The consolidation wave of private equity-backed platforms has moved through different sectors at different times. One of the most recent sectors to see increased interest from private equity is cardiology. 

This episode of The Corner Series introduces the “Executive Corner”, where McGuireWoods’ Geoff Cockrell is joined by Tim Attebery, CEO of Cardiovascular Associates of America, to discuss private equity interest in cardiology. 

Tune in to hear Geoff and Tim explore the current drivers of private equity interest in cardiology, antitrust scrutiny of private equity-backed provider services platforms, the opportunities present in entering into value-based contracting in cardiology, and what is coming down the pike to transform the sector. 

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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 McGuireWoods series exploring business and legal issues prevalent in today's private equity industry. Tune in with McGuireWoods 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, partner at McGuireWoods. Here at The Corner Series, we've brought together thought leaders and deal makers in private equity investing in healthcare. Traditionally, The Corner Series has been separated into three different corners, A Banker's Corner, which focuses on discussions with investment bankers, A Professor's Corner, which delves into some technical aspects, and then A Capital Corner which has discussions with private equity investors. We're expanding this discussion to add an executive corner where we'll get perspectives from C-suite executives in private equity-backed healthcare platforms. I'm thrilled to be joined by Tim Attebery, CEO of Cardiovascular Associates of America. Tim, if you could give a quick introduction of yourself and Cardiovascular Associates of America, we can jump into a few questions after that.

Sure. Nice to connect with everybody and thanks for the introduction. Again, Tim Attebery here. I've been in healthcare for a long time, 37 years, mostly in cardiology but in some other areas as well. I was the CEO of a large teaching hospital in northeast Tennessee, then went on to be the CEO of the American College of Cardiology. While I was there, we acquired MedAxiom, which is a national network of cardiology groups that I helped to start back in 2001. So, just about everything that has happened in the business side of cardiology from 1990 until now, I've been involved with either having done it well or not so well and learned from it.

Tim, the consolidation wave of private equity-backed platforms has kind of moved through different sectors at different times, and cardiology is a more recent one. What do you think have been some of the drivers of private equity interest in cardiology at this moment?

Broadly speaking, I think the interest is driven by first cardiovascular disease as the number one cause of death and cause of disability in the US and worldwide. We spend more on cardiovascular disease than any other disease state for Medicare age populations. It's a chronic disease, it's generally incurable. So once someone is diagnosed, let's say they're diagnosed at age 55, they will have that disease until they die of that disease or another at age 80 or 85. So, the average years of life that a patient remains inside of a cardiology practice is over 20, closer to 25 years now. So, it looks more like primary care in many cases than it does consultative or subspecialty care, so that's one.

Number two, you've got a lot of baby boomers hitting their prime years of needing cardiovascular services, so demand is increasing. Number three, the supply of cardiologists is actually not keeping up with that demand. Where actually, we have more cardiologists retiring and leaving clinical practice each year than those finishing cardiovascular fellowship. So, you have this strange imbalance of increased demand, patients entering the system at an earlier age, staying in the system longer, supply of cardiologists is going down and we have more care leaving the hospital. In the last four or five years, Medicare has expanded procedures and services that it will reimburse in the ASC setting versus hospital settings. So, we have diagnostic cath, pacemakers, ICD implants, percutaneous coronary interventions, coronary stents have all been approved by Medicare. Some of us in the industry believe that that's going to continue, so we have this great wave of elective procedures leaving the hospital. We have a lot of money being spent, we have a lot of patients, we have increasing demand, decreasing supply. So, it's kind of a combination of troubled waters and attractive waters at the same time.

Last, we have over the last 15 years about 75 to 80% of cardiologists have become hospital employees. Many of those 75 to 80% are not happy. They're seeking another option. Some of those have already left hospital employment. Now, we have a big chunk of the market that is in flux, is looking at other options while there's 20 to 25% that are independent are looking for how do remain independent and protect our independence. So, there's a lot of troubled waters but also interesting opportunities hitting at the same time.

You mentioned a lot of the cardiologists being employed by health systems with many of them leaving that environment. As you look at a particular market, how do you think of your relationship with the health system? Are they always a competitor? Is there room for collaboration? How do you think of the health system in your local market?

I think generally it is a collaborative relationship. I think there are tension spots. There have always been tension spots and cardiology. As cardiologists build successful enterprises 20, 30 years ago and started moving more non-invasive imaging out of a hospital into the office setting, that created tension. Years ago, some groups started investing in developing outpatient cath labs, that created tension. But these are inseparable parties. Cardiologists need hospitals, hospitals need cardiologists. So, the default position should be seeking for a collaborative model.

Many cardiology groups that became employees of hospitals did that because sometimes because of legal issues and stark and anti-kickback and civil monetary penalties, all the things that you know very well, that was the only option. But just because a group of physicians, cardiologists in this case, have partnered with private equity, does not mean that the physicians and the private equity sponsor are seeking a bad relationship with the hospital. To the contrary, it's in our best interest to have a partnership collaboration with the hospital. Yes, we believe certain services should leave the hospital and go to the lowest cost setting, but that's where patients want them to go. That's where the payers want to go. So, let's give the market what they're looking for and then let's work together to make sure that the hospital's cardiovascular program remains viable and prosperous and growing even though certain procedures and events may be leaving the hospital.

Tim, a lot of areas in provider services, especially private equity-backed provider services platforms have faced some headwinds from the perspective of antitrust scrutiny. Before we talk about antitrust scrutiny, can you describe what from your perspective, some of the benefits of scale in a particular market bring, whether that's the ability to centralize ancillary services or value-based contracting? What are some of the benefits of scale that can improve the patient experience?

I think the very first thing that comes through an enterprise like ours is the idea and insight exchange that the physicians and business leaders gain were economically connected together strategically, operationally, legally. So, there's a lot of connection between the various groups that are under the CVAUSA umbrella or other private equity sponsor umbrella. So, I think the first benefit of scale is you get a lot of very smart physicians and smart business people, who are all facing similar challenges and opportunities every day. We bring them together and we have this pulsing enterprise, this network that is always looking for ways to make itself better. The first place that we should look now is within our own network. Maybe another group has tried it and it's not gone so well, or another group has tried it and it has gone well. So, I think it's the scale of the intellectual and the insights and the experience that you first have.

Secondly, I think despite some of the antitrust concerns, you can bring together a scale for purposes of improved operations, whether that be scheduling digital health services, remote services, revenue cycle, management improvements, looking for ways to make the physician workday more efficient, leveraging the electronic health record and the clinical workflows, clinical decision support tools. All of that coming into the network of groups because when we go talk to a solution provider about maybe there's some way to make the physician charting faster or to make it more efficient. We're not representing one cardiology group, we're representing 20 cardiology groups and 400 cardiologists. So, it gives us more ability to both maybe negotiate a slightly better price on behalf of those groups, but also maybe customize it to meet the group's needs better.

Scale also allows us to do things with the labor workforce within those groups that a smaller group or even a large group of 20 or 30 cardiologists could not do. Backup labor, consolidating call centers, doing things that are more efficient in a centralized location versus a decentralized model. Last, as you said, we can go to certain vendors that sell pacemakers, ICDs or other supplies or consumables or implantables and get much better pricing as a group of groups versus individual groups.

What are some of the opportunities for entering the fray of value-based contracting in cardiology?

This is one of my favorite topics, Geoff, because so many patients, again as I mentioned, so many patients with cardiovascular disease, especially heart failure, your heart failure is a condition that generally develops later on. Not always but generally develops later on in a patient's journey, disease journey. Those heart failure patients, as they become sicker, they have frequent utilization of the emergency room and inpatient or observation beds. There are many opportunities to reduce ED visits, admissions, and readmissions. So, I think the first focus of value-based care is how do we take what we know about heart failure management and apply it and not just keep those patients out of the hospital and doing better from a quality of life standpoint, also reducing costs?

In general, Geoff, the amount of avoidable costs in cardiovascular spending in the US is significant. Some people have estimated as high as 30% of what we spend on cardiovascular disease in the US is avoidable. So, even if that number is overstated by two X, even if it's 15%, 15% of $320 billion is a lot of money. So, I think the opportunities for value-based care and I like to use the term risk-based reimbursement, where you put the cardiologist in the driver's seat of a care model and you also put the cardiologist in the economic position, that part of their income is a function of how well they manage the total cost of cardiovascular care. So, let's stop quibbling over CPT codes and work overviews and per-click reimbursement, and let's start focusing on the total cost of care and how can we lower the total cost of care without adversely affected quality, safety, access, equity and patient experience.

Yeah, I definitely think that private equity-backed platforms get dragged through the mud. And yes, it's true that there will be instances where they'll have better leverage in payer contracting negotiations, but it's a much more complex ecosystem when you think about cost. The wave of the future is definitely moving towards value-based or risk-based pricing, and in order to be able to enter that fray, you have to have scale to diffuse that risk, you have to have capital to make the investments in technology to enable you to take that risk. So, it's a much more complicated ecosystem to figure out what the benefits of a private equity-backed platform is in reducing costs over time than what is often given credit for.

It's absolutely correct. I think that maybe the single largest investment that needs to be made in cardiovascular care in an operation like ours is around data and data analytics, predictive analytics, data aggregation. Being able to embed at the point of care, clinical decision support tools, helping physicians embed guideline-directed medical therapy, helping them make optimal decisions for their patients. Having the ability to interact with patients virtually and to have patient-reported outcomes that the patients themselves are interacting with. So, that data platform is probably the single biggest expense that we will make inside of CVAUSA, but it also may be the single biggest driver of improved performance. And that is the physicians having access to everything they need at the point of care that will enable them, empower them to do the very best job managing not just the patient in front of them, but managing the population of patients that they are trying to manage that are 24/7 under their care, even though they may not be in front of them at any point of the day.

One topic that I think is an interesting one and can be a real problem for provider-based platforms is the broad category of physician alignment. There was a time when I thought the largest variable of the success or failure of a private equity-backed provider platform was whether or not they had what I would describe as a dock whisperer. Someone who has the ability to connect with the providers in a meaningful way, often themselves a doctor, but that that was the most critical element. Now, I lean much more towards the topic of just the raw economics and making sure that economics with respective providers are structured in a way that is conducive to getting everybody pulling in the same direction. How do you think broadly and philosophically about the topic of provider alignment?

I agree with you. I think there are some non-economic measures that can be taken, but let's just focus for a minute on the economic side. I think the way that this has to work is every physician must continue to have their owner hat on. One of the problems with the hospital model is the hospital model generally pays physicians on a productivity basis only. Whether it's a salary with a productivity bonus, whether it's a per worker overview conversion factor with maybe a hold back for quality. Let's just face it, most cardiologists that are employed by health systems are piecemeal workers, which means they don't always have the best incentive or any incentive for managing the total cost of delivering the service with the enterprise cost or even their own practice expenses and labor costs or inefficiencies or coding, et cetera.

So, I think the very first thing is whether it's private equity-backed or not, private equity-backed physician compensation ideally should be a function of the profits that are generated by the work that the physicians have direct influence over. If they don't have direct influence over it, don't hold them accountable for it. There's nothing more frustrating than saying, "You're responsible for it, but we give you no power or influence over it." So, let's give them the power. Let's empower them to have the ability to manage the practice, manage the service line, manage the delivery of care, manage the efficiency of that. But let's also give them the direct financial incentive that to the extent they're able to remove ED visits, admissions, to the extent they can work their day more efficiently so they can code better. They can interact with the coding team better so that we can make sure we're getting paid for everything we do. If the physicians are owners, then owners generally make money based upon the profitability of the company. That's number one.

Number two, every physician should also have an economic benefit for driving, increasing the valuation of the company. A chunk of their well-being, financial well-being, needs to occur based upon the equity as equity holders, the value of their stock. So, if their income is based upon their day-to-day activity, their productivity, their interactions with patients, referring physicians, keeping the enterprise efficient, that's good. But let's also consider that their wealth is being built, long-term wealth is being built, based upon the value of the equity that they hold. That is then encouraging them, incentivizing them to not only do everything locally, but also to do everything they can to help all the other groups across the platform. If I'm in Phoenix and I help a group in Miami, I may not make any W2 income from it, but I'm driving the value of my stock. I'm increasing my economic well-being by helping all the boats rise.

One of the philosophical points in the points you were making is how narrow of a focus, meaning if your two economic connections are some sort of profitability-based compensation model but also equity ownership. The question comes on both of those as to how narrow should the pool be on the comp side where it's really a contract drafting exercise in a comp arrangement or comp plan where you could be as narrow as you wanted. You could have a care center that is a single location. It may be a group that was a historical acquisition group. It may be an entire state, but you can draft your way to as micro profitability pool versus macro profitability pool as you want. Similarly, on the equity side, you can have all the equity up at the top Holdco level, which I hear in your response how that might be how you're thinking about it. Or you could have equity broken down into sub-MSO, maybe a state level or even more granular than that. How do you think about proximity on those two fronts?

Yeah, it's a great question. I'm not sure any of us have the absolute correct balance or answer, so I'll just give you one guy's opinion, who's in the mix of it every day. I think for purposes of respecting culture, because I've been in this business a long time and I have great admiration for group practice, culture. Culture, I think, is so important that we have to be very careful to not do anything to dilute or alter that after a group becomes part of our private equity platform. Meaning that the culture of the group usually drives the compensation and the control mechanism at that local level. If that's in place, leave it alone. Let it be. It's a culture that works, the physicians work through that. Even if they have disagreements, they work through that. They figure it out. So, let the compensation be a function at the local level versus a regional or state level.

But for equity purposes, I think every physician inside of the enterprise needs to recognize that just making their group more profitable is not going to drive their equity value. They need to help all the other groups also be more profitable, which has a positive and negative component to it. The positive component is all group leaders should be interacting with all other group leaders to say, "Hey, I've got an idea. Let me share my idea. Let me help you. Let's figure this out together."

But the negative side is if a group is underperforming, then nothing beats a little peer pressure from other physicians to help encourage that group to do better. I can't substitute for that, no degree of management can substitute for that, so we need groups holding each other accountable. We need physicians at the national level holding each other accountable. I believe the balance that we have found is local income or the physicians, what they do locally within their local groups drives their personal W2 income. But then nationally, it's how well the groups work together and hold each other accountable and support each other that drives the equity value.

Staying with the topic of physician alignment, in your travels both in cardiology and in other subsectors, I'm sure you see and talk to CEOs where the relationship with providers is not going well, whether that is broad revolt or animosity or worse. When you've seen that, what do you think the main driver of that failure in physician alignment originates?

In my experience, the tension points generally occur over inequity and compensation. That physicians believe, wait a minute, I'm working harder or harder and I'm trying to deal with maybe the loss of resources but the income is not where I think it should be. That creates a tension point. But that tension point is made worse when you mix it with one more tension point. And that is somebody else is in control of the decisions that drive my local workflow, that drive the inefficiencies. That either I don't have staff or the staff I have that has not been well-trained and we're losing good staff. Now, I've got the worst possible combination. I perceive that my work to reward ratio is not keeping up with where it should be, and I perceive that in the middle of an organization that I feel that I have very little, if any, influence over the direction and change of direction that needs to occur.

So, I think it's critical to have the physicians at every level of the organization influencing and shaping the direction of the organization. Whether that's the local level, that's the local office level, that's the local group level, or it's the national level, the physicians must have a high percentage. I think at the local level it should be 100% locally led. I think at the national level, it should be a blend of physicians with non-physician leaders and private equity leaders that are helping to shape the direction of the company. But the physicians have to be engaged at all levels. If there's ever a time where the physicians feel that they have no influence or they have somebody else is making the decisions that they are then suffering the consequences of somebody else's decision, I think that's when you have the moral injury that occurs to the psyche of the physician.

At that point, they may stay, but they're very unhappy physician employees at that point are participants, and I think you lose a lot of the extra discretionary effort that we're always seeking for the physicians. You lose them and they're just showing up and doing their job. I think turnover rates increase. I think the organization suffers. I think quality and safety suffers and that type of organization. So, I think the secret sauce is the physicians must lead every part of the organization.

One last question. In your area in cardiology, do you see any disruptive evolutions coming down the pike that is going to transform your sector?

Absolutely. I think we have several areas, several maybe tips of the spear to answer that question. One, is care leaving the hospital? I think we're already seeing it. We're seeing it in a significant way around elective procedures. We saw it 20 years ago with non-invasive imaging. We're seeing it now with catheter-based or image-guided procedures leaving the hospital, or at least the elective portion of them leaving the hospital. I think we're going to see, because of care management improvements and chronic care management improvements in particular, I think we're going to see more what we consider to be medical admissions, hospitalizations, ED visits, leaving the hospital.

You blend that then with AI tools, AI machine learn tools where we can do predictive analytics, we can start to pinpoint the exact type of patients or subpopulation of patients that need to have closer ongoing interaction and communication and home care or virtual care. I think you blend all that together along with all the great things that always will happen with therapeutics and drugs and medicine, et cetera. I think we will see a shift toward more chronic care of cardiovascular patients and a shift toward more home and office-based care of those cardiovascular patients away from the hospital.

Tim, with that, I think we'll call it a wrap. Thank you so much for joining and being our inaugural voyage on the executive corner of The Corner Series. This has been a ton of fun and thanks again.

Appreciate it. Thank you very much for the invitation.

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 McGuireWoods for informational purposes only. By accessing this series, you acknowledge that McGuireWoods 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 McGuireWoods. 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.