Medical M&A expert Jeff Swearingen unpacks TeamHealth’s recent purchase of Premier
Medical M&A expert Jeff Swearingen unpacks TeamHealth’s recent purchase of Premier
According to the Washington Post, the Affordable Care Act included about 10,000 pages of new regulations — from meaningful use requirements to accountable care organizational structures – and literally thousands of details and requirements in between. According to Jeff Swearingen, cofounder of Edgemont Capital, this increase in complexity has pushed some physician groups towards consolidation. Edgemont, a New York-based investment firm that specializes in healthcare mergers and acquisitions, has completed transactions for a half dozen physician groups, most recently making headlines for completing the sale of Premier Physician Services to TeamHealth. EPM caught up with Swearingen to learn more about this trend and how it may impact practicing physicians.
EPM: Walk us through what it is like for a group like Premier to get bought out by another contract management group. What’s it like for the practicing physicians?
Swearingen: Premier is a large, prestigious group held by physician and non-physician share-holders. They were approached fairly regularly by other groups wanting to merge or acquire them. They thought that, given the market dynamics, recruiting challenges and some of the opportunities that they saw in front of them, being a part of a larger organization would make the most sense for them and would provide an attractive value for their shareholders. They’ve been approached regularly for more than a decade, and they always said they weren’t interested. The thinking changed among their leadership over time.
EPM: This is one of many consolidations that have occurred recently in emergency medicine. Did Premier and TeamHealth feel pressure to merge, given the new constraints on healthcare. Is it “go big or go home”?
Swearingen: I definitely think that is a theme and trend. The complexity of managing the business side of emergency medicine has increased a fair amount. Whether it’s IT, quality metrics, payment bundling, etc, groups feel the pressure. Many groups of mid to small size do not have the income generation to justify a deep full-time management infrastructure. As a result, you have practicing physicians who are trying to handle these challenges on an off-hour basis.
EPM: Would you say that a lot of those docs just aren’t prepared to do what they are now being called on to do?
Swearingen: No one went to medical school dreaming about managed care negotiations or IT systems or a new hospital-wide EPIC install and how that would impact patient flow. All of those challenges take away from a lot of physicians’ enjoyment of practicing medicine and running their own practice and as a result, a lot of them would rather take some chips off the table, get good value for their equity, and transfer the future risk from future changes in reimbursement to someone far more sophisticated, well capitalized, and better equipped to deal with the complexities.
EPM: What role does fear and uncertainty about the future play into these transactions?
Swearingen: Removing the emotion from selling a practice that you’ve been a part of for many years and taking a step back, any M&A transaction is the transfer of future risk and reward to someone else. I think that most emergency physicians today feel that the risk in the future outweighs the potential reward in the future. And if you have that perspective, you’re probably better off transferring that risk to a third party for a value certain today . . . which will probably allow you to get back to the things you really enjoy. Some of the transactions we’ve worked on have been closed for many years, and the physician leaders I’ve worked with have expressed how much they’ve enjoyed the decreased administrative burden that comes with transferring that to someone else.
EPM: Where do you see this trend going?
Swearingen: Consolidation will absolutely continue. We’re working with another high profile emergency medicine group to pursue a similar type of transaction. There are a lot of reasons why people are looking at this and thinking about it.
EPM: An article was recently published about the threat that consolidation poses to smaller practices. What will be the impact of this trend on the smaller, physician-owned groups?
Swearingen: I’m not some sort of Doomsday protagonist who thinks that if you don’t sell your practice the world is going to end. I think that there is, in certain markets, still space for independent groups to thrive. I think they have to be very proactive in taking on the challenges and changes in the current environment. But if they’re able to do that successfully, there’s absolutely room for independent practices. Many of the senior leaders that I’ve dealt with in these types of practices also feel that there’s a bit of a generational difference in some of the younger physicians who have less interest in taking on the administrative and leadership challenges, and who are far more interested in a pure employee model where they don’t have the extra duties and responsibilities that come with owning and running an independent practice. From an anecdotal basis, having represented several practices, you really do see this shift, where younger physicians want to have more of a work/life balance, even early in their career.
EPM: How does an acquisition like this impact doctors in the trenches?
Swearingen: The Premier physician base was pretty well informed throughout the process. This was not a surprise at closing. From a day-to-day practice of medicine, nothing is changing. The last thing that an acquirer wants to do here is disrupt the business. TeamHealth acquired Premier because Premier is very successful and was doing well. The last thing they want to do is disrupt that success. The schedule is the same, the people are the same. Administratively, things change in the back office, behind the scenes.
EPM: Are they going to get paid the same? What about moving double coverage to single? What about benefits?
Swearingen: I haven’t seen a transaction yet where the acquirer wanted to change the staffing levels at all. As you can imagine, with a group of Premier’s size, staffing levels were constantly changing and being adapted based on volume demands and hospital needs. But there was nothing in addition to these regular course changes as a result of the transaction. In terms of compensation, it depends on the transaction. For Premier, there really was no change. Other groups where the partners effectively take home an above-market rate of compensation, there may be adjustments to that increase, but that’s in exchange for value received at closing. I have not seen a single transaction where a non-shareholder physician had his/her compensation changed.
EPM: How many equity partners did Premier have?
Swearingen:The ownership was very widespread among the physician base.
EPM: Did that make the deal easier or more difficult?
Swearingen: For the most part, more difficult to ultimately get a transaction closed, but clearly not insurmountable. Bottom line, if we could get a transaction done for Premier with its diffuse shareholder base, I think it’s achievable for almost all groups with the right support. The support for this transaction was incredibly strong among the physician base.
EPM: What additional benefits beyond what has been discussed could there be to being acquired in this fashion?
Swearingen: A big benefit is the enhanced resources around recruiting. If you spoke to most leaders in mid to large emergency medicine groups, they would probably agree that recruiting is more challenging today than it was five or ten years ago. The resources that these larger groups have in terms of dedicated recruitment staff was seen as an additional benefit to being acquired.
Jeff Swearingen is the cofounder and managing director of Edgemont Capital
Mark Plaster, MD is the founder and executive editor of Emergency Physicians Monthly
2 Comments
This article has a nice spin to it, sounds rosy indeed, except if you are a young, debt laden EM physician who is stepping into the new reality posed by these sell outs. Swearingen states, “you’re probably better off transferring that risk to a third party for a value certain today”. Sure you are! If you are the near end of the career doc getting a nice cash buy out, sure. But let’s be honest here, the bulk of the “risk” is being transferred to the non-partners and the next generation of physicians who will be tasked with covering the purchase price as well as generating ongoing profit for Team Health. They will never have a day like this to “sell out” because they will never own anything. This is cashing in on the future efforts of our younger physician colleagues.
Yeah, yeah tell me how you deserve it, we built this and that, not the ED mind you, but this and that. Reconcile your view with this statement from the AMA’s Institute for Ethics: “Ethical aspects of establishing a group’s compensation plan hinge on ensuring that physician rewards reflect professional activity (patient care services) rather than such factors as ownership, longevity or name-recognition, which smack of fee-splitting.” (AM News 4/27/98) Now tell them why exactly they have to pay for your retirement nest egg from their efforts taking care of patients you will never see. Swearingen basically says “so what?” they deserve it because “anecdotally” they do not have the work ethic or desire to run their own practice and prefer to be treated as cogs in the wheel. Thanks to their senior colleagues they will now have much less of a chance to even attempt this. Denial of opportunity for them to show their mettle is the legacy of this.
The question on the number of equity partners is conveniently dodged. And, finally, we are supposed to think that enhanced recruiting into a servant job is somehow a great benefit to EM? Lay ownership of physician practices is subject to challenge in most states. I suggest affected physician readers look into that.
EPMonthly used to be an enjoyable read where the practicing doctor would find pertinent articles relating to the practice of clinical emergency medicine as well as articles related to the ED doctor keeping up with the latest political/social trends in Emergency Medicine. Edwin Leap was the star and now we see more and more WTF articles from Silverman. EPMonthly had its tentacles on the pulse of emergency medicine. Now it has its talons on the pulse of the Contract Management Groups. TeamHealth-EMA/EPMonthly/EM Doctor are the Fateful Triangle. The slant leans more and more toward the Management Groups and less towards the enslaved physician. Swearingen wants more deals and referrals, and EPMonthly is giving him the forum.