Investment in the healthcare sector is as strong as ever, but balancing risk and profit can be tricky when it comes to consolidation. Doctors want reassurance and investors want lucrative deals.
How do you find the balance?
Rajesh Kothari, Founder and Managing Director of Cascade Partners, offers his insight and experience on the outlook of investing in healthcare services in a seller’s market.
It is becoming more and more difficult to survive as a solo practitioner in today’s healthcare world, and the consolidation of healthcare services is continuing at a steady rate.
For some, this is an investment dream come true, for others it is a reality to get used to.
“We joke all the time that you can be a good CEO or you can be a good clinician. They're both full-time jobs and you can't do both,” Rajesh explains.
“That's a cold dose of reality for folks that for the last 20 years could have a good administrator more or less, rather than making a good living. You can't survive in the healthcare business world today and deliver high quality care and run like you ran 20 years ago.”
What does consolidation and other major industry trends mean for the healthcare investor? Host Geoffrey Cockrell and Rajesh break it down and examine the market.
Name: Rajesh Kothari
What he does: As the Founder and Managing Director of Cascade Partners, Rajesh helps companies, shareholders and boards realize the full value of their endeavors. With 30 years of experience, his work in the healthcare, industrials, business services, and technology sectors is unrivaled, and through the years he has guided and influenced his clients’ growth and development to ultimate success.
Organization: Cascade Partners
Words of wisdom: “I describe it to the physicians as it gives you maximum flexibility, because you can either go down the private equity path or you've got the capability or the resources now to kind of go at it on your own and continue to succeed. And I'm a big believer that optionality is the best path.”
Top takeaways from this Across the Table episode
★ The consolidation of healthcare providers isn’t slowing down. What started in anesthesiology and emergency medicine has spread to every specialty — from women’s health to podiatry. Being a solo practitioner is becoming more and more difficult to maintain in today’s market.
★ Size doesn’t matter if your leadership stands out. When it comes to valuations for small practices, a strong leader can be highly attractive to potential partners. Investors want strength and confidence — not necessarily size — when thinking about where to put their money.
★ Reassure doctors on the process. When it comes to acquisitions, a certain level of doubt and suspicion is expected. Learning how to quell these fears and make sure doctors understand expenses and rollout is vital to maintaining a healthy partnership.
[2:10] Is there an end in sight?: Geoff points to physician consolidation when it comes to the question of whether the consolidation of healthcare providers will ever end. Or is consolidation the new normal? Rajesh explains the consolidation process.
[6:47] Specific sector growth: Not all parts of the healthcare world are created equal when it comes to financial growth. Rajesh gets into the details of which sectors are trending upwards and Geoff points out the benefits of joint ventures with these sectors.
[9:20] To contract or not to contract: Rajesh and Geoff discuss why value-based pricing is strong in some areas and still very much so a new idea in other sectors, especially when it comes to smaller practices.
[12:22] A physician’s frustration: When it comes to a potential partnership, Geoff and Rajesh break down why smaller physicians and practices find the process difficult, but also how they can use their size to their advantage.
[15:16] A seller’s market: When it comes to deal terms, the market is very much tilted towards the sellers at the moment. What does that mean for investors? Rajesh breaks down things investors can do to make sure they get a good deal.
[18:23] The bottom line: Geoff explains a deal from a doctor’s perspective, how important their clinical autonomy is, and how to work with such potential partners.
[23:32] What the future holds: Rajesh predicts where the market is going and what to expect. It’s a tax law change year, and there will be a lot of upheaval.
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