Ironwood's Healthcare Investment Perspective for 2023 and Beyond

The consistency, predictability, and fragmentation of physician practices have made it one of, if not, the most popular healthcare plays by private equity firms for the past couple decades. Anesthesia, dermatology, dentistry have all been at the forefront of PE consolidation. Scale enables providers greater leverage with payer negotiations, efficiencies in the back office, and allows doctors to spend more time practicing medicine. More recently, the establishment of scale is enabling the transition to VBC, as the model requires a critical mass of patients; this is especially true among primary care practices. Finally, as the non-clinical demands of doctors grow and patients' expectations change, aligning with a group practice allows physicians to return their focus to clinical care.

Our interest lies in specialties with larger cash pay exposure (e.g., dentistry, medical aesthetics) and practice areas at the infancy of institutional investment. One example is cardiology, which has largely been a hospital-based specialty, with >70% of U.S. cardiologists employed by hospitals ⁴ . There are several factors influencing this employment dynamic. First, many cardiac procedures previously had to be done in an operating room setting or within a facility with an available operating room in the event of an emergency. Secondly, in the early 2000s, CMS adjusted reimbursement for cardiac procedures, requiring many be performed within a hospital. However, we are beginning to see a reversal in this trend. As minimally invasive procedures become standard of care and CMS looks to reduce cost, ASCs and OBLs are becoming approved procedure locations. This shift is reducing a cardiologist's dependence on a hospital, enabling them to explore the opportunity presented by partnering with financial sponsors to establish independent practices .