Private Equity Swallowing Ortho Practices

Connecticut-based Atlantic Street Capital, a private equity firm, has acquired Washington, D.C.’s OrthoBethesda. Terms or structure of the deal were not disclosed.

The sale of an orthopedic practice is not new. Hospitals, and in some cases, payers have been buying up independent orthopedic practices for some time. But private equity firms moving into the orthopedic space? That seems new.

So, we did some research.

MarketWatch reported this past June that investments by private equity and venture capital in private medical practices has been very active recently—but mostly in dermatology, a $14 billion and growing market. And, they report, many dermatologists “aren’t happy about it.” They worry about the effect on patient care, and even fear for the future of their profession if it continues to be dominated by business interests.

We reached out to Atlantic Street Capital and OrthoBethesda and asked about this “fear.” We asked how the transaction was structured to assure that patient care decisions were left to the providers, not “business interests.”

They declined to comment. Too bad. The acquisition of orthopedic practices by private equity interests is likely to continue.

OrthoBethesda

According to a September 5, 2018 press release from Atlantic Street announcing the acquisition, OrthoBethesda was founded in 1965 in the greater Washington, D.C. market. Just in time for Medicare.

The practice operates four Centers of Excellence: Washington Joint Institute, for patients with debilitating arthritic joint conditions; Washington Shoulder Institute, focusing on shoulder-related ailments; Washington Spine and Scoliosis Institute, for complex spinal conditions; and OrthoTraumaBethesda, providing advanced comprehensive care of orthopedic trauma cases.

Edward Bieber, M.D., of OrthoBethesda, said in the press release, that the practice “wanted a partner to not just provide capital but to also contribute strategic and operating value and we are enthusiastic to partner with Atlantic Street Capital to expand the breadth of services, enhance the patient experience, and continue to improve execution and operations as we grow within our region and beyond.”

Atlantic Street Capital

Atlantic Street invests in middle market companies with between $4 million and $15 million in EBITDA (earnings before interest, taxes, depreciation and amortization). “The firm invests in fundamentally sound companies that will benefit from capital investment and value-adding strategic and operational initiatives. Atlantic Street Capital’s investment team are hands-on investors who work closely with management to unlock their business’ underlying value and help them succeed,” stated the press release.

Since “Corporate Medicine” is illegal in 40 states, it’s that “hands-on” and “operating value” proposition we were interested to know more about and find out how the deal was structured.

Acquisition Trend

Acquisition activity hasn’t been limited to dermatology. Private equity investors have also been acquiring radiology practices. Just this past February Golub Capital provided a $270 million loan to support private equity-backed Radiology Partners’ expansion into California with the company’s acquisition of Renaissance Imaging Medical Associates, one of the largest independent radiology practices in the country as the largest hospital-based radiology practice in the U.S.

In describing the trend of acquisition of doctors’ practices, MarketWatch reported that buyers aren’t necessarily from the health care world. “In a growing and powerful trend, private equity and venture-capital groups have been swooping in with ever larger offers for all kinds of doctor’s practices.”

The private equity firms typically handle practices’ business operations and navigate complex regulatory requirements, so that doctors can focus on practice medicine. “They also say they can introduce efficiencies and leverage economies of scale in the process, a proposition that, backed by deals offering EBITDA multiples as high as 15 times, many doctors have found enticing.”

That sound great. Let doctors practice medicine and let investors run the business.