December 22, 2021
Most people would prefer not to go to work under the burden of repeated pay cuts. Yet, for most independent orthopedic physicians and their staff, this has been a fact of life for the past five years.
Is the private practice model still viable in an era of decreasing reimbursement, rapid technological change and, now, the third year of the pandemic, which has further increased economic pressures?
U.S. physician markets are undergoing a dramatic restructuring. Traditional solo or small physician practices are being replaced by large multi-speciality group practices. A new wave of technology, which includes AI and connected devices like healthcare virtual assistants, is also reshaping the industry, from how care is provided to how documentation is done.
According to a recent PAI-Avalere Health Report on Trends in Physician Employment and Acquisitions of Medical Practices in 2019-2020, only 30% of physicians in the United States practiced medicine independently at the beginning of 2021. Seventy percent are employed by hospital systems or private equity firms and health insurers.
The global consulting group, McKinsey & Company, surveyed physicians nationally in both 2019 and, again in 2020, six weeks into the pandemic, to understand physician sentiment. Nearly half of the physicians surveyed in the six weeks after the pandemic was declared said they had less than four weeks cash on hand.
More than two-thirds, (68%) of those who were looking for partners listed financial support as the primary driver, the report said.
In a study in International Orthopaedics, Matthew J. Best, M.D., and colleagues estimated that hospitals lost a staggering $11 -$12 billion in reimbursement and $3 to $4 billion in net income due to canceled elective musculoskeletal surgery in just eight weeks of the COVID-19 pandemic.
According to publications in the Journal of Bone and Joint Surgery, orthopedic practices spent more than $33,000 per month per surgeon to pay for such basic, essential services as medical malpractice insurance, capital expenditures and ancillary patient services, during the pandemic.
Too often the drive to value healthcare boils down, in practice, to cost driven, programmatic, even industrialized healthcare. It’s worth remembering that the historic patient care innovators—The Mayo Clinic, The Campbell Clinic, The Rothman Clinic, among many others—were independent clinics founded by individual physicians with unique, singular visions of research and patient care.
Is there still room for the next generation of Mayos, Campbells or Rothmans—who will keep the spirit and value of the independent orthopedic clinic alive—while still incorporating emerging advances in orthopedic care?
R. Michael Meneghini, M.D., Professor of orthopedic surgery at Indiana University School of Medicine, author of more than 150 scientific articles on hip and knee replacement, winner of the prestigious Mark Coventry award for the outstanding fellow in Hip and Knee Adult Reconstruction at Mayo Clinic, recently announced the M2 Orthopedic Partners project which is designed to keep what is valuable about the independent clinic alive and well, while also providing the capital, systems and research to help it thrive.
The name of the new company is M2 Orthopedic Partners (“M2O”)—which stands for “Motion and Mobility,” which are the two essential aspects of patients’ lives and which, when they deteriorate, bring patients to orthopedic surgeons for medical and surgical care.
“M2 Orthopedic Partners was co-founded by our CEO, Marshall Maran and me”, explains Meneghini. “Maran was previously the CEO of Muve Health, an Ambulatory Surgery Center (ASC) model which combined the ASC with separate recovery suites. Functionally a hospital, but more efficient and cost-effective.”
Meneghini had had a chance to see Maran in action as a member of Muve Health’s advisory board and when Maran called Meneghini back in 2019, he listened. “I was really impressed with him as an innovative CEO and then Maran called me one day and says, ‘Hey I have this unique opportunity to create an innovative orthopedic practice management company with a group called Archimedes Health Investors.’”
Meneghini, who had been watching the flow of private equity-backed enterprises into orthopedics, was intrigued but had some thoughts about how to preserve what, in his view, was both necessary and valuable about the independent orthopedic clinic.
“I am passionate that our most important goal is to maintain a focus on high-quality patient care. Most independent physicians have anxiety with consolidation under large healthcare systems or private equity backed enterprises that they’ll eventually state, ‘Uh oh, we lost our autonomy’.
“We wanted M2O to be a unique partnership between the organization and the physician owners that preserves their autonomy where it matters the most in terms of quality patient and surgical care. In fact, I wanted M2O to base the business on people who focus on quality, who are already achieving high net promoter scores, spectacular patient satisfaction rates. Start there. And then, with that as the foundation, augment the practice.”
“In addition, we wanted M2O to focus on practices that are committed to the academic mission, which is a bit unusual in the private equity space. I think we're visionary that way and some may not agree with this philosophical vision. If done properly, it can be significantly positive. A commitment to academics will likely cultivate and educate a variety of learners that include medical students, residents and fellows—which will evolve into a high quality-of-care feeder system.”
Maran agreed and M2 Orthopedic Partners, with significant backing from the Archimedes health investors group, was founded.
“Consolidation is a natural evolution of where healthcare is,” explains Meneghini. “But I do believe that the winners in this will be groups of physicians who are key leading experts in patient care, who consolidate together. Among our goals is orthopedic research, not only on orthopedic nuts and bolts, but also orthopedic economics and orthopedic integration. Start raising the bar.”
About six weeks ago, M2 Orthopedics, which decided to headquarter in Boulder, Colorado, announced that it had raised $65 million from Archimedes Health Investors headquartered in New York City along with Heritage Medical Systems and The Firmament Group.
The funds were used to acquire Arlington, Virginia-based Anderson Orthopaedic Clinic, an associated ambulatory surgery center and provide enterprise capital. Given Meneghini’s focus on research, no surprise, the Anderson Orthopaedic Clinic houses the world-famous Anderson Orthopaedic Research Institute.
“We recently acquired the Anderson Orthopaedic Clinic, a seventeen-member extremely talented world-renowned orthopedic group somewhat struggling in the complexities of the modern post-COVID healthcare environment. They were looking for a partner to help them grow and expand and needed capital and resources to do so. They wanted to manage the back office better, look at investing in new practices, investing in physical therapy, MRIs and so forth,” explained Meneghini.
“While, as a business enterprise, like most clinical practices they were a “flow through” business model, meaning that they were earning money, paying staff but not necessarily saving money for capital investment or growth. They needed us to do that for them.”
But, again, as Meneghini made clear when we interviewed him, the investment in Anderson was more than a financial transaction. “I was interviewing one of our young potential foot and ankle surgeons,” said Meneghini. “He's currently in fellowship and looking at joining Anderson Clinic and we talked about growth. He asked me, ‘How big do you want to be in that market?’ I said, ‘Well we only want to be as big as we can achieve to maintain top tier quality’ and that takes focus and discipline.”
“Over the next few years, we're going to hire top talent. We have a fair number of surgeons in fellowship now. That’s the great thing about an academic practice. It’s like having a triple-A ball team right here, where we can pull top talent.”
For both Meneghini and Maran, these investments in independent clinics are not just about scale—it’s about keeping the spirit of advancing patient care alive and moving forward. “We're not gonna acquire or hire just for the sake of it.”
At Anderson, Maran and the M2 team have started implementing their vision. Anderson is now able to fund urgent care centers, MRI, physical therapy and other revenue generating opportunities they need to stay financially strong while also preserving Anderson’s unique research commitment and patient care vision.
The other thing M2O is planning to do is acquire and expand ambulatory surgery centers from Anderson’s base in Virginia. M2O has acquired an ambulatory surgery center with one operating room and two procedure rooms and is planning to build another one that has four to six operating rooms.
Finally, and this may well be one of the most important elements of delivering on the promise of autonomy—bargaining power with the payers. “One of the primary advantages of consolidation is that it can give medium to small groups ancillary incomes, ASC ownership and subsequently, some bargaining power with the payers. With scale and ancillary income in the form of Ambulatory Surgery Center ownership you get a seat at the table, an audience with the Anthems or Blue Crosses.”
By adapting to leverage new partnerships and new technology, orthopedic practices can not only survive, but also grow for years to come.
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