Becker's ASC Review

17 Thought Leadership PE will return. The question is, 'When?' By Eric Oliver B efore COVID-19, physician practices were closing deals with private equity firms at all-time high valuations. e virus and global shutdown derailed the PE market in the short term. Firms and sellers will need to accept significant changes to get deals back on track. e form these deals could take will be uncon- ventional by nature, but the amount of capital the firms are sitting on will lead firms to get deals done, albeit on an adjusted timeline, said Edgemont partner and managing director Luke Mitchell. "Deal activity is going to slow down mean- ingfully," Mr. Mitchell said. "Seller valuation expectations do not just adjust overnight, and somebody who thought they were sitting on a $100 million business three months ago isn't going to sell their business for half of that." Mr. Mitchell expects firms to be flexible when it comes to approaching new deals. He expects some specialty practices may be more open to accepting unconventional deal structures with terms that'll make up for lost valuation, but that the majority will be unwilling, at first, to adjust their expectations of the market. "[Office-based specialties] are only sellers in certain circumstances," Mr. Mitchell said. "ey always have the option of continuing to run their business, and … can also practice really late in life. ey are not going to hand those businesses over at a five-times valuation." Mr. Mitchell expects many clinician groups will wait out the re-opening period and build their valuation back up over the coming months. For deals that do close, the structure will look to minimize the damage done to valuations over the last two months. Some deals may even alter the ownership structure to give the clinician groups a bigger slice of the minority ownership pie and keep them involved in the practice longer. Clinician owners who take these deals "bet on themselves," in efforts to increase their valuation and sell more owner- ship percentages in the future. Buyers looking for an advantage in competitive specialties will be aggressive by looking past or "step- ping over" the short term volume losses from the pandemic, knowing most businesses will return to normal volumes. The gastroenterology market While the last two months have been devastating to gastroenterology practices, colonoscopy de- mand and procedure volume will remain similar and return to pre-COVID-19 levels because of the nature of the procedures. "e number of people getting colonoscopies isn't going to change year over year," Mr. Mitchell said. Investment into the GI space continued in 2020 before grinding to a halt at the emergence of COVID-19. Miami-based Gastro Health made a pair of acquisitions in Florida and another out-of-state acquisition in Virginia to kick off the year; Dallas-based GI Alliance expanded its presence in its home market of Texas; and Webster Equity Partners established a new plat- form by partnering with Memphis, Tenn.-based Gastro One. en the deals stopped. While established platforms in the space have funds to spend, and a greater pool of clinicians are interested in exploring what a deal would look like, several firms believe deal activity is going to take time to recover. n NAPA anesthesiologists to quit servicing Commonwealth Health System over $5M payment dispute — 5 insights By Eric Oliver N orth American Partners in Anesthesia pulled its anesthesiologists from Commonwealth Health System's hospitals June 30, after a dispute around reconciliation payments, The Citizens' Voice reported. What you should know: 1. NAPA said Berwick, Pa.-based Commonwealth Health reneged on its agreement to pay for work that exceeds the base pay described in the service agreement. NAPA said the health system owes it $5 million. The two parties entered into an agreement in March 2019 for Commonwealth to pay NAPA standard fees with quarterly reconciliation payments. In the agreement, Commonwealth was expected to pay the difference if work performed exceeded what the fee cov- ered, and NAPA would refund Commonwealth if the work performed was cheaper. 2. Commonwealth accused NAPA of being greedy and said the group "overbilled" the hospital. 3. As a result, NAPA will no longer serve any of the health system's operating rooms and surgery centers. 4. Commonwealth has several strategies in place to deal with potential disruptions and believes service will continue uninterrupted. 5. Commonwealth clinicians are fearful. Scranton, Pa.- based Delta Medix ENT surgeon Mark Frattali, MD, said, "This is a disaster waiting to happen, and it's going to be a tremendous safety issue. It's going to paralyze the surgeons and patient care if this overhaul is allowed to happen." n

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