We now pivot to a completely different aspect of our business and learning more about some of the systems again that are sort of making us uncomfortable, but we have no choice but to learn about everything. Scott Fraser is going to be the first speaker of this late afternoon mini sessions, speaking about consolidation in the healthcare ecosystem and how it impacts gastroenterology. Thank you so much, Scott, for being with us. And Scott has an interesting background in terms of training and his approach to GI. He is the founding partner of Fraser Healthcare LLC, which is a growth strategy consulting practice for healthcare companies. He is in consulting for private equity and future 1000 companies. So I think his talk will probably tell us more about what he does and tell us about the expertise that he possesses. Thank you so much for providing this talk for us. Well, I appreciate the opportunity to speak to you and wanted to provide a little bit of perspective on what's happening in the healthcare ecosystem as it relates to consolidation and really the consolidation forces that are around you to help kind of explain what's happening to individual practices as well as ambulatory surgery centers. And I am trying to advance. There we go. So healthcare consolidation has a lot of market forces. And I'm going to go through the food chain, if you will. At the top of the food chain, I think everyone appreciates payers. Next down, the hospital systems or healthcare networks, suppliers, financial. And I really appreciated the discussions on physician burnout and the pressures of COVID, particularly as it relates to employees, because I think as Dave and Joe had touched on, we're just starting to see this. If you look at the long-term employment figures and the lack of employees, this is going to be something that we're going to be living with for a while. Trying to advance here. So the payer consolidation is really fascinating. And you all as physicians and providers are living this every day and administrators. But it is not just an oligopoly. It's vertical integration. And at the very top of the food chain is UnitedHealthcare. And if you look at what they've created with their provider network, meaning that the opt-in physicians that now work for UnitedHealthcare, this number, I update this slide usually about once a month, and it grows by about 3,000 to 4,000 each month. It's staggering to see how many physician practices they're buying. They don't yet own a GI group, but all indications are, because of how vertically integrated they are, they're headed that direction. I think everyone appreciates their presence on the pharmaceutical side or the pharmacy side of things in terms of how much of the pharmacy spend they control. And what a lot of people don't realize, particularly in GI, is they also own one of the largest ASC companies in the country with surgical care affiliates, which has a number of endoscopy centers around the country. So you can see the logical synergies by looking to acquire some of the larger GI groups in the future. And they absolutely have the capital resources to do that. If you move on to hospital consolidation, and I was looking for a more updated slide, but this is the most recent one I could find, hospital consolidation has been really at a feverish pitch for the last two decades. And I live in Pennsylvania on the eastern side of the state, but Pennsylvania not only is representative of so much in America and politics, but it's also very representative of what's happening with large healthcare systems. To the west, you have UPMC with over 5,000 doctors and a huge amount of control in the healthcare system. And to the east, you have Penn and Jefferson. It's amazing the influence that they have on both sides of the state. One of the other things that's happened around us, and as you shift to industry, and I remind audiences to think about when you first went to DDW, or we have some nurses I know in the audience as well, or when you first went to SG&A, how big the exhibit hall was. And the companies that were there that no longer exist, well, the amount of consolidation that has happened in the pharmaceutical industry is hard to keep track of. But what's astonishing to see is the dollar volume of these acquisitions. I'm just highlighting one that I think is familiar to everyone in GI, and it's a few years old, but with YF being acquired by Pfizer is arguably one of the largest healthcare acquisitions in history. Shifting to the device side of things, it's, again, interesting to see the consolidation. And if you look at some of these companies that are probably familiar, these are acquisitions that have happened in the last few years. And who's acquired them? Well, the larger companies have acquired them. And even larger companies have acquired Covidian with Medtronic's acquisition of these companies. And the reason why this consolidation happens, there are a number of reasons. One, it's financially driven, but it's also economies of scale. And if you talk about efficiencies, and one of the general theses is with consolidation is driving economies of scale. And I'll speak to that a little bit further. But this is a natural evolution that we've seen in healthcare. But what's interesting is you look at the providers and the big healthcare sectors that have consolidated, the providers are noticeably missing, which puts you as physicians and nurses at really a disadvantage when it comes to negotiation with large payers or large healthcare stakeholders. So where does this leave gastroenterology? Well, the stressors that I think were very articulately covered in the previous presentations, you know, the contracting rate cuts, administrative duties, driving referrals and ancillary lines of business are, I think, are well understood. I would say the employee stressors right now, having been a previous executive of a company that has about 500 employees, are the ones that keep you up at most at night. And what you're facing right now with the labor shortage, with doing recruitment and retention, and the overall increased costs of your full-time employees and your benefit costs, as well as reimbursement staying at a stagnant level, is definitely a stressor. On top of that are the COVID protocols and the costs and the backlog. So I really do feel for gastroenterologists right now that are running ambulatory centers and their private practice with the employee stressors because those are the ones, as mentioned, that are most stressful to any business owner. So enter private equity as the consolidator. And there is a great article, for those of you that have maybe heard about private equity or know groups that have joined private equity, there's a great Bloomberg Business Week cover story from about two years ago about the fact that we live in a private equity world. And it explains the history and the trajectory of private equity firms, and not just in gastroenterology and medicine, but really in all aspects of our life. And I love this cover story because if you go to a local coffee chain, if you go to a pet store, if you buy a home, rent a home, you need a doctor, more than likely you're touching private equity-owned entities. And I think an important educational point about private equity firms is these are large institutional funds with trillions of dollars in what's considered dry powder, meaning idle money that is used to invest into private businesses. You may see headlines in Becker's or GI Endo News or other trade publications, but you really don't understand a lot about what's happening. And private equity firms are, the best way to think about them is they are custodians for large institutional funds, meaning pension funds, endowments, billionaires. And they are investing that money into private-owned businesses. They have the ability to invest billions, if not trillions, into private markets. Their returns over the past 25 years have averaged well above the Standard & Poor's Index. And I mention all this because of the fact that they are focused on driving consolidation in different business sectors. And what does that mean for subspecialty medicine? Well, this is a kind of an overview of the investment thesis of what's happening with all the MSOs and not just gastroenterology, but other areas of medicine. The first thing that they look to do is to refine internal infrastructure. So for you that are running an ambulatory center or maybe multiple ambulatory centers, or in Joe's case where he's got over 120 full-time employees, these are mid-sized businesses. What they are looking to do is bring in new systems and really be a data-driven organization to help drive efficiencies. Once they have control of the data and an understanding of their data, it's to leverage the density that they have in a particular market with payers, with hospitals, with employers, and with suppliers. And that can be incredibly meaningful if you're talking about your operating costs of running an ambulatory center or running a practice. Then they look to exit, meaning they have a second turn. They trade that business, usually within a three- to six-year period, depending on market conditions, and it goes on to another private equity firm, or in some cases, a strategic buyer like UnitedHealthcare. So although subspecialty consolidation is relatively new, and I know we're going to have Dr. Leavitt speak to us here in this session, when he started and founded GastroHealth in 2016, this has existed in subspecialty medicine for decades. And one of the things that I'm constantly asked is, where are we headed in gastroenterology? And I think the best indications are private gastroenterology has all the same ingredients of dermatology and private practice dermatology. If you look at the ancillary lines of business, the pathology, a substantial portion of their income also comes from ASCs as well as pathology and diagnostic tests, much like GI. And we're in the beginning phases with nine platform groups in gastroenterology. And I know Praveen is going to speak to this in his talk following, so I'm not going to focus a lot on the private equity side of things. But the growth, as I mentioned, started in 2016 with GastroHealth. And you can see where we are through Q3 of 2021. We have nine platform groups. These are the groups that are doing the transaction. And roughly now about 70 bolt-on groups that have joined these nine groups. And what's been interesting is we've looked at this trend and its implications for gastroenterology. You can see a snapshot of what the U.S. map looks like and where these practices are based is there's still a lot of states, including California and New York, that have yet to have a private equity-backed GI platform, although New York just had its first. And this slide does need to be updated. So the other thing that my firm, as well as another research firm, has focused on are the intentions of gastroenterologists. And we have a fairly large panel that we survey each quarter of private-practice gastroenterologists. And this was part of a COVID report that's ongoing. But what we looked at, and this was actually monthly, is the intentions of private-practice gastroenterologists to join an MSO. And over a one-quarter period, we saw a 75% increase. And a lot of that is due to the stresses that are happening in private practice right now that have been well-covered in the presentation before. But it speaks to why you see and hear about groups almost weekly joining one of these platform groups. So how do the MSOs differ and different market conditions? And so much of health care, as I think all the physician panel appreciates here, is local. And what is the case for Dave in Manhattan, in Midtown Manhattan, is very different for Joe in Illinois. And it's very different for Colleen in Tennessee. And I can go down the list. But if you look at the different MSOs that have been funded, I kind of grouped them in four different buckets. And two of them I've been personally involved with with the transaction. So just by disclaimer, both Pinnacle and P Practice Solutions. You have national focus with GastroHealth and GI Alliance and what they're doing. You have regional focus. And there's a number of groups there. You have a hospital focus group that is really providing a hospital staffing model in more rural areas. And you have what's called MSO Light, where it's offering practice management expertise to a number of small practices. And there's a lot of considerations that physician groups do go through when they are evaluating. You know, so much has to do with local market conditions and local market conditions. If again, going back to that consolidation food chain is, you know, first and foremost is, do you have a payer that has 40 plus percent of market share and is not favorable to private practice? Not just private practice, GI, but private practice in general. And you can go down the list with major hospital networks as well. And oftentimes, this is the catalyst for groups joining and consolidating. And it's really it's interesting to see because these market factors are very similar to what you see in industry. You know, what are the stressors on your business, whether it's a med tech business, pharmaceutical business, or what have you? And why would you look to be acquired by a larger entity? I'm going to end with really just a business case of how consolidation benefits providers. And there we go. So this is a business case looking at Atlanta Gastro, which is United Digestive. And this is all publicly made information. They were a funded group by private equity in 2019. And if you know anything about Atlanta Gastro, they were very successful group of about 100 doctors. Well, after their funding, they really didn't grow. What initially in physician numbers, what they focused on was leveraging their data and driving new contracts. And examples of contracts that they have driven have both been with vendors, service providers. They have also tapped into more sophisticated systems. And I mentioned here Microsoft BI. This is one of Microsoft's business intelligence platforms. And it provides business owners, whether you run a factory for automobile parts or a medical practice, to really look at what's called KPIs, key performance indicators, and measure and manage your business to these KPIs. And it does it in a fairly automated way. It's an incredible platform. But it allows a more sophisticated group to not only look at things like your clinical metrics, but to look at what factors are really driving your practice and are important for your practice and where you may have staffing discrepancies and what have you. Another area of consolidation that I didn't put in here, but it's worth mentioning, is consolidation in purchasing. There is now a gastroenterology GPO called GastroLogix, which I know United Digestive and many other groups are part of. What they have done is pooled the purchasing data across almost 1,000 gastroenterologists to leverage very competitive pricing on specialty pharmacy, as well as equipment, devices, and just basic supplies. And we encourage anyone to look at this. Because what they're doing is they're leveraging a consolidated purchasing network that is focused on GI. And they have the data to then go to manufacturers and negotiate more favorable pricing than just one group like a United Digestive would be able to. So my final words with consolidation, it's something that I'm going to take a Game of Thrones quote here is, never forget what you are. For surely the world will not. Make it your strength. And then it can never be your weakness. Arm yourself in it. And it will never be used to hurt you. Winter is coming. And consolidation is coming as well. And I offer this as advice is to get educated on why this is happening and why it's important as you put together strategic plans for the future with your group. It's an evolution in health care. I am not here to say if it's right or wrong. I am not a gastroenterologist or a practice owner. But it is a natural evolution in what's happening around in your ecosystem. Thank you very much.

healthcare consolidation

gastroenterology

market forces

UnitedHealthcare

private equity firms