In January, Charlotte, N.C.-based OrthoCarolina made the strategic decision to sell off its physician therapy business to Atlanta-based PT Solutions Physical Therapy.
In April, the practice made another major decision to part with 18 MRI locations, which it sold to Charlotte, N.C.-based Novant Health and partner MedQuest Associates.
The system made that decision for a number of reasons, including a desire to grow its work in the ASC setting and legislation that will alter certificate of need laws in the state by the end of 2025.
Leo Spector, MD, CEO of OrthoCarolina, spoke with Becker’s regarding the decision and how OrthoCarolina chose Novant Health as a successor for a major care line.
Editor’s note: Responses have been lightly edited for clarity and length.
Question: Why did OrthoCarolina decide to sell off so many facilities this year?
Dr. Leo Spector: At the heart of the decision for us was really to get back to focusing on the core business. As musculoskeletal practitioners, we are made up predominantly of surgeons, advanced practice practitioners and podiatrists, and at the end of the day, the main thing we do is care for patients in the office, the procedure room and in surgery. MRI and therapy were ancillary to that. We felt that with the changing healthcare environment, it was time for us to focus back on our core. Each one of those transactions was a little bit different. Therapy, for us, was a service line where we were only able to care for about 50% of our patients. We looked at that and made the determination that either we needed to invest both human and financial capital to grow therapy to be able to care for all of our patients, or go ahead and pass from it.
We felt again since that was not part of our core business, it made sense not to invest the human or financial capital into growing that, but rather to invest that into our ASC strategy.
MRI was a little different. North Carolina has been a CON state, and CON for MRI is going away. We did take a hard look at what happens with regard to the profitability, the margins on MRIs, in states that were CON post CON reform. We knew that that was a service line that was going to be under some pricing pressure with the changing CON.
So again, to do that well, as margins start to decrease, you really need to expand capability and capacity. So again, we looked at that and said, “Should we invest the capital, both human and financial, to grow MRI given the new challenge that will occur, or do we take those finances and human capital and invest it in what we see as the future for us, which is ASCs?”
ASCs are unique in the Carolinas as well, because while CON reforms may have a negative impact on the MRI business, it has a very positive impact for surgery centers because now that South Carolina has fully repealed CON and North Carolina is about to at the end of this year, it creates the opportunity for us as a private practice to own our ASCs. We estimate that 70% of our surgeries here in the musculoskeletal space can be done in the ASC. We feel that aligns with our core mission and our values, which is to make lives better. We want to improve the cost of care for outpatients throughout the Carolinas. If we can move patients appropriately from inpatient to outpatient, and move from HOPDs to ASCs, we can lower the cost of care by our estimates, if we were to move the full 70% of cases, we would need far more capacity than we currently have. The opportunity for us to invest both the financial and human resources into growing the ASCs was a decision we made. We look back at therapy and MRI as being service lines that are not as core to what we do. To have the opportunity to invest and grow outpatient care will be a win for not only our patients but our practitioners.
We know it will take a lot of work to get from here to there. A lot of things will have to be done in regards to our legacy ASCs, and so again we look at the PT and MRI and we only have so much bandwidth. Our team needs to be able to focus on certain things. We felt this was a deep opportunity to divest of our two ancillaries that were not a part of our core and double down on our core business.
Q: Why did you choose Novant Health as the right buyer for your MRI practices?
LS: We did what any company would do when you are looking to sell an asset. We hired the right investment bankers to go ahead and put these up for sale. I learned it’s kind of like hiring a realtor to sell your house. They put together a package to sell it and put it out to market. Both on the therapy and MRI, we got bids from multiple folks to purchase them. But at the end of the day, like selling your home, you obviously have a price in mind, but you also take a look at who’s going to be living in your house after you. We were looking for folks who would meet our asking price and best met the care for our patients that we were previously doing.
Q: Is there anything else you want to expand on?
LS: For me, in this role, watching what has occurred over the past five to 10 years in healthcare, we’ve seen a lot of changes and talk about rising costs of care. We’ve seen value-based care taking hold in the musculoskeletal space, and we are seeing bundles start to take hold as well as direct-to-employer contracts. It’s a really interesting time in the musculoskeletal space. We’ve seen activity in private equity that has occurred, both successes and non-successes, but there’s a lot of change, and I think that creates a lot of opportunity.
As an organization, we had two choices. One was to keep doing what we were doing and hope that what got us here will get us there. In a changing environment, that’s not the best strategy. We looked at all of the changes that were occurring and decided to make that pivot in regards to that investment and divestment. We are doing quite well, but if we want to be as successful as we have been the last two decades, we have to make some strategic moves to change alongside healthcare. At the end of the day, it’s about investing to deliver more value to our patients. Expanding access to our whole community. Getting rid of those service lines and investing in ASCs was a great way to bring that value to our patients.
