At McDermott Will & Emery’s 2018 Physician Practice Management and ASC Symposium, some of the leading minds in the PPM and ASC fields gathered to discuss key issues and their thoughts on the future growth and direction of the interconnected ASC and PPM industries. Below are a few of the key takeaways from McDermott’s largest conference to date:

  1. The True Platform. Loose confederacies of physician practices do not equal a sophisticated and integrated platform. The most successful platforms have a developed infrastructure, a talented leadership team, a simple model and a unified vision to build a national/regional company focused on quality of care, patient satisfaction and physician engagement. Competition for those platforms is tough, and building those platforms from scratch requires time, capital, organization and patience.
  2. PPM Differentials. We asked the CEOs of national PPMs why today’s PPMs are different than the failed PPMs of the 1990s. They discussed several key differences, including a shifting physician mentality, difficulty in sustaining independent medical practices, patient dissatisfaction with health care, the shift towards value-based care, the management company’s emphasis on delivering value, and new governance structures/compensation models that encourage communication and alignment among stakeholders. Despite these differences, it is clear that there will be some winners and losers, and that PPMs with a clear growth strategy, a compelling vision, a thoughtful compliance infrastructure and an emphasis on patient satisfaction have the greatest likelihood of success.
  3. ASC Perspectives on the PPM Consolidation. We asked the CEOs of leading ASC management companies for their thoughts on consolidation in the PPM industry. While some ASC management companies are pursuing a limited PPM strategy, it appears that traditional ASC management companies generally view the high multiples being paid in today’s PPM transaction as a barrier to entry. To date, many of the high valuations have centered around the dermatology, dental and ophthalmology specialties; if the transactional focus shifts towards GI and orthopedics, it is unclear whether the traditional ASC management companies may decide to pursue a more active PPM strategy.
  4. ASCs are Hot! Health systems, traditional ASC management companies and other top tier investors continue to strongly believe in the tried and true “ASC model” as a core part of their investment strategy. The good news for investors is that the ASC industry continues to be highly fragmented, with approximately 70 percent of ASCs continuing to be independently owned and operated, and multiples still landing in the reasonable 6-8X range. Expect the trends towards ASC consolidation to increase, as payors and health systems race to lower their cost of care and shift more volume into the outpatient setting.
  5. New Investors. We are seeing many changes to the traditional health care landscape, with payors investing in retail medicine (e.g. minute clinics and urgent care), primary care, ASCs and other providers in an effort to alter the health care delivery continuum. The entrance of tech companies into the health care industry is also being closely watched by payors, providers and other stakeholders. Expect new partnerships geared towards achieving the “triple aim” to emerge in the year to come.

We want to thank all of the panelists and attendees at our 2018 Physician Practice Management & ASC Symposium this year for contributing their thoughts and allowing us to leave the conference a little bit smarter on today’s PPM and ASC industries. We’re looking forward to next year!

Physician practice management (PPM) and ambulatory surgery center (ASC) companies continue to attract tremendous attention of private equity investors and continue to play a key and growing role in the healthcare services sector.

In advance of our 2018 Physician Practice Management & ASC Symposium, I wanted to get a better sense of where the industry stands and how best to navigate it in 2018, so I reached out to four recognized experts on the matter:

Andrew, Barry, Wayne and Marc will all be speaking at McDermott Will & Emery’s 2018 Physician Practice Management & ASC Symposium, taking place in Nashville, TN, on April 25 – 26. Andrew will be speaking about smart investment principles and private equity as part of the “What the Money Thinks” panel; Barry and Wayne will join our “State of the ASC Industry” panel to discuss the strategies driving today’s practices; and Marc will discuss PPM/ASC transaction strategies in the “Preparing a Large Practice for Sale” panel. Here’s a preview of what’s on their minds.

Q. Why does private equity investment continue to flow into the PPM and ASC sectors today?

AK: ASC, in particular, is on the right side of the health care quality and cost equation, with the added benefit of aligning the interest of patients, physicians and payors. As the ASC industry remains largely unconsolidated, opportunities are available to back compelling teams as they build and scale platforms, which will benefit from attractive organic growth and – potentially down the road – strategic value, if scale is achieved.

The sources of interest in the PPM space is more varied. At times and in certain situations, PPM investments have similar motivations as ASC investments, with the added benefit of assisting physicians in dealing with an increasingly complex reimbursement and compliance environment. We like and pursue these opportunities. At other times, investments are predominantly about achieving leverage over payors and/or hospital providers. While this might be a valid strategy, the long-term value is potentially less durable.

Q. Having founded Physicians Endoscopy in 1999, what is the most significant shift that you have seen in the ASC industry in the past 20 years?

BT: There have been so many changes in the ASC industry since Physicians Endoscopy was founded back in 1998 that it is really hard to identify one as being the most significant.

Twenty years ago, ASCs were more of a novelty within the broader health care delivery system, whereas today, ASCs hold, what I believe to be, a very prominent position within the health care delivery system. There are over 6,000 Medicare-certified ASCs today, and those facilities are delivering high-quality care at a great price point. ASCs today are widely recognized not as experiments, but as high-quality, valuable parts of the health care delivery system that hold the potential to deliver great patient care at a price that is nearly half the cost of the same care from a hospital outpatient department.

The other major change is that ASCs today play a prominent role in helping sustain the independent practice of medicine for many physicians. In specialties such as gastroenterology, for example, professional fees for performing many procedures have decreased 60 percent or more over the past 20 years. The ability to own and participate in the success and value proposition that ASCs offer has helped physicians maintain their independence by helping to sustain their medical practice income.

Q. What are the biggest growth opportunities for ASCs in the next 2-5 years?

WD: The rapid consolidation of what continues to be a fragmented industry, coupled with advances in technology and safety standards resulting in an accelerated shift from in-patient to out-patient settings, creates the most significant growth opportunity over the next 3-5 years. These dynamics, matched with the rapid vertical integration we are beginning to see in more recently announced health care deals, only further emphasizes the importance of ASCs in the health care ecosystem.

Q. What is one of the most-common missteps you see when a practice is being sold?

MC: A significant misstep that I have seen play out with disastrous consequences – particularly democratic practices – is leadership proceeding with the transaction process without soliciting sufficient input from the partnership. In some cases, we have seen partners vote down a possible private equity or strategic partnership. The negative vote often wasn’t even based upon the financial terms, but rather stemmed from the lack of partners’ involvement in the process. We mandate that our large practice clients hold regular meetings and calls with their partners to provide periodic updates on ongoing deals.

We hope you’ll join us to hear first-hand from these and other industry leaders on the changing environments and strategic and legal imperatives for investment success in 2018. To explore the other topics that will be discussed at the event, we welcome you to look at the symposium agenda.

2018 Physician Practice Management & ASC Symposium

April 25-26, 2018, Nashville, TN

Two Conferences – One Venue

  • Day 1 | April 25 | Opening General Session – Keynote Panels
  • Day 2 | April 26 | PPM-Focused Programming / ASC-Focused Programming

The ‘90s was a wild ride for the physician practice management (PPM) industry. I know this from personal experience. I rode the PPM consolidation wave of the ‘90s up to the top – and I saw it crash based on a number of factors.

One reason being that physicians resented that PPMs were not delivering value or on their promise to “repair/restore” the income that physicians sold to PPMs. There was also a devaluation of the PPM equity that physicians received as a large part of their sale price, as well as a general reluctance from office-based physicians to truly be part of a large organization, as opposed to “ruling” their own kingdoms. The PPMs were also burning through cash to support their substantial corporate overhead, which did not help the equation (there was no such thing as a “platform” to start off the PPM).

Fast-forward to 2018, where shifting markets demand a new approach to investments and a new set of priorities. Below are four strategic imperatives for success in today’s increasingly-competitive, ever-changing PPM marketplace:

  • Achieving physician alignment: One of the biggest issues in the late ‘90s was the “us versus them” mentality that existed between physicians and physician practice management companies, both in terms of how deals were structured and the economics of the deal itself. From a structural perspective, deals must be designed to ensure physicians are incentivized, committed and that their interests are aligned.Whether this is accomplished through equity and/or tying physician compensation to practice profitability, many newly-developed concepts can be incorporated into the transaction structure and economics to improve physician alignment. When the structure and process of a deal are done right, it can help reduce physician resentment and drive post-transaction performance and productivity.
  • Delivering on the value proposition: Back in the ‘90s, the industry narrative was focused on how PPMs could drive value and practice improvement. Unfortunately, the rush to grow meant that PPMs collectively failed to provide that much-needed value.With today’s physician practice market, many successful PPMs come to the table with a solid plan to deliver on their promises of enhanced value and income repair. And with today’s record high multiples, investors must have a strategy designed to reduce their effective multiple by immediately incorporating value-adds into the business – whether that’s through reduced expense or enhanced revenue. This will continue to be a key determinant of success in the coming years.
  • Executing a cost-effective roll-up strategy: As transaction volume continues to increase, deals must be done in a productive and cost-efficient manner. Having a cost-effective roll-up strategy is essential to avoid wasting legal fees and in order to efficiently execute on an acquisition pipeline. This includes upfront streamlined diligence that exposes a target’s regulatory warning signs at the start. PPMs also should be utilizing the latest proven, cutting-edge, cost-efficient solutions for streamlining bolt-on practice acquisitions and integrations.
  • Taking a platform approach: To start a PPM in the ‘90s, investors would typically form a PPM by first building out a complete practice management infrastructure, with a strategy of having its development team buy practices to fold into the newly-created practice infrastructure. Today, PPMs are taking a smarter, more fiscally conservative approach, where the investment priority is purchasing a platform practice that already has key elements of a proven practice management infrastructure (e.g., a management team, managed care contracting capabilities, back office operations, group purchasing potential and ancillary services), as well as the existing revenue to support that infrastructure.
    One example of this is Audax Private Equity’s investment in Miami’s Gastro Health in 2016 with the intent for the latter to serve as Audax’s platform practice. Many people may say that investors are overpaying for platforms. However, there are clear benefits to paying up for a true platform where current revenues cover operating expenses, as opposed to the strategy of many PPMs of the 90’s (i.e., burning cash to cover monthly expenses before they had acquired sufficient practice revenue to cover that overhead).

    By taking a platform-first approach, PPMs can focus on adding smaller practices, with accretive results due to the synergies of folding the practice into the platform. It also makes for a compelling story as to why independent physicians should join the platform.

With new strategic priorities also come focus on regulations that could have serious negative consequences to the PPMs, such as various states’ Corporate Practice of Medicine (CPOM) doctrines. In most states, it is illegal for anyone other than physicians to own a company that provides clinical services or employs physicians.

To comply with this prohibition, the general model that has been utilized for decades involves a managed service organization (MSO)/PPM taking a “management fee” from a practice that is technically owned by a licensed provider. However, with this model, we have seen physicians who become resentful or adverse to the PPM, claiming that the management arrangement violates the state CPOM, with a goal of “blowing up” the arrangement. This is why it is critical for investors to be well aware of recent CPOM developments, state challenges and the evolution in MSO structurers intended to best protect the PPM from these types of challenges by disgruntled physicians.

It’s certainly an exciting time for practitioners and investors alike in today’s PPM and ambulatory surgery center (ASC) industries. At the 2018 Physician Practice Management & ASC Symposium, taking place in Nashville, TN, on April 25–26, McDermott, Will & Emery will convene PPM and ASC leaders from around the country to address the changing environments and strategic and legal imperatives for growth and investment success in 2018. Below is more information about the event.

2018 Physician Practice Management & ASC Symposium

April 25-26, 2018

Nashville, TN

Two Conferences – One Venue

  • Day 1 | April 25 | Opening General Session – Keynote Panels
  • Day 2 | April 26 | PPM-Focused Programming / ASC-Focused Programming

We hope you can join us!



There are many critical issues facing the physician practice management (PPM) and ambulatory surgery center (ASC) industries today, including the effects of sky-high valuations, concerns about sustainability, and the importance of delivering on value. This current environment demands new approaches to PPM structures — one that is focused on alignment and designed to enable growth.

Below are five key market issues to be addressed at the 2018 Physician Practice Management & ASC Symposium in Nashville, TN on April 25-26, where industry leaders will come together to discuss trends in the current landscape and the myriad business, transactional and regulatory issues that exist today, including: Continue Reading 5 Key Topics Explored at McDermott’s 2018 PPM & ASC Symposium

Specialty pharmacy is not going away any time soon – by 2020, it’s expected that the pharmacy industry’s revenue will exceed $483 billion, with almost all growth as a result of specialty drugs (high-cost medications used to treat chronic conditions, such as cancer). It’s also estimated that the next generation of pharmaceutical “blockbusters” will be primarily specialty products. As the make-up of the pharmaceutical market shifts, we’re also seeing changes with the role of pharmacy benefit managers and other medical groups in the process. How are these shifts in specialty pharmacy impacting the health care system as a whole?

We asked Karen Gibbs, McDermott partner and former VP and Senior Counsel at CVS, to share her expertise on the subject and her thoughts on what’s to come.

Q.  Investments in niche sectors of pharmacy services, specialty pharmacy and pharmacy benefit management have gained huge traction recently. What’s driving the shift away from more traditional pharmacies?   

A.  Traditional pharmacies are retail establishments and have been suffering from the same earnings pressure that all retail establishments have endured. Pharmacy benefit managers (PBMs) typically own mail and specialty pharmacy operations, which generate revenue in a manner complementary to that derived from the pharmacy benefit management services. The margin on specialty pharmacy and PBM services is significantly more than retail pharmacy. Continue Reading Q&A: Shifting Trends in Specialty Pharmacy to Continue in 2018