Rebecca: 0:37

Hello everyone and welcome back to another episode of the Providers Report. We are really excited here to have a guest speaker who's going to talk to us all about the corporate side of healthcare and what it looks like today, what it used to look like, what are some of the pros with some of these new structures, and what should we be on the lookout for as providers. So Dr. Betty, thank you so much for joining us.

Betty: 1:01

I'm very glad to be here and it's a, topic that I have long had interest, in, And I'm excited, for today's conversation.

Rebecca: 1:09

only that, it looks like you have the perfect amount of experience with this topic as well. Your resume is very impressive. Could you start by telling us a little bit about everything you've done so far in your career?

Betty: 1:21

Sure. the core of my professional, identity is as a general internist. I was in practice for over 25 years. The last five years of that, career at the University of Rochester, I was the medical director for the Center for Primary Care. I then, left to found a healthcare, information technology company, a population health company, which, was acquired by NextGen Healthcare, which is a publicly traded, very corporate, entity. and, ended my career being, their chief medical officer for, three years, have been doing consulting work, in, retirement.

Rebecca: 2:00

I love the quote unquote retirement. For those of you who don't have the video accessible, quote unquote, retirement, I feel like is so popular amongst healthcare providers who have done exactly what you've done. We transition out of that clinical practice, you know, we either open up amazing companies or we work with amazing companies for the greater good. it sounds like you were very much trying to leave your mark with your professional career, so thank you for all you've done.

Betty: 2:26

Sure, sure. Thank

Rebecca: 2:27

Yeah. So for those of you listening, if this topic is relatively new for you, I did want to start with a brief definition of what private equity ownership looks like in healthcare, So the definition is really referring to. When investment firms or other companies can acquire and manage some healthcare businesses, like some of the ones that she just mentioned, and this can be for a variety of reasons. hospitals and physician groups and urgent care centers are some great examples of how this business acquisition comes into play. so I wanted to pick your brain on why do you think this has become so popular in healthcare these days?

Betty: 3:04

So, let's look for a moment just at the scope of this issue. In, the last, 10, 12, 13 years, 1 trillion with a t dollars have flowed from private equity into acquisitions and investments. In, healthcare, and it's important to, understand that. there's a specific business model to private equity, investment, which is a investment structure to be relatively short term, usually between four and six years of investment. That includes a restructuring a, Re, imagining a redesign of the asset that has, been acquired and a relatively short turnaround to create, profitability and then, divest that. asset for a profit. the reason that healthcare has been so attractive and has, garnered all of this, huge investment is that it is a source of reliable, flow of cash. Much of the, financial activities in healthcare are backed by Medicare and Medicaid, which are, the US government. So there's assurance that that flow of cash, continues if you follow, the money, that's why, private equity has been coming in additionally, Healthcare has been a market that is still very fragmented. So there was great opportunity for consolidation, which is one of the, mechanisms that private equity applies to, gain profitability is consolidating, creating economies of scale in their approach. other reasons were that from a regulatory perspective, there were very low. bars to enter the market because there's really not much regulation on who buys, who sells, who acquires. And speaks to one of the biggest problems about talking about this area is that we don't know exactly. How much of this is going on, where it's going on? There's a lot of obliqueness in these deals. and there are no rules or regulations about having to expose or declare or, advertise, these shifts in ownership and investment.

Rebecca: 5:25

Oof. That is a lot. I mean, I can definitely now understand. By hearing it from you, why it is so attractive. You know, if you happen to be sitting on millions of dollars and you're looking for investment opportunities, you want the biggest return and typically the quickest return. So that makes perfect sense. do you think, I mean, let's chat about some pros and cons. I think my brain is particularly biased. I tend to love systems and efficiency, and I know that. working with other companies and managing companies with other organizations typically gets you there. So I imagine that might be one of the major pros with, some of this acquisition. But in your mind, what are some of the pros and cons to working with other companies like this and agreeing to do this type of investing?

Betty: 6:13

So let's start with the pros. traditionally, healthcare organizations, have not enjoyed the. Highest, level of, corporate, management and tools. Many of them are smaller practices, physician led, where the skill sets of those physicians really are focused on clinical medicine. They excel at that, and don't necessarily bring, the sharpest tools to, management efficiency. Application of technology, choice of technology, deployment of technology, finance, and funding, which are some of the challenges that practices face in today's healthcare environment. So an influx of management expertise, finance expertise, creating sensible debt, restructuring, nonsensical, debt, managing assets like real estate and space and HR and staffing and economies of scale and purchasing and. negotiating with healthcare insurance companies on, better rates. Are all capabilities that, these private equity companies, the good ones really can contribute tremendously to, practices and have done so. additionally, it, can relieve physicians of incredibly stressful financial circumstances. They can find themselves, particularly the ambulatory space where reimbursement is less lucrative than, procedure driven inpatient, space. it can provide a flux of cash that solves, financial, problems and also allows physicians who've spent a career equity in a practice allow them to, materialize or cash out, on the value that they've built. And I see that as fair and, and very reasonable. trouble is that it comes with a of cons. The major and biggest one is that physicians providers of a variety of kinds lose. autonomy. So once you have sold your practice, you, have given over, decision making power the direction, the culture, the requirements, the structure, the HR regulations, the focus, the priorities of the practice to someone else. for physicians we are, somewhat, control freaks. that is a very difficult, thing to do. And the second thing is that it creates A slew of ethical challenges that have to do with driving priorities in healthcare based on profitability and efficiency rather than patient and family benefit. That is a con that cannot be spoken away, negotiated away, rationalized the way it's there and needs to be. faced square on, and there are, we'll talk, I'm sure later in the conversation about ways to mitigate, these issues, but they are real.

Rebecca: 9:23

Yeah, they're definitely real. And I think a lot of our listeners definitely have a strong affinity toward more value-based care, patient-centered approaches. And, you know, in my naivety, I envision a world where we're able to do both. I want to see high efficiency. In our systems, in our organizations, our hospitals, but at the same time, I never want to lose, that value-based care, and I know you have tons of experience in that world. Long story short, do you think that world exists? Can we attain that?

Betty: 9:54

So, I'm a born optimist. So the answer is yes, there probably is a best of both worlds model, but it requires both sides, to apply a fair amount of, wisdom to the way these deals are structured and possibly, the need for regulatory intervention, for example. Should we allow private equity to own a hundred percent of these publicly necessary assets? a hospital in a rural area, which is the only hospital serving that area, should we allow private equity to, own a hundred percent of it, or should we limit ownership of private equity? Allow them to have a stake and, gain from the profitability of their organization. But for example, not. Bankrupt it, not sell it, or, not run it, in ways that aren't supportive of that community. That is an example where you could enjoy the best of both worlds. I think it would reduce the profitability and the control that private equity has and therefore make it a bit less attractive to them. 20% of hospital systems that, went, bankrupt

Rebecca: 11:08

Okay.

Betty: 11:09

private equity owned and the unscrupulous, private equity companies that had, entered the space, or even if they weren't unscrupulous, but just unsuccessful, basically, we'll do anything to gain the profit that they promised their investors, for example. mortgaging or using, hospital, estate assets as leverage for loans. So hospitals suddenly find themselves owing a great deal, of money or the private equity, company owes a great deal of money that they have borrowed to pay back investors or reinvest, and the collateral for those loans are the hospital. real estate and if something goes wrong with the deal, then there's a big mass. There are, examples of, hospital systems being saved by, and, managing to get back to, stability because of private equity investment. But there are examples of hospital systems who have. not being successful in that model. There is beginning to be, I cannot say that it's common, it's still a rarity, but, physician practices that are buying themselves back from private equity, sometimes in the context of. Multiple hand changes because there's nothing to stop a private equity firm from selling you to another private equity firm that then can turn around and sell you again. The, these changes all entail changes in culture, changes in leadership, changes in management, very disruptive to the practice. So in a few ca, there are a few examples. When I looked at the literature in preparation for today, there are a few examples. Of practices that have to reverse the decision to, to enter into private equity, relationships. Even though the, the, I have to be clear, this is the minority at this time,

Rebecca: 13:08

Yeah, that's interesting. I recently started hearing of that, within the last year as well. And obviously the reasons for that tend to have a lot to do with autonomy for the providers and just. Getting back that old school feeling of a smaller practice or a smaller hospital. actually across the street from my own practice, there was a very long established primary care facility. the two providers there, practiced for almost 60 years. and they eventually did get bought out by one of the big hospitals in my city of Grand Rapids, Michigan. toward the end they had the option to either. Buy themselves back, like you mentioned, and have someone take it over like a younger primary care doc. And they were kind of at that fork in the road where the best decision for them due to, you know, being so close to retirement was just to kind of be done. All of the patients, of course, had to find a different, primary care office within that hospital structure. But it was such a strange ending and I feel like that's. That wasn't the norm with private practice owners before. you had a successor to your practice who carried out some of the great, traditions that you instilled in that facility. Do you think that there's going to be more regulation or are there any insights as to what that future might be?

Betty: 14:22

Yeah. Well, it's, it's, it's really a very complex system you think of it. There are also, um. There are non-for-profit entities in healthcare. There are for-profit entities. So it used to be an oxymoron that a hospital was for-profit, but there now are very large hospital systems that are for-profit. And then there's the private equity, model. So in a certain way you take the profit motive and you put it on steroids in private equity, but there are still for-profit forces occurring in healthcare. It's interesting to me the decision whether or not to, participate in a private equity decision as a practitioner, whether hospital owned or, still rarely in private practices as solo or group owners of a practice. That decision changes and varies at the age of the practitioners. you mentioned it that these colleagues of yours were at the end of their career. Where they likely didn't have, if the culture turned to one that they didn't appreciate, they didn't have a long time to work in that environment. So the motive for them of having financial benefit from a practice and an entity that they built over their careers, and I respect that totally, is strong. Versus a young practitioner coming outta residency who has. two, three years, five years in practice and has another 25 to look forward to for them. The decision of who calls the shots, what will the shots be, how they impact their life work balance, how they impact the style of practice that they can, practice in very much more critical than the benefit at the end of their career from the financial asset, even though that's. in long term, in long range planning, it's important as well. So what you see often in practices that have varied, career stages in them, that when the deci time comes to make the decision whether or not to go with private equity. That it's very hard to find consensus sometimes because the motivation and the, considerations at different stages in your career have to be and are very, very different when you ask what the future holds, I am not sure that the private equity bus, has slowed or is going to slow anytime soon. I hope, I'm not sure that in the current environment that's going to happen, but that eventually at the state level, possibly there will be regulatory, requirements to, avoid some of the debacle and disasters that have occurred. The other thing is that we need to continue to get better at managing quality of care. So that we can measure quality of care across the different, financing and ownership models to come out with clear conclusions. initial indications are that private equity doesn't do so well with quality. the outcomes that are being measured are not as good in private equity owned as in not, and patient satisfaction and physician, satisfaction are not as good in private equity, owned. On management efficiency, measurements, they're doing a bit better. So that those are areas where there actually is some benefit, but the future to be successful in this space, patient advocacy, and quality will have to, prevail. One of the things that was very disturbing to me was reading. The fact that there has been a huge influx of private equity money into the hospice space.

Rebecca: 18:19

Oh, I know nothing about that. Enlighten us.

Betty: 18:21

Yeah. Yeah. So hospice is a very, unique, service. Think about it, it's a service every person will only need once in their life. There's no return business. you go through hospice once. The second thing is that it's a fully cap from a Medicare perspective, from a payment perspective, it's a fully capitated service. whether you offer a hospice patient, a lot of services for your daily dollar amount, or very few is very difficult to manage and, control. so a private equity company can buy a hospice and cut back on services, but the payment for those hospice days doesn't change. It also encourages, unscrupulous group cherry pick those hospice patients who will be in hospice for the longest time, but need very few services. So, financially, privileged patients who can get services from elsewhere and will rely on hospice less for everything. Patients with longer prognosis and less impactful, malignancies who are still relatively high functioning, but have a six month prognosis and they get onto hospice. And then the question is, what regulations will be in place to protect the non-profitable patients? What happens in terms of an equity in healthcare issue is if we don't have enough equity and access issues, what happens to those patients in hospice or in arm, ophthalmology office, or primary care office, or an oncology office, or an ophthalmology office? Who for whatever reason are so complicated, whose prognosis is so complicated by their disease and, social determinants of health, that they would be a burden on any system who takes care of them when? When an entity that is completely driven by for-profit, motivation chooses not to care for them or chooses to drop them or make a few efforts to care for them, and then kind of, separate from them either by, just by attrition or by just not offering the kind of surfaces that they need. that's part of the ethical, concerns in this space. And I thought that for a case study or just for your listeners to. Think about the implications of this is to think of the hospice space because it's so clear. is so fraught with both opportunity for compassionate, cost effective, care on the one hand, and on the other hand, because of its payment structure and. The fact that there isn't return business and people don't choose, you know, to, you don't choose your hospice. You can't switch hospices easily by that time, you're quite sick. And it's a very, interesting, case study. the entrance of, private equity into hospice care. On the other hand, reading about it, there are. Models of primary care that have been more successful than other models. But again, there's one, national private equity company that created a concierge medicine, primary care model. The trouble with that is that it's concierge medicine. So what happens to people who can't pay$2,000 a year to get special, privileges and wonderful healthcare or what happens, to patients who don't have access? It's not in their community and do we want to create a two tier or at least two tier healthcare system where those who have get a bit better and those who have not, don't.

Rebecca: 22:08

Exactly. That is such a good example because even if you're, you know, you're listening and you're a private practice owner in a small rural town, maybe you don't have any experience with hospital structures or private equity in general. That example right there makes sense to everyone. it really paints the picture of what this looks like and what problems are around this model and how we have to make sure that we're not forgetting that as we continue to grow with this new healthcare system and how things are developing. yeah, I'm super passionate about patient access and. It sounds crazy, but I view it as the modern day like caste system. If you think about it, this is different. I mean, obviously it's pulling in socioeconomic status, but we're literally tearing people with healthcare needs. in my mind, it's borderline diabolical and I understand that. finances will always be there. It's always going to be an issue, but if we lose sight of what's important here and we change the quality of care that people are getting based on what they can afford, we're gonna have some larger problems. And we're already finding evidence of that in the United States right now.

Betty: 23:14

Yeah. Amen. I think in the context of this conversation, it's so important to also maintain. compassion and understanding for practices that find themselves up against the financial wall in a, rural area. For example, a hospital system where, census is down, Medicare reimbursement is down. and the community is desperate to keep a hospital open. equity there comes in as a savior, and I understand that and I respect that. are some. Extremely thoughtful private equity companies. I've had the privilege to, work with, briefly and talk to some people in those environments who care deeply about quality the idea is to try and choose partners that are like-minded and, principled who don't want to, turn a profit in two years, that they have the longer term, four to six to seven, years. And particularly important to choose a partner who has a track record that is a positive and successful one, and avoid, promises for, you know, pot of gold at the end of the rainbow, where the, the track record is, is horrendous. important to speak to your. and people who've gone through it.

Rebecca: 24:43

Yeah.

Betty: 24:43

listen to your, not to, ignore the red flags, explore the red flags, sit with them, talk to people. Get excellent legal advice because how these deals are structured can make or break, your practice's, future.

Rebecca: 25:02

Absolutely. I wanted to use that as a segue because I know that you have some experience with, I believe, selling a company that you founded. and you touch on the importance of selecting partners. And a lot of our listeners, even if they work for a hospital structure or a private practice, a lot of the people listening are naturally. Seeking other options for their career. They will probably go on one day to open up other companies and work with other businesses. I would love to talk about what you did and how you decided who to partner with and what that relationship looked like and how things have developed since then.

Betty: 25:37

So, this is kind of. Switching gears quite significantly because the company I founded and sold was a healthcare information technology company, a population health management software, platform that we, sold along with the company, of course. and that's very different than the decision making process in the context of, practice, but still. The same considerations were alive and well in that decision. There can be a decision to do you continue building the business. What timing is right for you to sell the business? Will your existing customers benefit or suffer, with an acquisition? will you be required to change the area of focus of the company and the way you have served them and the kind of customer service that they had gotten used to getting from a startup and from a small company becoming part of a corporation, and does the corporation view. Healthcare technology, healthcare as a whole, the mission of healthcare, the mission of healthcare technology in ways that you can, so can you sit in a corporate office with them without cringing? Now, interestingly in our case, it would be, disingenuous if I said that we had four suitors and we chose. The most likely we had a suiter, that happened to be in the right place at the right time in our developmental stage and their needs as an organization, we happened to be extremely lucky that that partnership worked out extremely well.

Rebecca: 27:22

I love that.

Betty: 27:23

so I, felt incredibly comfortable with the mission vision, of, NextGen when we joined it. and enjoyed the few years somewhat disrupted by, the end of my career with COVID. But, it happened, to work out, well, All of these decisions are, often, made in a certain context and with certain, limitations and pressures that you had. We. It was, it's hard to know. You always think to yourself what would've happened had we continued as an independent, startup. I think we made the right decision at the right time. I don't think it would've turned out as well for our customers, the product, or, for myself, personally, I. Tremendously enjoyed the opportunity to work for a publicly traded company for the last three years of my career. Never dreamt that would be a thing. learned so much and met incredible people. Traveled the country and, learned so much more about healthcare than I knew from, an insulated academic practice for many years in Rochester, New York. So.

Rebecca: 28:34

that we're ending on that because that is what I want with this podcast, is to maybe put some ideas in our listeners' brains that they otherwise wouldn't have thought of. You know, some of our listeners, have never heard of private equity getting involved with healthcare, but you paint such an easy picture for us without experience in this part of the industry to get that picture and understand, okay, this is why this exists. and I think you do a really good job at that. So thank you so much. to close, could you perhaps give us some advice for our listeners who are currently practicing in a hospital or facility that has been acquired by a private equity, maybe some advice on how to mitigate that and navigate those waters while still maintaining a higher level of patient care.

Betty: 29:20

First and foremost is to try and connect and yourself what were the reasons you went into this arrangement to start with. Remind yourself that there were very strong, good reasons that you needed to take this step, whether it were financial pressures, whether it was building the financial future for your family or retirement, whether you were concerned that the practice would close down and your patients would have no services if you didn't take the step. remember the why. compassion. have compassion for yourself in that context. there were good reasons, at the time to do it. remember that hanging together with your colleagues, creating a cohesive physician. Voice is extremely important dividing and conquering, is a corporate strategy that, is powerful and the only way to mitigate against it is to spend the time necessary to build a cohesive, voice for the physicians. That is represented by the smartest and most capable negotiators and spokespeople for your group. this is the time for the smartest and brightest physicians to step forward into leadership so that they can negotiate on behalf of the whole, physician, group and clinical group with the acquirer, the pe, the management group as, whoever they are. The other thing is don't assume that you know the legal ramifications for any of the contractual decisions that you're being asked to make Have steady, wise, spend the money that's necessary for good legal. advice. finally, remember that your professional identity will benefit strongly advocating for your patients and for what's right. I have said it my entire career. good for healthcare and patient care is good for business. So you will not be making any mistakes from a business perspective, advocating for your patients and their families and their wellbeing and the fiduciary responsibility you have as a physician, a provider, a chiropractor, a nurse practitioner, a nurse, whatever it is to those patients, you will never go wrong in your decisions if you put the patient in the center of the decision making process and make the right decision for them. you will be respected for that. it may not work out as well as you want, but you will always have the respect of your patients, their families, your colleagues. and then, remember that, taking care of yourself, finding balance between work and home and. The rest of life is incredibly important. Burnt out, tired. Physicians are not happy and not good physicians. So it's your responsibility to advocate for yourself and your colleagues, that the work environment needs to support your needs in that regard and fight hard for that.

Rebecca: 32:31

That advice alone has given me chills, like I'm immediately ready to tackle this year. Just hearing all of that, especially from you, I mean, you've accomplished so much in your career, and to see people doing that in the healthcare space and reminding us, Hey, you can achieve all of these things. By doing exactly what you just stated. Continue to put patients first, and do the right thing always. So thank you so much for that incredible wisdom, and thank you so much for joining us here on the Provider's report today.

Betty: 32:59

My pleasure. Thank you.