Orthopedic practices haven’t cozied up with private equity firms quite as readily as their peers in, say, dermatology and ophthalmology, but a new report says that’s all changing.
The next five years will see a flurry of investment from private equity into orthopedic practices, deals that trigger further acquisitions with other practices to consolidate local or regional markets, according to the healthcare investment bank Edgemont Capital.
Jeff Swearingen, Edgemont’s co-founder and a managing director with the firm, said he’s aware of four or five orthopedic practices that are currently pursuing initial investments from private equity.
Physicians are warming to consolidation to counter pressures from managed care and to gain negotiating leverage with payers, Swearingen said. Physician practices with size and scale are better-positioned to counter the industry forces compared with their smaller, independent counterparts, he said.
“I think physicians are becoming increasingly aware of that dynamic,” he said.
The trend is being driven largely by two factors: the migration of hip and knee replacements to less expensive outpatient settings and the dramatic increase in the volume of such procedures, said Dr. Nathan Every, general partner with Frazier Healthcare Partners, a private equity investment firm that along with Princeton Ventures raised equity financing for the Core Institute, a group of 67 physicians that provide musculoskeletal and neurological care.
“There is greater efficiency and greater ability basically to do more better quality and cheaper joint reconstruction through physician-led organizations,” he said. “It’s pretty interesting. People are really thinking about how to do outpatient joints better, faster and cheaper.”
Edgemont’s report lists recent private equity investments in orthopedic practices, including Varsity Healthcare Partners’ investment in The Orthopedic Institute, an integrated orthopedic surgical care and ancillary patient treatment services provider in North Central Florida. The deal is expected to help the Institute aggressively grow its clinical footprint across Florida through a combination of acquisitions and accelerated recruitment efforts, Edgemont wrote.
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