This is Scott Becker with the Becker's Healthcare Podcast, and this will also be a special edition of the Becker's Private Equity Podcast. I'm joined today by a brilliant leader and partner at Maguirewoods, Tim Fry. Tim's going to talk to us about five or six different areas in the healthcare space, the area that private equity is investing in. Just give us a sense of what he's seeing in those areas. The areas that we're going to talk about are orthopedics, surgery centers, primary care, vision care, compounding and specialty pharmacies, and post-acute care. Tim, I'll ask you to take a moment and just walk us through a couple of thoughts on each of these areas and what you're seeing, and maybe do two or three at a time, and then I'll ask you some questions, and then we'll go forward with the next two or three. Tim?

Thank you, Scott. It's always a pleasure to be with you and your listeners, and thank you so much for having me again. A lot of these thoughts are coming from our recent white paper, and I'll talk about what they did to get at the end, but it had 27 different niches in the healthcare private equity space, and you're absolutely right. Let me kick off with the post-acute space. We are seeing a lot of interest in private equity funds to get into post-acute care, and it's really driven, and candidly, Scott, for orthopedics, for primary care in different ways, vision as well. So maybe it's a trend of the things I'll be talking about with you today on, it's the aging demographics. It's the older population, the Medicare population, the state Medicaid programs with Medicare that is driving this interest. And really the growth in Medicare Advantage Plan, Scott, is leading this post-acute boom. There is a real interest among investors to find abilities to take really strong home health and hospice organizations, skilled nursing facilities, improve, find good staff, duplicate that model, and find avenues to reduce cost opportunities and play with the Medicare Advantage Plans to show lower cost care for higher-quality delivery and avoiding hospitalizations.

Really, that shift to Medicare Advantage, I think, is driving so much of that interest. Even at the time, policymakers may be looking at ways to say, Are we happy with these investments? And some of the scrutiny of private equity investment has certainly been in that post-acute care space, Scott. I could give you one or two examples, but maybe the most famous this year is in private equity funds and REITs. When they are investing in skilled nursing facilities are going to have to disclose that and do extra disclosures to the Medicare program than other Medicare providers have to. You have that interest, but then a little bit of that public policy, Is this what we want to see? It's an interesting space that a lot of people are trying to get involved with.

No, it's fascinating. The whole Medicare Advantage space, which is now more than 50% of Medicare, but right now not proving to be worth its weight in gold, as you're seeing higher cost, not as much better customer experience so far in a fascinating politics that led to Medicare Advantage exploding in growth, not just selling popularity in a lot of health systems. Now we're having second thoughts about their participation in some of the Medicare Advantage programs, but fascinating is post acute care being looked at as a service for Medicare Advantage Plans are trying to manage cost in different ways. It's absolutely fascinating. Take us through another area beyond post acute care, and it's interesting how those things intersect with what's going on in Medicare Advantage and what a fascinating, either debacle or positive people have seen in Medicare Advantage, but there's been certainly tremendous growth in it. Thank you, Tim. Take us to another area. Such a growth.

And Scott, I'm just going to piggyback off of your comments right there and go straight to primary care. Obviously, there are a lot of primary care we all… Most of your listeners, I assume, I certainly go see my primary care doctor once a year. There has been a lot of interest in the investor community, not just in those classic traditional family practice physician models, but leveraging primary care and telehealth more holistically with Medicare Advantage Plans. Just going off of what you just said in post-acute, that's often the thesis of a lot of the primary care investments we're seeing as well, which is that Medicare Advantage is now over 50% of Medicare beneficiaries, approaching 60% in the next couple of years. Investors interested in that space, interested in that trend are saying, Hey, can we leverage primary care? You have the Oak Street of the world and others that have invested in this space, including some of the biggest names in private equity, and that's a big part of that driver is, how can we be involved with primary care, reduce overall cost, and we think we can get some great contracts long term with Medicare Advantage Plans and help them reduce costs while improving quality?

It's certainly something that we're seeing not just in post-acute care, but also in that primary care space as well.

Right. It seems like so many of the big primary care groups that have been built the last several years are built around that Medicare Advantage. And now there's so much competition for primary care doctors. We're short a couple hundred thousand in the country. There's tremendous competition for them. You've got both all these larger Medicare Advantage-driven groups like Central Ohio Primary Care, but also you've got these partners with CVS and Walgreens as they try and build out primary care on Amazon and so forth and so on. Just a whole group of growth here. And it's fascinating to see how it all works out. These things were so profitable during COVID, but are slowing down on their profitability as people go back to getting procedures and everything else as well. So you're starting to see some of this Medicare Advantage plans struggle economically much more than they did a couple of years ago, and that's had a big negative impact on the stock price. The profitability is some of the biggest operators in Medicare Advantage plans currently. Even though a couple of years ago, they were just on fire, but there's still a lot of growth in it, and there's just a shortage of primary care physicians.

So the prices for primary care and the opportunities in there are still still large and present, but fascinating different dynamics going on in that market.

Yeah, let me switch gears a little bit. With being humble in front of talking to the person that knows more about ambulatory surgery centers than anyone, Scott, that's an area I wanted to turn attention to briefly, and also pull in vision and orthopedics and deal with all three of those sectors in part together. That's because what we've seen over especially the last couple of years in the surgery center space is while private equity funds, other investors, large consolidators have been playing in managing surgery centers for a long time, where we're seeing a lot of the growth in interest and changes in the market is when a private equity fund invests in a specialty like vision care to do maybe the whole care continuum from optometry to opthamology, cataract surgeries, and high-end retina specialties. Do that whole care continuum, and then also try to bring in ancillaries like surgery centers. Orthopedics, very similar, Scott. We're seeing more and more interest in different parts of the country in large orthopedic practices, partnering with private equity, finding ways to get all the different ancillaries aligned and improve the care continuum, including physical therapy, imaging, surgery centers, when you can get them outside the hospital.

Cardiology is another one that I think we talked about when Holly and I joined you recently on the podcast to talk about a few other sub-sectors. And so we're seeing, in taking vision and orthopedics here briefly, but with the surgery center, what we're seeing is that how can we bring the whole care continuum together, different subspecialties together, surgical and clinical care? And that's really a change, or at least an increase, in the interest of investors in surgery centers differently than maybe they were thinking even five years ago, where the focus would have been, how do we build out a surgery center platform? Now maybe it's, How do we either build our own surgery centers? How do we partner with health system surgery centers or management company backup surgery centers, and bring that with our specialty that we've been investing in, and bringing the clinical to bear, again, as a care continuum?

No, 100%. One person's care continuum is another person's profitable ancillary service, and it depends. You could look at it under either paradigm, but you're absolutely right in that there's this growth that these orthopedic, large, mega orthopedic practices funded by private equity, they're very much looking to add on ancillary control, ancillary control of surgery centers, whether it's part of a care continuum or cost-saving structures or just to make sure there's enough profit in the whole model to keep on having the orthopedic physicians and the private equity fund be happy. It's only on the vision side, at the end of the day, so much of vision is still fee for service cataracts and business that's done by opthamologist as well as just general vision care services done by an opthometrist. But as part of that, whether you're putting together vision services or putting together an opthamology platform, clearly opthamology orthopedics want to have part of that surgery center as opposed to just a multispecial surgery center company. These are practice-driven, specialty-driven that want the surgery center as part of the care continuum or part of the answering profits, whichever way you look at it, there's a lot of interest.

That's where a lot of the growth is coming from. Surgery centers is from these specialty-driven platforms that want to make sure that's part of their PNL and part of their care continuum. Again, there's some synergy between the two, whether it's a care continuum or PNL. But certainly the one thing that's clear, they want that piece of the business.

Right. Even just brand awareness in the vision space, it's also a space where there's a retail component in a lot of the larger consolidators, if they're involved with optometry groups as well, or optometrist is a subspecialty amongst the whole vision group, they're involved in glasses sales. Having that unified approach all the way through, including the surgery center, I think is something that excites a lot of investors in the space.

I mean, 100%. No, absolutely. We wanted to take us through… We've talked about surgery centers a little bit as part of Vision Orthopedics, and those are two more the subjects we're going to talk about. Tell us what's going on in those areas a little bit.

Yeah, so outside of that surgery center linkage and bringing it in, we're seeing vision had been very, very hot amongst investors. We're still seeing a lot of activity, and we're actually seeing a number of the platforms trade their second or third time, meaning the initial private equity fund that invested has now moved on and sold the asset or sold its partnership to another investor. That was bringing a lot of still there seems to be a lot of busted opportunities in the space. Maybe it's not as on fire as it was a couple of years ago, but still a lot of interest. Orthopedics actually started a lot of the investment after Vision. We still see a lot more of the green space in front of folks. Orthopedics also has the hospital dynamics that Vision doesn't have. That's one thing that private equity investors are spending time thinking about is, what do these relationships look like? If we find the right orthopedic partner, do we also have to worry about whether we have the right hospital partner? How much of the surgeries are still being done in the inpatient or hospital outpatient setting versus surgery centers or other pain management type work?

Scott. So orthopedics is still that working with local health systems, maybe in a way that vision isn't, and that presents some additional investor challenges.

Thank you very much for asking what's going on in those areas, and there's been an explosion of orthopedic-driven private equity platforms. What else are you watching, Tim? What else can you fill us in on?

Let me just end with one last that's different than some of the others we've talked about today, and that's compounding pharmacies. A number of the investors are trying to diversify within healthcare, and we talked about that the last time, payer, service lines, and investments. Compounding pharmacy, we're seeing in some ways similarly. It's at least not as driven by local patient dynamics in the same way that vision, orthopedics, urology, et cetera are for some of our investors, but it is still very direct medicine. In fact, some of the compounding pharmacy, the types of drugs they're dealing with are higher intensity and more regulatory burden, whether it's from the FDA or whatnot. But for those trying to diversify, compounding pharmacy has really been a great opportunity for them to get away from the physician space or entirely be in the physician space while still investing in healthcare. We're seeing a number of these types of deals dealing with things from everything from consumer-friendly forms of pills, whether that's chewable, or nasal sprays as compounding pharmacists can help patients that maybe aren't able to take the normal pill form and take it in a different way, to also coming up with new roles and partnerships to get to patient treatments that maybe weren't otherwise available.

Oncology, Scott, again, the older population, higher incidence of cancer is part of this drive. There's a lot of treatments needed in that space, almost compounding the medication, making sure it's right for the individual patient. I think there's some interest in the next few years as advancements continue and you hear about things like personalized medicine, if that happens and certain treatments get even more individualized, it's going to take compounding pharmacies to put those specific drug cocktails together for individuals. And again, oncology is at the cutting edge of that. And so it's driving a lot of interest in another subsector of health care that's maybe a little bit outside of the physician space.

Now it's fascinating to see at comparming disease has gotten in so much trouble a few years ago. Now they seem to be back at it and positively so. Not a negative on it, but at some point, they ended up in lots of trouble a few years back. And now it seems to be, again, a part of the universe and a needed part of the universe. So fascinating. Tim Pride, Parkland Maguirewood, brilliant lawyer. Thank you so much for joining us today and talking about some of these areas in health care and private equity and what's going on in the investment area in these areas. We talked about post acute care, vision services, orthopedics, surgery centers, and a lot more primary care as well, especially in compounding pharmacies. It's a lot there. Tim does a great job following it. There's a white paper at Maguire Woods that anybody could access. T. Friday at Maguirewoods. Com, or we could reach S. Becker at Maguire Woods, or S. Becker@beckerthealthcare. Com. Thrilled to get to that white paper. Thank you all for tuning in, and thank you to Tim Frey for joining us on the Becker's Healthcare Podcast, Becker Primary Equity Podcast.

Thank you, Scott.