Background and challenge
Current trends in the U.S. healthcare market had led to a resurgence in the physician practice management (PPM) model, and orthopedics potentially represented an attractive opportunity for PPM companies. Forecasts for procedure volume and physician collections were reasonably strong, and the proportion of physicians employed by hospitals was relatively low.
As a result, a global investment group with extensive experience in the hospital and healthcare sector was considering making an investment in an orthopedic PPM company. L.E.K. Consulting was enlisted to assess the market for orthopedic PPM companies, the target’s current business model and future outlook, leadership and operational capabilities of the Target, and potential for synergies with the investor’s current domestic and international investments.
Approach and recommendations
To develop an objective assessment of our client’s investment thesis, we did the following:
- Provided historical context for the boom and bust cycle of PPM and identified key success factors of PPM companies in the current macroeconomic healthcare environment
- Assessed the orthopedic market and how delivery is structured and how it is evolving, and identified the runway for PPM model growth within addressable physician subsegments
- Conducted target site visits, interviews with target management and physician partners, and competitive research to determine that the target presented a competitive value proposition and appeared to outperform competitors in terms of quality
- Determined the target’s business model and plans were in line with PPM key success factors, best practices and scalability requirements
- Identified conditions and requirements to scale and achieve target management’s long-term revenue projections
- Identified synergies with the client’s domestic and international investments, including growth potential, cross-leveraging of best practices and business/operational model elements
- Reviewed the IT capabilities of the target, and identified potential alternative systems to support further growth
- Assessed target’s key personnel risk, including evaluating historical retention rate and physician satisfaction
Based on market research and analysis, we suggested the target has an attractive model that is on-trend with the evolving healthcare system. The target’s Management Service Organization (MSO)/operational platform can sustain future growth in the short term. In the long term, however, more significant investment to further build out its MSO/operational platform and a sophisticated approach to market selection is likely required to achieve the target’s more aggressive growth targets. We identified potential strategic initiatives to achieve these growth targets.
We successfully assessed the target’s business through research and thoughtful analysis. Based on our diligence, the client was able to understand the orthopedic PPM market and outlook for the target, enabling our client to make an informed investment decision. Our client also benefited from our experience and expertise throughout the transaction process.