When Dave Terry started his career in healthcare three decades ago, he noticed something odd and disturbing. The fee-for-service model meant doctors were paid for quantity, not for quality or cost effectiveness. Since then he’s been working to do something about it: for the first twenty years at American Practice Management, then Partners Healthcare and Harborside Healthcare. He made progress, but also learned the limitations of acting against entrenched interests.
For the last decade he’s gotten even more serious, co-founding Remedy Partners in the wake of the Affordable Care Act and then Archway Health, where he is CEO. Archway helps physicians jump into the meaningful risk-based payment models that are finally on offer from the Feds and private carriers.
I compared Dave’s quest to the Thirty Years’ War, but reminded him that there was a Hundred Years’ War, too, so he better gird himself.
Weekly show features interviews with healthcare entrepreneurs and experts
BOSTON, October 14, 2020 – eTradeWire — Health Business Group (HBG), a healthcare strategy consulting boutique, launched a weekly podcast series titled HealthBiz with David E. Williams. Hosted by HBG’s president, the podcast presents interviews with healthcare business and policy leaders. Williams’ unique interview style fuses deep healthcare insight with engaging humor.
The first episode, Data Will Eat Public Health featured Shahir Kassam-Adams, a healthcare entrepreneur at Datavant. Kassam-Adams described how steps taken after 9/11 can inform our post-pandemic response. He explained how the collection and analysis of vast amounts of data has helped identify and mitigate threats, albeit at the expense of privacy.
For public health, there is an opportunity to leverage and synthesize disparate electronic data while protecting privacy. “Almost everything about public health is information based,” said Kassam-Adams. “The power of that information is going to make new public health professionals out of information technology professionals, or public health professionals will step up to become information giants. Data is going to eat public health.”
Guests on subsequent episodes include Dr. Surya Singh (entrepreneur and CVS executive), Daniel Kivatinos (DrChrono co-founder), Ahmed Albaiti (Medullan CEO) and Dave Terry (Archway Health CEO).
“Healthcare is critically important to the economy and to everyone as individuals. But it’s easy to be consumed by jargon and bore people to death when discussing the complexities and nuances,” said Williams. “I invite really knowledgeable and engaging people to HealthBiz, where we provide clarity and depth to inform and provoke.”
HealthBiz is an outgrowth of the Health Business Blog, where Williams has written thousands of posts about healthcare business and policy and conducted more than 100 podcast interviews since 2005.
Health Business Group is a leading strategy consulting firm advising companies, investors, and non-profits in healthcare technology, healthcare services, and pharmaceutical services. Client service professionals average more than 20 years of healthcare consulting, industry and start-up experience. Visit www.healthbusinessgroup.com for more information.
David E. Williams is president of Health Business Group and an independent director of Clerio Vision, Home Care Delivered, and Vericred. He is chair of Medullan’s advisory board. Previously he worked at Boston Consulting and LEK Consulting. He holds an MBA from Harvard Business School and a BA in Economics from Wesleyan University. Follow David on Twitter @HealthBizBlog
You’re a middle market private equity firm that’s just signed an LOI with a profitable and growing healthcare company. What started as a proprietary deal turned into a competitive process and you had to stretch toward the top end of your valuation range to win. Now you have a few weeks to complete the due diligence process and close the deal. A boutique consulting firm specializing in M&A for healthcare companies may be your best bet to assist.
What help do you need?
When middle market PE firms hire consultants for commercial due diligence of healthcare companies they usually have a few objectives:
To generate insights on topics that are critical to the investment thesis. There are often macro questions, such as the fate of healthcare reform after an election or the speed of adoption of a new technology. Then there are questions about the competitive landscape and specific competitors, and about market demand and the needs and satisfaction levels of key customers. Sometimes the potential buyer also needs an assessment of the management team and company processes. A PE firm can do some of this work itself, but often finds it useful to leverage additional resources and skill sets, such as the ability to extract valuable information from players throughout the industry on an unnamed basis.
To gain access to an objective third party that can play the role of a constructive skeptic and thought partner, making sure that investors don’t let their desire to close the deal cloud their judgment. The best consultants have the instinct, gravitas and wisdom to challenge consensus thinking and are willing to point out potential pitfalls in a deal and to counsel against proceeding when needed, even if the potential buyer doesn’t seem to appreciate it at the time.
To prepare for a fast start after closing by generating and validating compelling strategic initiatives and tactics.
To get as much high quality support as possible in a tight timeframe while staying within a reasonable budget.
What firm to hire?
Premier strategy consulting firms such as McKinsey, Boston Consulting Group, and Bain have strong due diligence practices serving PE firms. There are solid reasons for their success. These firms can:
Mobilize large teams of highly intelligent consultants around the world to gather and analyze data. They hire the best and brightest from business schools and undergraduate programs.
Leverage their knowledge base and industry networks built from hundreds or even thousands of relevant client assignments. Their proposals often reflect the perspectives and data they have assembled over the years.
Produce high-grade graphical presentations, with professional staff dedicated to consistent, visually pleasing outputs.
Offer their brand name as a seal of approval, which is reassuring to investment committees.
But boutique firms, typically consisting of 3 to 20 professionals, represent a superior due diligence option for middle market private equity firms. Why?
Consultants at boutique firms are often former senior professionals from the big, premier firms. The consultants performing the data gathering and analysis are frequently more experienced than the partners from the big firms, who are mainly selling and managing client relationships while fresh graduates staff the cases. A boutique firm’s consultants don’t need time to get up to speed, which is crucial when the project is only a few weeks long.
Boutique firm consultants are generally better than their big firm peers at thinking like investors and board members. Many gain this perspective by serving as board members of PE or VC-backed companies and as LPs in PE and VC funds. This profile makes it more likely that the consultant will approach the work with a practical, focused mindset, crisply addressing the questions that really matter. This differs from the classic strategy consulting project that employs elegant but often theoretical approaches. In select cases a consulting team member from a boutique firm is appointed to the board as an independent director post-closing, something that is generally not possible with a big firm.
Certain boutique consultants are entrepreneurial and commercially astute. When appropriate, they highlight opportunities for post-closing business development and partnering to help the new owners hit the ground running. Compared with the big firms, there are fewer constraints on introducing clients to one another and aligning with the PE firm for commercial success.
Professional fees for the engagement are usually a fraction of what the big firms charge. There are multiple reasons for this. Boutique teams are smaller and flatter because there are no trainees. Consulting veterans don’t need mid-level managers to watch over them. Everyone on the team pulls their weight; no one is there just to boost the billings. There are fewer fixed overheads like HR, administrative staff and downtown offices to cover, and boutiques are not charging a premium for their brand name. All this means that boutique firms can pay staff as well as the premier firms while still offering compelling value to clients.
I co-founded the company that became Health Business Group back in 2001. At that time most of our clients were former colleagues from my days at Boston Consulting Group who had moved into PE firms or senior management roles at companies. After being on the inside they understood our value proposition. Over the next few years we attracted new business from referrals and networking. Recently, we have been pleased to receive a number of qualified inbound inquiries from our website contact page, which represents a change in how clients find consultants. Middle market PE shops are searching the web specifically for boutique healthcare consulting firms to perform due diligence. After interviewing us and checking our references, they often bring us on board and are pleased with the working relationship and results.
Private equity firms investing in middle market healthcare deals face serious challenges in commercial due diligence. There are many companies that appear attractive, with $5M+ EBITDA, increasing revenues and enticing stories of how industry dynamics, customer relationships, technology differentiation and management excellence will take them to the next level. In the $3 trillion US healthcare industry, there are numerous billion dollar niches offering strong returns to companies that ride the wave of transformation.
Generalist investors and even healthcare specialists need support when performing due diligence in the middle market. The companies are large enough that their businesses are often complex, but small enough that there is little public information about them. Often the management team and prior investors may not have a good sense of customer demand and competitors. In addition, investors face information asymmetry, making it difficult to discern whether the management team is as confident as they seem or whether they have sensed a peak and are trying to bail out at the top.
The Affordable Care Act has set off a tremendous era of change in the industry, and diligence needs to reflect the latest understanding of how the ecosystem is changing. For example, the shift from fee-for-service to value based payments upends many business models but enables new ones. Provider consolidation can dramatically change buying dynamics as sales move to the enterprise level. The growth of public health insurance exchanges increases health plans’ appetites for cost-saving approaches.
Middle market investors have to be savvy about how they invest resources in diligence, so they often turn to boutique consulting firms that provide high value at a moderate price. In our consulting practice at Health Business Group, some of my favorite work is helping middle market private equity firms and strategic buyers test investment hypotheses and improve clarity about a company’s prospects through commercial due diligence. We interview the company’s customers and competitors, consult with industry analysts, and leverage our internal knowledge base and expert network.
Over the years we’ve worked with private equity firms and strategic acquirers, performing diligence on everything from wound care to medical benefits management to teleradiology to medical cost containment to pharma sales and marketing to healthcare information technology. Many of these deals have been completed and have resulted in long-term success. But we are unafraid to speak up and advise when a deal does not make sense, even when that’s not what our client wants to hear. Our closest relationships are with clients that we’ve steered away from bad deals.
Partners is following through on a plan to consolidate its North Shore operations into Salem Medical Center, a move that will result in the closure of Union Hospital in Lynn, 6 miles away. I’m quoted in the Boston Globe (Partners to close Union Hospital in Lynn).
Here’s what I had to say:
David E. Williams, president of Health Business Group in Boston, said Union’s closing is hardly surprising, since many community hospitals –particularly those that treat high numbers of low-income patients and rely on government reimbursements– are struggling financially.
He said Partners, the state’s largest health system, is closing the hospital more gently than other health care companies without as much money; keeping an emergency room open for three years is a big concession to community concerns.
“I do largely buy their logic,” Williams said about Partners. “On the one hand, nobody likes it when their local hospital closes. On the other hand, considering how high health care costs are, it can’t say the way it is.”