There is no denying that private equity and consolidation have become big factors in the orthopedic industry over the past few years.
Private equity can have a positive or negative impact on orthopedics, depending on perspective. There are concerns throughout the industry that the chase for flashy numbers can hurt patient care and physician autonomy, while others see private equity as an avenue for orthopedic surgeons to grow and expand their practice with less administrative burden.
Three leaders in the orthopedic space recently connected with Becker’s to share their views on consolidation within the industry and how private equity has molded the field to where it is today.
Editor’s note: Responses were lightly edited for clarity and length.
Question: How has private equity influenced the orthopedic industry, and what do you anticipate moving forward?
Thomas Fondren. CEO of Advanced Orthopaedics of Oklahoma (Tulsa): I think that the private equity strategy for orthopedics is still in an early-stage development phase. In our area, we are seeing PE firms creating continuum of care models by investing in many MSK services such as ASCs, diagnostics, rehab and orthopedics. It is yet to be seen if payers will adopt these models in lieu of a more traditional service model. I anticipate that the PE acceleration and consolidation will continue, particularly among smaller orthopedic groups, as they face increasing pressure from rising expenses and declining reimbursements.
Kim Mikes, RN. CEO of Hoag Orthopedic Institute (Irvine, Calif.): As CEO of one of the largest volume providers of orthopedic care on the West Coast, I’ve watched the influence of private equity in orthopedics and ambulatory surgery centers from the sidelines. Hoag Orthopedic Institute is physician-led and physician-owned with an unwavering focus on the patient. We are the anti-private equity model. Our enterprise succeeds both fiscally and operationally while prioritizing quality patient care and outcomes, not profits. I worry that private equity’s need for better numbers jeopardizes physician autonomy. Private equity’s influence in orthopedics is not driven by a relentless commitment to patient care, but by a return on investment. Only time, cost/value and surgical outcomes data will yield a clearer picture of private equity’s influence on our industry.
Shobhit Minhas, MD, Orthopedic Hand & Upper Extremity Surgeon of Fox Valley Orthopedics (Geneva, Ill.): Private equity involvement in orthopedics began as recently as 2018, but the specialty has quickly emerged as one of the most attractive areas for third-party investors.
From the buyer’s perspective, there is growing demand as the U.S. population ages and obesity rates rise, market fragmentation with a large proportion of orthopedic surgeons still in private practice, the rapid shift to outpatient care and orthopedic procedures at ASCs and ancillary service integration, as orthopedic practices benefit from natural synergies with services such as imaging and physical and occupational therapy.
From the seller’s perspective, there is market pressure from rising overhead costs and declining reimbursements creating financial strain for physician-owned practices, capital constraints keeping practices from expanding ancillary services, the growing administrative burden on orthopedic surgeons and succession difficulties as more practicing orthopedic surgeons near retirement and younger surgeons pivoting more toward employed models.
Over the next few years, PE involvement in orthopedics is likely to accelerate. While the landscape remains fragmented, regional MSOs will solidify their presence first, setting the stage for a handful of national players to emerge. Meanwhile, several orthopedic platforms launched in 2020 or earlier are approaching their exit horizon, many of which are expected to recapitalize with larger PE funding, seeking to scale proven models.
Independent orthopedic practices considering a partnership with private equity must recognize that success depends on more than just capital. It requires a foundation built on trust, alignment and a clear strategic vision. It is imperative that surgeons retain control over clinical decisions and care pathways, while allowing the MSO and the PE firm to control the non-clinical functions to drive efficiency and scale. As with any business negotiation, long-term success depends on both parties being willing to find common ground and make mutual compromises. The orthopedic practice depends on the PE firm for capital and expertise to increase margins and operational efficiency, while the PE firm relies on the practice to grow market share and deliver returns to shareholders and limited partners. Ultimately, both parties depend on each other to increase the overall value of the organization.
