Private Equity Firms Buying Ortho Practices – What’s That About?

More than 1 million joint replacements are performed each year, according to data from the Centers for Disease Control and Prevention's National Center for Health Statistics. Private Equity Firms are focusing on orthopedic surgery as federal regulators and insurers move more of these treatments away from hospitals. It's an excellent and exciting time to be involved in ambulatory surgery centers that focus on knee and hip arthroplasty.

As the incumbent director of Business Development at St George Surgical Center, a southern Utah ASC in St George, Utah, (part time, 2 days/week) I have a front row seat to watch this big wave happen before my eyes.  We’re so proud to have invested in the Hana® Table to perform anterior approach hip replacements and three weeks ago, our new NAVIO◊ Robotic-assist for knee replacements was delivered and first surgery completed on October 18th. 

While we’re not, to my knowledge, seeking any private equity attention at SGSC, the surge in private equity deals in orthopedics can’t hurt us. It can really help us in some ways that couldn’t happen without the PE guys’ involvement. For instance, it can create greater leverage and competitive advantage for ASCs that have to face off with bully hospitals that wanted to have all the insurers kowtow to them and limit commercial payers to only feed us the scraps of surgery cases that the hospital didn’t want. Now, the hospital is facing its rewards (market retribution) as CMS metes out the penalties for greed.  

For decades, I’ve worked as a consultant to private equity firms helping out with analysis and due diligence work.  With 35+ years of experience, I see many angles from many perspectives. There are critics and pundits. There are fiascos and successes out there. Orthopaedics is a potential lucrative area for private equity as the number of joint replacements is expected to increase, technology for precision consistency increases, and our population of older Americans continues to explode. This cohort will require fixes for their worn out joints — and the prices are coming down.  At SGSC, the NAVIO◊ robotic-assisted knee replacement can be had for as low as $14,990 if a payer agrees to pay cash in full on the day of service and unequivocally assures payment in conjunction with pre-authorization.  Under the same terms and conditions an Anterior Approach Hip Replacement using the Hana Table (an $80,000 investment) will cost them $17,985, all in (surgeon, anesthesia, facility, implant and first overnight stay, if necessary). 

The hospital cannot compete without losing lots of money, while at those prices, we maintain very healthy margins.  They are extremely displeased that we’ve been nipping at their heels by doing these cases for other than Medicare payors, and now those very payors are no longer planning to authorize hospital outpatient departments to perform these cases. In January, CMS joins the parade away from hospitals.

“Hospitals: There’s a new and improved model of 800-lb gorilla at the zoo. And it’s gonna steal your lunch money, tie your underwear on your head to blindfold you, and make you walk home backwards.”

The message is clear.

Hospitals: There’s a new and improved model of 800-lb gorilla at the zoo...and it’s gonna steal your lunch money, tie your underwear on your head to blindfold you, and make you walk home backwards. Your day of reckoning has arrived. 

ASCs will soon be reinforced by private equity investments and hospitals may need to rethink all those orthopedic practices they purchased and surgeons they’ve hired.  To combat the competition, the hospital’s pitch will be simple: Let’s build an ambulatory surgical center together and partner so we both win.  I am betting that many will try this but it doesn’t get built overnight and for every day they aren’t selling surgeries, the marketplace is learning that the ASCs in existence and ready to work right now will become the new A-list.  I don’t see this as a threat, actually. I see it as a boon to competition and for patients and payers, an opportunity to pay less.

Am I concerned about the mega acquisitions by United and Optum? Not really.  All boats in the harbor will rise.  ASCs in certain markets that are not SCA/Optum won’t have keep aiming to hit Goliath Health Systems with a rock. 

Care to talk with me about SGSC or how you can improve your readiness to compete through cash pay pricing, direct with employer contracting and domestic health tourism?

Call me at (800) 727 4160, today.