In a “post-COVID” world, specialty care centers are trying to keep up with the ever-changing landscape of the healthcare market. 

On this episode of Across the Table, host Kayla McCann Marty talks with Kyle Lynch, a Group Vice President of Development at SCA Health, which is part of OptumCare and is a leader in specialty care, practice management solutions, and outpatient management. Through his work at SCA Health, Kyle leads the acquisition and new partnership activity in the physician practice and practice management space. 

Kyle discusses the company’s trend tracking, following how the market has changed since the beginning of COVID-19 and its prioritization of forming genuine partnerships that have longevity beyond the first five years. 

Tune in to learn about trends in the current market, how SCA Health tackles MSOs, and the hopeful turn toward a more care-centric model in specialty health.

Featured Expert

Name: Kyle Lynch

What he does: As the Group Vice President of Development at SCA Health, Kyle Lynch leads the acquisition and new partnership activity in the specialist physician practice and practice management space.

Organization: SCA Health

Words of wisdom: “We [at SCA Health] are much more oriented around creating genuine partnerships where we can support practice operations and deliver our unique strategic value while preserving true physician practice autonomy.”

Connect: LinkedIn

Acquired Knowledge

Top takeaways from this Across the Table episode 

• Genuine partnership is a must. Kyle and the team at SCA Health is focused on creating genuine partnerships in which they can provide their unique strategic planning while preserving the practice’s operations and autonomy. 
• There’s a different way to think about MSOs. At SCA Health, MSOs are unrestricted. The MSO equity is almost immediately returned as a stream of constant income for shareholders.
• There is so much value in specialty practice spaces. Kyle explains the flow of value that can be utilized and monetized for the benefit of independent specialists. He believes SCA is perfectly positioned to capitalize on that for the sake of its clients.

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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.

You're listening to Across the Table, a healthcare private equity podcast brought to you by McGuireWoods. Across the Table brings you inside the conversation with the specialists and professionals of the healthcare private equity industry.

Hi, this is Kayla McCann Marty with McGuireWoods, and we'd like to welcome you to another episode of Across the Table where we talk with numerous deal-makers about the healthcare and private equity space and what they're seeing in the market. Today I'm pleased to be joined by my friend Kyle Lynch, Group Vice President, Development of SCA Health, a part of OptumCare, and a leader in specialty care, practice management solutions, and outpatient management. Kyle, thank you so much for joining us. If you don't mind, introduce yourself and tell the viewers a little bit about your background and what SCA Health is seeing in the market today.

Yeah, absolutely Kayla. And thank you for having me. And as you mentioned, my name is Kyle Lynch. I am a Group Vice President of Development at SCA Health and lead our acquisition and new partnership activity in the specialist physician practice and practice management space. I've been with SCA Health for about six years now and had previous experience in the management consulting, private equity and investment banking space. SCA Health just continues to remain highly acquisitive in the surgical facility space in all specialties. But about four years ago, we transitioned into also pursuing transactions in practice alignment space, so outside of just the four walls of the ASC, aimed at supporting our physician partners more holistically and across the entire continuum of care that they touch. And we've concentrated our efforts specifically in the musculoskeletal, cardiovascular and GI specialties, but are also exploring opportunities in other specialties where it makes sense strategically to do so.

Absolutely, and I think that everyone is starting to see SCA Health in the market. It's certainly not a surgery-centered company only like it was many, many years ago. I think that you all have really been transforming what it means to do deals and provide practice services to your physician partners across the country. I know that you mentioned that you're very interested in a couple of subspecialties, but are there any elements of those acquisitions that you personally or your team is just really excited about? What is your sweet spot? What are you seeing in the market? And where do you think those acquisitions are going in the next year?

It's a great question and we are from a structural standpoint, leveraging the traditional MSO/PPM construct, but are much more oriented around creating genuine partnerships where we can support practice operations and deliver our unique strategic value while preserving true physician practice autonomy. And there's obviously a ton of activity in the space today, particularly and more recently in the specialties that I highlighted at the beginning. And our sweet spot has really turned into where do we have physicians that are culturally and philosophically aligned with building a legacy that exists beyond just the next one to five years?

We don't have a choice as a strategic partner, we have to find constructs that build value for our specialist practices into perpetuity because we are a long-term partner and do not want to create what I'd say, unsustainable constructs that make it difficult to recruit into in the future. And so we are very fortunate to be a part of a much broader organization that has strategic assets all over the country. And there are particular geographies where there is truly a unique suite of opportunities that we can leverage our sister companies and other existing stakeholders and relationships to bring value specifically to those practices and those geographies. And that's really our sweet spot and where we found most success.

Absolutely. And I think that a lot of people have experienced very unique challenges over the past two to three years in their practices that have led them to looking at different acquisitions, looking at what acquisition partners are most attracted to them. And can you talk a little bit about the challenges that you all have seen, but also solutions that you or other people you've seen in the market have been able to deliver that make professional management a really hot area in the market right now, particularly coming out of COVID and particularly because of a lot of the reimbursement trends that we're seeing across the country?

So, the challenge that we have attempted to address, we just heard repeatedly from specialist practices that they don't know exactly what the future holds, but they know it's not going to look like it does today. And the smaller to medium-sized independent practice just may not exist in the same construct that it does today. And so many are just looking for partners or something to latch onto, and with a ton of activity going on in the market, there's just more and more pressure to do something. And so what we've attempted to do is work with the groups that want to maintain that independent specialist practice construct, but still provide them with sophisticated management practice operations strategic support, again, without them having to give up their economic autonomy in order to do so.

And so that is where we've tended to see ourselves gravitate towards and then the physicians we're attempting to work with predominantly, but across the entire spectrum, we have groups that are asking for, "We need the entire suite of support, and we want something that looks much more comprehensive to those that want something that feels more arm's length, but we want the merits of the strategic value that you can bring to the table." And so we've prided ourselves on being flexible to accommodate physician practices and what they need and to meet them where they're at and where their market's at.

So, one of the things too that we often hear from different groups, different physicians that are going through acquisitions and are trying to evaluate different partners is they want to understand a little bit more about the MSO equity component of it. And that's something that I think is very different from group to group, from partner to partner. Kyle, do you mind to give us your thoughts just on SCA Health's approach to MSO Equity? Because it's one of the major challenges for sellers through any acquisition and I think is a major part of the partnership opportunity.

Yeah, this is one where we have struggled to some extent to get our narrative appropriately out there on what MSO equity represents in partnership with us and how it monetizes, particularly in broker-led processes. We don't always have the necessary access to management and the physicians to really draw the distinctions that are needed for them to ultimately compare and contrast what that means. But I think it's well-known in the physician community at this point of what the second bite or the multiple bite story is, and it's very well ingrained, and practices seem to either believe it and they value it and they value the option value that it creates or they don't. And they try and minimize their equity role on the front end.

But what's different with us is our MSOs are unlevered, they're unencumbered, they're unrestricted in how we use our MSO earnings. And so the MSO equity basically monetizes immediately and perpetually, it becomes another income stream for the shareholders. And the monetization of that equity is just not dependent on a singular future and uncertain event. So, it is a very different way of thinking about what MSO equity represents, and one that we continue to work with physicians, bankers, brokers across the country to just get a better sense of how we approach what it is and the value it can create for physicians long term.

Absolutely. I think that that is a key element, and in some ways that is exactly what you said, meeting the physicians where they are, and we are continuing to see that with our clients. That's something that they're really demanding in the market and they want from a professional partner is somewhat of a hybrid model. They don't want to be in a structure in which it's as if they're in hospital employment, but they also don't want all of the obligations of independently practicing and independently being responsible for all of the day-to-day management. Allowing them to keep that level of autonomy though also bring certain challenges in actual acquisition experience and finding the right balance when you're completing acquisitions. What have you found is the most challenging aspect of completing acquisitions that allow physicians to have a significant amount of autonomy within their own practice, but yet still take advantage of the strategic opportunities and the professional management that SCA Health offers?

It's a great question, and there is a trade off in all of these constructs that has to be considered, and that is the level of economic support that you can get versus the amount of autonomy you're willing to give up. And you can't get the best of both worlds and so I see where we find ourselves very often is just having to very clearly understand on the front end what are the strategic growth and capital needs of the group and how can those be achieved in the initial transaction and in the way we're structuring the go forward governance of both the MSO and the practice into perpetuity. And those things can be at odds, you can't have unlimited capital support for all growth initiatives, but have complete economic autonomy over what those initiatives are.

And so where we very much find ourselves is working with the leadership of these groups on the front end to identify very specifically what the opportunities are, what needs to be done, what needs to be invested in, and structuring around that. But you called it out, we have erred on being more willing to have to debate the issues from a more equal governance standpoint and make the hard decisions in the future that we have to mutually agree to versus taking and seizing control and unilaterally making those decisions on behalf of the practice. We just genuinely believe that's a more sustainable model, particularly with the groups that do value their economic autonomy. It does come at a trade off, but we think in the long run it's what is the most sustainable model for us to not only work with the physicians that are already partnered with us, but tend to recruit into for future generations that come into the independent construct.

Absolutely. Absolutely. And I think that that's resonated with a lot of physicians clearly through your all's success and through OptumCare's success, I think it's well recognized in the market. Move switching gears just a little bit quickly into our last few minutes here related to healthcare trends and what you are watching. One of the things that we almost always speak about on this podcast is what trends people individually are seeing and what's concerning them. Do you mind to just take a couple of minutes and tell us what trends have you been watching lately? What on the news has been worrying you? What in healthcare reimbursement has been worrying you? Or what are you seeing happening that you think everyone needs to be on the lookout for?

Yeah. I think the easy one and one we've been monitoring for as long as I've been at SCA is just the independent specialists and specialist employment in general. And that's a trend that has been uncomfortable to watch over the last several years where we've seen more and more specialists entering into true system-based employment constructs because independent specialists are the lifeblood of our business, and it's one of the main reasons why we moved beyond the four walls of the ASC to become more holistic partners with independent specialists in the first place. So, this is something we always have our eye on because it is what feeds both our facility and practice business. A couple other things that are probably more specific to the specialist practice alignment industry, one is just what I would call the escalation of expectations in terms of how much of partner compensation is monetized on the front end of these transactions.

It's just since we've gotten involved, particularly in the orthopedic and cardiovascular space, the market has just continued to push some of these scrapes higher and higher to a point where we have to be very, very thoughtful on the long-term sustainability of such models because we can't just consider the next one to five years, but 5, 10, 15 years as a long-term partner. We're willing to be flexible on this, but we've had to walk away from some really good groups for this reason. And I'd say the last one is we believe in professional management and the benefits that consolidation and aggregation of small independent practices can bring, but we've started to see more and more what I'll call consolidation for the sake of consolidation with less focus on the local value that is created, the income growth of the individual physicians, more for the allure of what are called the national platforms.

But the vast majority of the value that ultimately accrues to the individual physicians has to be driven locally. And so we believe those that are pursuing more regionally-based strategies focused on building local and regional relevance, network density and relationships with the local stakeholders, that those can be very successful. That is what's going to matter to the health systems, the payers, the employers, the primary care groups, the risk bearing entities, because that is who's delivering care and they're doing it locally. But where the emphasis is just to add practices in the name of national scale, I do worry that these transactions may ultimately prove to be a bit destabilizing for these physician practices, particularly once the original partners begin to turn over.

So, we are watching nationwide, all parties, strategics like ourselves, health systems, new financial sponsors, existing private equity-backed roll-ups, and kind of keeping that in mind, because whether or not we're partnered with these physicians, we do believe that the long-term success of these groups is very much contingent on these working out. And so the alternative being something that might not continue to be ideal for both our business and in our mind, the delivery of care and what's best for patients, and so that's something we do have our mind on, and we continue to monitor. And again, that consolidation for the sake of consolidation does worry us a bit.

Absolutely. And I think that's right, I think a lot of our contacts that talk with us on our podcast have similar concerns. And so I think you're picking up on something that is a trend in the market that people are watching. Just as we close here, are there any trends that you see in a greater healthcare space that are positive and are giving you thoughts for positivity rather than thoughts for concern?

It’s specific to how we're positioned, just the continued movement towards value-based care. And sometimes I kick myself because it's just an overused buzzword in many instances of just it's a trend in where folks are focused, but Optum is not just talking about it, they're doing it. And very often it's a primary care-centric model in most constructs and the specialists are contracted or network based, but there is a ton of value that flows through the specialty practice space that can be appropriately utilized and monetized and benefit independent specialists. And so the more that there are payers, employers, and risk-bearing entities moving towards that construct, we believe we're uniquely positioned to capitalize on that on behalf of our physician partners because we have the experience in doing so, and we have access to the patient populations with which to do it with. So, that's a trend that we see as very positive and one that we are extremely excited to work with specialists across the country to capture.

That sounds great. Thank you so much for joining us. And everybody tuning in to this episode, thank you for joining us for speaking with Kyle Lynch, Group Vice President, Development at SCA Health. Please remember that this is a monthly podcast and we'll be coming back to you next month. Thank you so much.

We appreciate you joining us on this episode of Across the Table. To learn more about today's discussion or to contact us, please visit our website at mcguirewoods.com. We look forward to hearing from you. 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.