Capital Digestive Care did not go the route of private equity, but it did go the route of a strategic partner.
We recognized that health care is changing a lot and that resources — including money — are necessary in order to be successful and relevant as we go forward and think about the future. Typical private equity is not a strategic partner; it is a capital partner. I understand the goal of a typical private equity company is to make money for themselves and their investors.
In 2018, we were a group of 70 physicians in the metro Washington D.C. area. It became obvious to most of us that if we were going to stay relevant and work with the hospital systems and the insurance companies, we were going to have to get a lot bigger. You have to be big in order to compete for employees and new doctors, to invest in new technology, and adapt to some of the changing health care delivery methods with advanced alternative providers and at-risk value-based payment models.
I started a discussion with Barry Tanner, the prior president of Physicians Endoscopy, which is an ambulatory surgery center (ASC) management company. They have a large organization in Jamison, Pennsylvania, including some centers in our neighborhood, and they are invested in a couple of our ASCs. But the Physicians Endoscopy strategy is generally not to be a majority owner of their ASCs; they basically take smaller positions in their ASCs, about 25% or 30%. Then they apply business tools, efficiencies, purchasing power and marketing to help those ASCs grow. They help their physician partners do the same thing. Most of the physician partners in those ASCs were relatively small groups compared to Capital Digestive Care.
We chose a strategic partnership with Physicians Endoscopy through a spinoff of our back office into a separate company, and we sold 50% of that company to Physicians Endoscopy. The transaction gave the physicians some cash but more than that, it gave the practice a partner that was a business health care partner not a private equity company. Physicians Endoscopy itself is backed by a private equity company but that private equity company does not own any of our practice — none. The practice is 100% owned by physicians, and we have a relationship with PE Gastro Management, our joint-venture practice management company, which is 51% owned by Physicians Endoscopy and 49% owned by the physicians in Capital Digestive Care. They brought an entire GI team who were familiar with contracting, finance, equipment, supplies, staffing, HR and IT. They are basically a different kind of health care practice: They are an ASC medical practice, and we are a GI medical practice. We combined our resources to further the long-term goals of the practice and further the long-term goals of the ASC company, which is not the typical short-term goal of private equity companies.
The goals are nuanced. We did not do this partnership with Physicians Endoscopy for short-term money. We did this to hopefully improve our ability to take care of patients, to improve the lifestyles of the physicians and the staff that work for Capital Digestive Care and leave the back-office business to people who are businesspeople. If we are taking care of our patients, our staff and our doctors, and if we are providing better service and being more relevant to the insurance companies, and negotiating value-based contracts, then at the end of the day we will be profitable. That is the opposite direction that private equity companies take in their investments in health care. Their No. 1 goal is to make money, and not only is their goal to make money, but their goal is to make money quickly — in 3 to 5 years. Why would they invest in any project that is not going to pay off for 5, 7 or 10 years?
Am I pro-private equity? No. But am I pro-strategic partner? Yes. I am pro-strategic partner, and hopefully that strategic partner has money but more important than having money is having health care management expertise, people, staff and resources — that has benefited Capital Digestive Care. Our practice remains 100% owned by physicians.
- For more information:
- Michael L. Weinstein, MD, president and CEO of Capital Digestive Care in Washington, D.C.