The back office of a medical practice is like the offensive line on a football team: they do the job no one else wants to do.

On this episode of The Corner Series, host Geoff Cockrell is joined by MedHQ president Erik Miller to discuss how outside back office support for areas such as HR, accounting, and credentialing can improve and streamline a medical practice of any size. Tune in as Erik discusses how both smaller practices and full health systems can benefit from outside back office support, the “frenemy” relationship between ASCs and large health systems, and how artificial intelligence can benefit the medical community at large!. 

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This podcast was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this podcast, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in the podcast. The views, information, or opinions expressed during this podcast series are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This podcast should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.

This is The Corner Series, a McGuire Woods series exploring business and legal issues prevalent in today's private equity industry. Tune in with McGuire Woods partner, Geoff Cockrell, as he and specialists share real-world insight to help enhance your knowledge.

Thank you for joining another episode of the Corner Series. I'm your host, Geoff Cockrell, a partner at McGuire Woods. Here at The Corner series, we bring together thought leaders and deal makers at the intersection of healthcare and private equity and talk through a lot of the trends of the day, issues that healthcare companies face and just navigating the market.

I'm thrilled to be joined today by Erik Miller, who is President at MedHQ. MedHQ does a lot of important back office work for providers and health systems. Erik, maybe give a little introduction of yourself and of MedHQ before we jump into some questions?

No, thanks, Geoff, for having me today and looking forward to the conversation. MedHQ is an organization that... I always tell people we do the things that nobody else wants to do. We specialize in back office support predominantly for physician groups and outpatient clinics, and that encompasses HR, finance, accounting, credentialing, clinical staffing. We've just added revenue cycle in the last few months as well. Credentialing plus an advisory firm, Avanza Healthcare Strategies, which works with a variety of clients on developing their outpatient and ASCM physician strategies.

A lot of the private equity funds that I work with have internal resources that as they're talking to targets, that's part of what they're selling. Can you give me the value proposition of MedHQ, whether you're selling to an independent physician group of some scale or private equity backed MSO?

I think in both scenarios, Geoff, we bring a lot of scale and expertise in some of the more complex back office functions, whether it's an independent practice or if it's a private equity backed venture. I always see that you've seen a lot of these deals and I've seen a lot of these deals for the services that we provide into these businesses. Most of the time, shareholders don't make a lot of money by having great HR functions vertically integrated, particularly in the healthcare space. So we bring a lot of scale and expertise and help our clients achieve what their strategy and what their goals are, while we take care of the more complex parts of the operation.

What are some of the pain points of a larger practice as it relates to some of the stuff that you do?

I always say it's the basics of how do we turn the lights on every day, but it's larger physician groups. I think same as small physician groups or PPMs, but aligning your payrolls and your benefits schedules and your credentialing and tying that even together back for your finance and your accounting functions that relates to your payer contracts. It's just providing scale in those areas and really helping them focus more on the strategic end of their business, not the blocking and tackling that happens in the background.

One of the broader pain points that I encounter with physician practices or private equity-backed management companies that are connected to physician practices is just a lot of headwinds in the form of a tight labor market. What is MedHQ's role in facilitating better labor relations? Are you guys able to take some of the pressure off of those dynamics?

Think about it as we're delivering more HR at scale. We have recruiting organization as well in a VMS program for those vendor management programs, or use industry vernacular here, but that helps them with recruiting, helps with HR onboarding. We're managing all the benefits from top to bottom, whether it's the health insurance, recurring a plan to the more simple long-term disability, short-term disability retirement, and just piecing those multiple vendors and multiple programs together and one scalable product.

I think on the recruiting side, everywhere in healthcare I think is struggling from a shortage of just about everything. We tend to focus more on the clinical side, I think as an industry, but just talent in general. There's just a shortage in the healthcare industry, so we provide scalable solutions to those providers to help them have at least something of scale so that if you're recruiting an OR nurse for your ASC, we can pull together a program where 20, 25 different clinical staffing agencies may be able to help recruit that individual as opposed to the ASC standalone probably would've a hard time getting three or four to take a look at a job like that.

How involved in credentialing with payers, that's often a difficult either gating or the long pole in the tent on getting a transaction closed? Do you take over a lot of that functionality as well?

We'll do a lot of the privileging, particularly when our main area focuses. If you have physicians that are moving into an ASC environment, working to get the physician privileged at the facility in order to be able to perform cases, which I'm sure as you've seen that getting credentialing in line is difficult at the physician practice level depending on how many facilities are actually practicing that, but then just trying to get all those physicians privileged at a new ASC, whether it's an existing partnership or de novo can be painstaking.

I know you do a lot of this work with health systems. Are there pain points similar? They obviously are often a bigger apparatus and may have some of this functionality internally. Are there similar pain points at the health system level?

Health systems, I think you're seeing very similar challenges. Health systems I think tend to face multiple decisions, whether it's employed physicians or particularly in their outpatient networks, and that is are they going to manage it in-house? Are they going to utilize a management organization? How are they going to partner with the physicians when they look at what their strategies are? And so we work with health systems predominantly starting with our advisory firm and they're with them on day one as they start to put those strategies together. And then we bring parties to the table that offer capabilities that we don't, such as some will decide they want to utilize a management organization and we'll work with them to find a management organization that's aligned with what they're looking to do. And in other cases, if they want to manage it in-house, we help support that team in very same way and setting up all the infrastructure that's needed to support that outpatient workforce.

How involved in value-based contracting is MedHQ? Do you guys serve a function that can help enable value-based contracting by provider groups?

That's a great question. We provide mainly administrative support functions. We have advisory services that engage on the payer contracting side and have some great experts in that area, but as an organization, we don't typically engage job. Because we're not an owner or a manager of the facility, we don't directly engage on the payer contracting side except for just advice and counsel.

And maybe give a little color of what your advisory services functions are?

Yeah. The advisory organization, which goes under the brand of Avanza Healthcare Strategies, they're really working with physicians, PPMs, hospitals, health systems and establishing what their ASC strategy is going to be, and then walking through the steps that are needed in order to set up a successful ambulatory surgery center strategy network. I've got great experts in that side of the house and with that business that are really engaged much more on the strategic functions of how those entities get set up, that translates over to our services side of the house as we're providing on the services side, much more for the blocking and tackling day-to-day grind and supporting those businesses over the long haul.

I do more work with larger private equity backed practices and the whole construct around ASC strategies as it relates to health systems is that they're always a little bit of frenemies. There might be roles for them to be doing things together. Part of the strategy may be to pull procedures that had been done at the hospital, pull them out of that more expensive setting into a setting that is probably cheaper overall and be more beneficial for the practice. How involved in those kinds of discussions from the practice side as opposed to the health system side you get and are there some pain points there that you encounter from an advisory perspective?

Yeah, that's a great question. I think hit it spot on in terms of that some of these relationships can be more frenemy, and that is you have in most markets, you have a hospital or a health system that says, "Okay, we need to get in involved in the outpatient game." In some of those markets, you already have larger physician practices or PPM roll-ups that are already in market that are looking at ASCs. And I think what your comment would be on this, Geoff, but I think we're always trying to find ways that they can work together constructively to build a network that they're working together as opposed to working opposed to each other, in which case you end up with potentially two ASCs that are competing for patient volume that could potentially be coming out of the hospital simultaneously. It's a balancing act, but I think we're always trying to find ways that we can keep everybody engaged and working in the same direction in partnership with one another.

And sometimes that will be pulling procedures out of the health system, and it's an interesting dynamic in the current environment. There's lots of scrutiny around larger practices' ability to extract higher rates and concerned that that is a drag on the entire system, but I find that that calculus is often superficial and while a larger practice may be able to get higher ASC reimbursement than either a smaller practice or maybe they're partnering with a national ASC chain. That may look like a cash grab, but in reality, the alternative would've been to just do all of those procedures in the hospital, which would've been probably the most expensive setting to have done anything at, and that sometimes those higher rates that a larger practice can get are the vehicle that enables the development of an ASC that is the catalyst to moving the procedure to a lower cost of care setting. So the whole analysis of what is the benefit of some of these larger practices can be a little bit more nuanced than it might appear on the surface.

Yeah. I think one of the areas that you really see that is, particularly in orthopedics. There's been a lot of statistics published in the ortho space is you may be able to see the top line revenue shifting from inpatient to outpatient, but the profitability of most orthopedic procedures that are moving into an ASC, it's much more profitable in the ASC than it is inpatient. And so on the one side, you potentially could have a hospital looking at say, "Well, gee, I've got revenue going out the door," but if you're partnering in an ASC profit margin in your bottom line are actually going to be better by those cases moving.

Both more profitable to both the health system and the practice in that partnership, and also potentially lower cost overall, which given the primary aims of the entire health system, that can still be... Even though it's going to be higher reimbursement in the hands of the practice, it might be lower overall cost. It can just be more complex.

Yeah, absolutely. One thing that was interesting, it's outside of our advisory that we saw... Well, one of the member of our advisory teams received a notice from their insurance company that they had a procedure that was up and coming and there was encouragement from the payer to actually research having this procedure done at an ambulatory surgery center, which was the first time that any of us had seen that on a marketing piece that was sent somebody's home.

Very interesting to see. It's hard to see that sort of lever as being the best way to move where things are going to be taking place, but I suppose anything that can move things to a better cost is worth looking at.

Yeah, a lot of different strategies being thrown at the wall these days, I think, to get things into lower-cost settings.

Are you encountering some of the headwinds that some of the provider consolidation is encountering, whether it's caused by tighter labor markets, caused by higher interest rates, caused by antitrust pressure? Does some of the headwinds around upmarket consolidation translate into your arena as well or are you somewhat immune from that?

We see, I would say that at least to today, we've stayed relatively immune from it just because the blocking and tackling administration is something that needs to happen. HR and payroll and credentialing, and I'd say the boring things that we do are things that need to happen whether you're growing and growing via acquisition or if you are no longer growing the acquisition and if you're divesting parts of your business, there's just relevant pieces on both sides of the market for us.

I think the areas that we tend to see that maybe impact our business is relationships switching from if a physician group is employed by a foundation at a hospital and they're going independent, how do we work with them? It's a transition from working with a group that's independent to a group that is affiliated with a hospital or health system today, and we certainly do see some of those movements, both some consolidation and then also some facilities going much more independent in their future as well.

I also end up speaking with a lot of practices that have gotten to a certain scale and they're thinking about positioning themselves to either be a platform for a financial investor or be a target for a larger strategic, and some of the things that they're often thinking about is whether or not they should be making investments that will professionalize a lot of their functions and make them more attractive, or is doing that just incurring expenses that are going to be a drag on their EBITDA to professionalize in ways that they may not even get credit for in the context of a sale. How would you advise a larger growing practice on that topic? And relatedly, is there a size break point where you need to be thinking about some of those things and a size below which you should probably not be incurring those expenses?

I'll comment on that first. I think that's probably more art than science because I think depending on which specialty you're in, those numbers probably change. One of the things that... And I'm sure Geoff, you've seen this in the PPM market, is that I think for those groups that are looking to position themselves for a sale, I would say is that having good processes in place and good... whether it's policies, procedures, processes, your back office, I think having it function well is important. I think making strategic investments, unless you're going to be an anchor investment for a new PPM, private equity backed PPM, I think a lot of those organizations have playbooks in place, so I think dollars invested in building a more solid foundation are things that probably in the long run end up being unplugged anyway. I think looking more at the strategic end of what's the strategic value of my practice? What corner of the market do I occupy? Why is that strategic? I think are the conversations that would tend to encourage people to think more about than think about your infrastructure investments.

One of the thought processes that those practices are going through or when I'm talking to them, they're looking at is doing acquisitions and proving out the thesis that this practice can grow through acquisition and that they can then integrate those now disparate parts and making some investments back office support can be a real catalyst to proving out that theory because the days of a practice being able to get to a certain scale, do a few acquisitions, not really have them integrated and still receive value on that mishmash that's pushed together in a sale, those days have pretty quickly gone away. So if you're trying to build to a little bit of scale and prove out the theory of acquisitions, you also have to prove out the theory of integration, and that's where I see some of these practices running into difficulty is they don't have the back office infrastructure to prove out that theory

From that angle, we do see that a lot of those functions for us are just really plug and play functions. And so when we work with clients, it's why try to recreate the scale that we already have? And I think the value prop of just being able to make that turnkey. Now, that doesn't mean we have a lot of scale and things like payroll, but obviously switching schedules and different pay programs inside physician groups make even the simplest function sometimes a little bit more complicated, but I think providing that on a turnkey basis I think adds a lot of value to groups that are in that particular area.

I work in a profession where we're in the midst of figuring out the extent to which AI is a threat to our industry or a tool for our industry, and depending on the day, you may conclude that, oh, this is going to make a lot of things better, or alternatively, it's going to ruin your entire industry. Is AI coming for your area too, or is it going to be a tool that enables you to be better?

I think we see AI as a tool that's going to enable us to be better. I think AI, it is on the surface, I think a big subject and you're seeing more and more of it just from an application perspective, but I think in healthcare, because healthcare is a people-facing business that providers are working with patients, patients are working with providers, and patients are navigating, frankly, the administrative world of healthcare simultaneously in most cases.

I think both for us, but I think for the industry more broadly, I think AI is an enabler and I think it's an enabler that can help patients navigate their care more efficiently. I think it is an enabler that helps physicians and providers navigate the care environment on behalf of patients more efficiently, but I think in healthcare, I think AI across the board enables, and I don't see a lot of pure replacement in this space.

Erik, I think we could talk for quite a while, but let's call it an end there. I really appreciate you joining me. This has been a ton of fun.

Great. Thank you so much, Geoff.

Thank you for joining us on this installment of The Corner Series. To learn more about today's discussion, please email host Geoff Cockrell at gcockrell@mcguirewoods.com. We look forward to hearing from you. This series was recorded and is being made available by McGuire Woods for informational purposes only. By accessing this series, you acknowledge that McGuire Woods makes no warranty, guarantee or representation as to the accuracy or sufficiency of the information featured in this installment. The views, information or opinions expressed are solely those of the individuals involved and do not necessarily reflect those of McGuire Woods. This series should not be used as a substitute for competent legal advice from a licensed professional attorney in your state and should not be construed as an offer to make or consider any investment or course of action.