and it was really helpful for us to do that. It took a long time to get there, but spelling it out in the LOI to a detail that isn't typical for LOIs, but it was really helpful. I mean, I couldn't agree more with that. I mean, I think even though it's non-binding, you know, to the extent you can get a 10-15-page LOI and get every key term, because that's when you've got the leverage, right? You've got the leverage up front, not once you've agreed to the exclusivity. So I think that's great. Tanner, you know, talk to us about, you know, what it's like building a merger without any consideration, right? So how do you create the impetus amongst your partners to do that combination when, you know, the docs aren't getting some big payment in their pockets, right? And so, and it's all internally motivated, right? There's no big third party, there's no health system, there's no private equity that's forcing a timeline. You're kind of internally having to navigate that. So, I mean, who played the role of driving that timeline and creating a process? Because, you know, I could see it just kind of dragging and dragging without any real impetus. Well, that's exactly what happened. It drug out a very, very long time. Majority of our divisions are, well, actually all of our divisions are led strongly by physicians. So physician leadership across the board, it's through those relationships that they've had that they've talked for years. I mean, they talked on this concept for four years before we ever really sat down to try to put pen to paper. And so, that concept coming to reality was painstaking to get there. But everyone had the same type of alignment and goal and just kind of, as everyone was talking about thus far, being fully aligned with that. I think that's incredibly important. If you have any significant fractions in your division or in your group today, those are only going to be further amplified. We knew that going into this mega group process that I think very different than a PSA or private equity is that it's probably a lot easier to quickly unravel that. And so, that was something that we were very mindful of to make sure we were strategic with that approach, bringing on an advisor to stay mutual and third party to that, to make sure one wasn't being taken advantage of the other. Not that that was ever the intent, but that was some of that that we waded through. Did you guys strive to get full 100% unanimous consensus or did you have some folks that maybe were on the fence and kind of got dragged along? How did you kind of manage that? It was not 100% across all the partners, all the divisions. It was majority. And each division brought their own votes of whether or not they moved forward. And so, we had early on set up the representation, the board structure before all that came to fruition. But it was well over 90 something percent. And our division is definitely probably more transparent than some of the others. And so, we got the buy-in from those that would be partners in time. I think that was just as important because that's also the future of the legacy that we're trying to leave here. And how transparent is the information sharing? Is it open book across all the practices in terms of all the costs and P&Ls or do you kind of keep it separate by division? So, the intent is to be as transparent as possible. We think that's very successful. We learned very quickly on that not all divisions have that full level of transparency. Some had tiers within ownership or partnership in their practice. But the goals and the steps that we were taking, the intent was to be fully transparent with that. The P&L aspect remained divisional based. We didn't want to share those numbers because at the same time, early on, there were two divisions in one city and two divisions in another city. And so, we had to be very delicate as how we navigated that because they were competitors. I mean, literally, one city had their competitor right across the highway. And so, I was very close to home on that. But that came – the transparency and communication did start to fracture the group as time went on. And so, we learned quickly to put in control, full control of that communication. We created an app to make sure it got to the partners so that there wasn't any kind of reliance on their key representatives. that there was, again, any intent to misinform them but to make sure everyone fully understood all the options that were being explored, not just what was ultimately decided upon. And then, I think a lot of folks in this room also have questions around what's it mean for the executive leadership team? Did you retain pretty much all the practice leaders across all the groups? Did you kind of build a best-of-breed team? How does that work as people think about kind of the integration of executive leadership? Sure. We broke a couple of broomsticks in half and threw it on the floor and everyone fought to the death. No. But we went in – yeah. We went into it knowing that we did not want to lay off any staff, any administration. Although this was physician-led, it was recognized that the administrators were what was going to make this successful to facilitate those conversations and third-party partners. And so, over time, there has been some changes that have taken place organically. And so, that has allowed us to then maybe create some standardized opportunity in leveraging SMEs, subject matter experts. One example, our division, we no longer have a CEO. And so, that changes things, but we have the benefit of the resources across the greater good of OLS. That's great. That's helpful. Chris, from your perspective, talk to us about kind of some of the challenges you've been facing and ultimately how you grow in your market and whether or not you see value in these partnering with outside parties, whether you're going to kind of continue growing independently. What do you see as kind of the future? What keeps you up at night? I think for us, it's how do we partner with the independent practices to bring in new talent, new surgeons? She's not in here, but currently working with another AAOE member who represents one of the practices. And she's in the most forward-thinking of the two practices, working on recruiting a total joint surgeon. And how does the hospital help stand up a guarantee, maintain compliance so none of us have to wear fancy new orange clothes, and successfully create an environment where a new surgeon can come in and be successful? And working through those structures, creating that recruiting agreement with the physician practice, and then making sure that there's a solid ownership piece for the new recruit because that's one of the biggest advantages we have is you can come to us and you can own part of the hospital you're going to work in. And so working on those structures, we've had a letter of intent signed with a doctor for I think we're going, it's been since November, and still working on that final piece for hospital ownership for her and trying to get the deal sealed. So the stipend that we said we'd pay during the end of her fellowship, it's getting shorter and shorter. The window shall receive that. So hopefully we'll get that deal done quickly. We said in the five-year strategy three years ago that we're going to recruit a new surgeon every year, and we're going to do that for three years. And this is still number one. We just started a pain clinic that was someone in town that had a successful practice, but they couldn't get the billing stuff right. And he was just going to shut the door and walk away. And he feeds our spine program really well. So setting the structure up for him to come into place and being able to be successful again and not have to worry about how he's going to get paid. Those are some of the challenges we work on right now. And what's the structure that you propose? Do they buy into the ownership of the hospital or is that kind of earned through sweat equity? How do you guys structure that? We've approached it with a couple of different ideas, and both of those have been options. I don't know what the current one is just because I've been here in Chicago all week. So it's all up for negotiation. All up for negotiation. We try and be flexible and what's something that's going to stick for this physician. With the pain management practice, it doesn't have an ownership piece. It's just a straight PSA. You're right. Getting the provider, the physician involved early on is key in that. We've had probably two months worth of meetings about what this project is going to look like to do it. And this huge right Gantt chart layout of all this stuff. And finally I said, when are we going to involve the physician in this? Because he probably knows at least half the things that need to be on here that we're probably not asking about yet. So getting them involved from the get-go is smart. Yeah. Great. Andrew, talk to us from your perspective building, obviously, an independent group. How have you been able to navigate the investments that have been needed to kind of internally invest in growth given you guys are staying independent and want to stay independent? How do you kind of educate the docs on those investments have to come in lieu of distributions, obviously? Well, it's a challenge. As most of you guys in the room, I was surprised by the statistics of how many of you guys are similar to my size, but it's a challenge. I think it's going to be a challenge just in different ways no matter what the model is. For us, it's a lot of work and a lot of foot traffic. I feel like a member of Congress sometimes. Instead of just working in my office, I'm politicking and working on getting information out and trying to gather where people are at and what their worries and concerns are before we ever get to a meeting so that we don't get into the middle of a meeting and then for the first time hear where everybody's issue is at. So for us, it's taken a lot of work with building real estate structures that we're creating financing structures that allow us to minimize the impact that we can to the degree that we can when we need to buy an expensive piece of equipment or something like that. I think it's an important detail. In our model, our physicians are the source of funding, and so it's a constant question for us both today and for the future as we continue to evolve. What does that look like? How do we navigate that going forward? How are you navigating the dynamics of the new recruits coming in that maybe don't want to work nights, don't want to work weekends? They want partner compensation, but they want to go and play golf every Friday. Honesty. Upfront, blunt honesty. I think the big thing for us is that we are recruiting a very unique physician is what we're after. We're after somebody who wants a purely independent group without an outside partner who works in fairly traditional orthopedics, who's looking for a setting where they can thrive as an entrepreneurial surgeon who's interested in being a part of the decision-making process, having a say in what's going on, but also not just having the say, but also having the responsibility of pulling the chair up to the table and helping move stuff forward. A lot of it really comes down to it's a lay it out on the front end as we're recruiting to say, hey, we've structured the buy-in to where it's very straightforward. We've structured the on-ramp process to make that happen to where it's very achievable and easy and we're going to offer you a great employment package, but that cuts off at a very defined point without options for ongoing renewals. The plan is for us to meet in the middle on you're going to produce and I'm going to do everything I can to help you build your practice so that when you hit that point, you're ready to buy in as partner. How do you structure the balance between a world where you've got 35 independent federated physicians that each run their own P&L and think that they have their own business versus an integrated practice where everyone's kind of rowing together for the greater pursuit of a common growth? Y'all can't see it from here, but my sandy blonde hair hides all the gray that has come from that process. Are you guys fully transparent in terms of everyone's P&L and everyone's economics? So we are fully integrated for one thing, which is an important detail, but we are also completely transparent. Everybody can see everybody else's stuff, nothing's hidden, nothing's behind the wall. Anybody can walk into my office, send an email, make a phone call, and all the access, all the information's available to them. And that has pros and cons at times, right? But at the end of the day, a lot of it, again, we're seeking a unique personality who wants that environment, and we do everything that we can to make sure that they understand fully what they are stepping into, and that that aligns with their long-term why. Because if we don't, and they stay around, or they buy in, or they become a partner, and they're not aligned with that, it's just going to create conflict, right? So that's been huge for us. I think the mechanism that I continue to use to help bring that federation of all the umbrellas together under one big umbrella is continuing to remind all of our folks that it is always going to be a balance, it is always going to be a struggle, and the most important thing for all of our folks to understand is that without your partners in this practice, you have nothing, right? I mean, you can go work somewhere else, but the value that you currently have is based on the success and the thriving structure and status of what you guys have built together as a partnership, and so that's the practice itself, the leadership team that you have, the ancillaries that we've built, the ASCs that we have, none of that, none of this works if we're not building all of that and pushing all of that forward to make it successful. So that argument works sometimes, sometimes not, but it is what we continue to come back to is we can argue over fair, that's my favorite word, that's not fair, or my favorite set of words, or they're getting more than I'm getting, but at the end of the day, it's continuing to remind ourselves that none of us are on an island, right? We are all surviving because we're doing this together. That's great. Those of you in the audience, start thinking about questions you have. We'd love to hear from you all, so everyone kind of start thinking and then we'll kind of open it up shortly for questions. In the interim, Mike, I want to touch on what your experience has been since the PSA. Talk to us a little bit about the growth and how you guys have kind of grown since the partnership, and then the other thing I want to hear you talk about is what is the exit plan? You know, this PSA doesn't last forever, obviously, and so what are you doing to kind of safeguard against a world where maybe in five years the health system changes strategy or has a different administration? Yeah, so some good questions. So one of our strategies and one of the thought process that drove us towards this is that we decided that we thought size was important and that that gave us leverage, stability, improved viability long term. And so one of our goals when we signed in 2020, we were 34 doctors and as of this week we're 72. So that's pretty incredible growth over the three years of COVID and you can't finance that unless you have a partner. And so again, one of the reasons we made the decision we did to get a partner and we were fortunate to have a partner that was very like minded and would work with us, understood orthopedics was outpatient. Again, you have to have all these incentives lined up in the same direction. As far as an exit strategy, when you go into a deal like this, you always have to assume it's going to go south very quickly. And if you make that assumption and you build that into the negotiations and have a good exit strategy built in the agreements, you're going to feel much more comfortable going forward understanding that a PSA is not employment, but it is certainly closer to employment than it was before we had a PSA. And we are independent. We have a physician-led executive committee, Piedmont, the system that we work with does not have any say on how we compensate our physicians. They pay us a lump sum and then we get to dictate all that. We have a ton of autonomy still. They don't tell us how to take care of patients or any of those things. We're still very self-governing. However, you're dealing with a hospital system, so that closeness and the issues of going through the bureaucracy of a hospital and all those things still exist. The exit strategy was really important. We want to be able to reconstitute quickly if something happened. And so, again, that's all built in. Thanks. Jared, what's it been for you guys since the partnership? What's been the growth? What's it like recruiting now? How's that conversation go with new hires? And then, how do you think about the next evolution? What does it mean to be inside a private equity model? You hear a lot of this like second bite and whatnot. Does that keep you up at night in terms of kind of where you go post that next evolution? So a lot there. So let's start with growth. So I think our growth has been really impressively strong over the last two years since we made our transition. And in a recruitment fashion for physicians, which I was not expecting, pre-transaction And again, some of the misnomers of the private equity space is it's good for the exiting and older physicians and the new physicians get kind of kicked to the curb and the model and don't necessarily make out as well. And in fact, it's somewhat false. Again, we as a fully independent private practice group before that, when we would hire new physicians and you had to subsidize them for six months, nine months, a year as they learn to be productive, the move is that you turn to your physician and say, and that gets old after a while. It also only allows for so much growth at so much time because there's only so much money in physician's pockets no matter what you guys or others think about their earning potential. So this allowed us with the capital that was backing us to really grow with rocket fuel. We've now since opened in the last two years, two additional offices. We've added six physicians in the last calendar 12 months. We have opened a brand new PT division for one of our practices. We've gotten into an MSA for an MRI, which is a very difficult process to navigate in Massachusetts because physicians are not allowed to directly own MRI centers in Massachusetts. So we've been able to put a lot of legal resources, a lot of capital resources to allow us to continue to grow a book of business that's very strong. With respect to exit, I think that, again, everyone is always hopeful about the second and third and future bites of the apple. We've had conversations even internally about our leadership of what happens down the line when you start to get to certain levels of valuation where, again, only maybe the optims can play in that space. Again, we're building a really successful, we think financially viable physician organization. There's no reason why over time, we can't buy back against our own debt and go back to being a very large and primarily physician-owned organization. You never know how many machinations are going to happen over time and how things will evolve. I think of it as exciting, even though it's unknown. That's great. Tanner, from your perspective, talk to us about what's the growth been like in your model? What's it been like recruiting now that you're part of this broader umbrella? I think the growth has aligned very closely to how long it took for this to come to fruition. It's like we bought this Lamborghini body that's really sexy from an idea standpoint, but it didn't have an engine in it to get anywhere. It turned out to be a marathon to build that motor, put everything in place before we could really take it out for a test spin. Our group as a whole of OLS didn't have the growth that we thought we would get early on, when I say early on, year two, year three. However, all of the individual groups grew organically, whether adding in their own physicians to meet their demand, or maybe they acquired or merged with a full or a fraction of a group in their community. That, on the whole, increased us to a little over 25 physicians to have 174 across the board. That's been nice to have, but now we're at the point we're ready to take it for a spin. We have others that have reached out and are very excited about the opportunity to partner with us and see how that can help them. But then at the same time, one of the other growths that I think we've experienced that may have came to fruition a little faster than we thought was financial opportunities outside of just the vertical realm of orthopedics that we know today. I think that has provided the opportunity for the physicians to be a little bit more patient with that process because they're seeing real value that's coming in than just sheer numbers. I think it kind of goes back to work smarter, not harder. That's great. So who's got questions in the audience? Go ahead. We're looking at MSO, we're at the revenue value because we take the tax idea of a more favored fee schedule practice, and then the idea they're selling us is that, yep, you can assume that fee schedule, but will the payers then be better served? I think you need to try to confirm that before you move forward. Let's say, and they've already done it with another practice and they're saying that's working. At some point, the payers go, no, this is the second service we're paying you, we'll be in that area. And the whole value of the thing will go up. We had a similar situation whenever we were pulling ours together and actually found that our payers would not allow us to assume the best fee schedule. And so we ended up having to renegotiate based on that. So I think it's a really important detail to know going in. Yeah. I mean, at least from my perspective, what I've seen is the conversation with the payers has to be a data-driven approach, right? And so what we help facilitate is it's not group A has a higher rate than group B, so we want group B to be raised to the rate. In aggregate, we're providing care at a lower cost than the hospital. And let us demonstrate what we're saving by pulling procedures out of the hospital. And so net-net payer, you're still saving even if you pay us a parity rate across both groups, but you got to have the data to demonstrate that, right? And that's where my recommendation is you engage firms that have access to all the charge data across the region. And you can actually demonstrate total cost of care for those patients, both that have surgeries in the hospital as well as out of the hospital, and show the payer that you've already done your homework. Can I add to that just a little bit? Yeah. I mean, I completely agree with both of those facts. We did a black box analysis. I'm sure that would be a recommendation, but there is such disparate contract rates from payer to payer, even if we didn't have a place of service issue, which I think we would have, it didn't make sense to try to piggyback off on one person, so we decided to create our own TIN, and then leverage that in all of our contract negotiations so that we can bring everyone up instead of falling backwards. Who's next? Please. For the PSA, so that you negotiated the rate that I would get paid, but you are a separate entity? We are a separate entity. We have our own TIN, and we're completely separate, yeah. Most of the PSAs that you'll see, it's a per RVU payment? Yeah. Oh, we wouldn't do it if it were lower than Medicare. Again, I had to get 100% buy-in by the physicians. They would not agree to a lower-than-Medicare rate because it's not just Medicare that we're taking care of, obviously. Again, you're getting this very superficially, but they got some from us, so they got some of our ancillaries, which you have to bake back into the RVU rate negotiated. There's a lot of complexity to it that we don't have time to go into that I'm happy to talk to anyone about, but you have to get into how much allowance you're going to get Staff, overhead costs, all those things are part of the negotiations. Who's next? We have – it's based on the growth that we have. So, it's – each physician is basically their own entity when it comes to the hospital, so they're given an overhead for that individual physician. If they work harder, they have a higher overhead, and then that's shared in their location. And there is an increased cost of living and that kind of thing that's built into it. And then we have to renegotiate it every three years, the rate. We decided on that. They wanted to do it every five. Typically, it works better on our behalf. Because of COVID, things got a little wonky, so they asked us if we'd hold it 20-20 rates, which have been great for us anyway. So, that's where we've been. Please, in the back. Tier or review system, where if they're more productive or increases, they say, well, it's 75th percentile. Yeah, so our compensation model, again, is internal to OrthoAtlanta. Piedmont has no say on how we do that. And, yes, it is tiered because our doctors are receiving more money than they were prior to our arrangement. The natural tendency for people to realize that I can now work less hard and make more money than I was making before is not a good success story. So, we tiered it so the harder you work, the more you're going to get for that work. And that's worked well. That's a good incentive for physicians. One more question. Please. How does your relationship with, or I guess your PSA with Piedmont affect your relationship with other hospital systems in the area? Really good question. Yeah, so we're still in – we were in two other hospital systems at the time. Piedmont allowed us to grandfather those in. One of those hospital systems, because we had an office in one of their buildings, sued us. And crazy, because we covered 100% of their emergency room. So, we took that group of physicians on their behalf, and they elected to do this and moved them into a Piedmont market. And the hospital lost all its ED coverage, and our guys are thriving. So, it was – we were willing to continue to do surgery at their hospital, treat them no differently, but they got – like a lot of industry, they couldn't see beyond their bottom line. I think we have a question here. Which are factored into your considerations and how it's affected performance against your expectations? Who wants to take that? It's an ongoing fight for us, right? And ongoing evolution is really what it comes down to. I mean, I think we're still in that universe where it's bringing all the people together, and so I think a lot of the work that we've done over the last several years is investing into our leadership, investing into our staff, building a better machine, and helping our – trying to help our physicians understand that the ability to thrive in the future is not just provision of good medical care. It's about the patient's experience, the patient's access. And those are going to be things that if we're doing our jobs right, the physician's not doing but a small piece of that, right? It's the team around them that's doing it. And so it requires us to be better at every step of the road if we're going to compete with the four hospital counterparts that are in our market. So I just want to let everyone know we're all going to be in the Hive 5 to 5.30 for those that are able to make it to come up, ask individual questions. I know there's probably a lot of value that can be had in kind of one-on-one discussions, and everyone here is also more than happy to take calls and emails and whatnot afterwards. So please try to make it to the Hive. I want to thank Jessica and the team at AOE for helping us put this on. I think it's been a great series. We're going to keep the webinars going. I want to thank the panelists here. You guys are awesome and all bring such different perspectives. Andrew, Chris, Tanner, Jared, Mike, thank you guys all. I appreciate you all for coming, and join us at 5 if you can. Thank you.
Video Summary
In the video, various medical professionals discuss their experiences with different partnership models, including professional service agreements (PSA) and independent group formations. Mike Baer talks about the success of his orthopedic group's PSA agreement with a hospital system, highlighting significant growth in the number of physicians and successful outcomes. Jared and Tanner discuss their experiences with private equity partnerships and group integrations, emphasizing the importance of transparency, buy-in from physicians, and strategic alignment for successful growth. Chris and Andrew share insights on challenges in rural and competitive markets, focusing on recruitment, revenue structures, and the impact of partnerships on practice growth. Overall, the discussions revolve around growth strategies, recruitment approaches, and considerations for successful partnerships in the healthcare industry.
Keywords
medical professionals
partnership models
professional service agreements
independent group formations
orthopedic group
hospital system
private equity partnerships
group integrations
healthcare industry
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