The healthcare industry is rife with disruption, uncertainty, and foundational risks. Despite all of that, PMO rollups have been a source of returns and diversification for private equity funds for over a decade.

There are good reasons why. These larger organizations realize numerous benefits. Cost reductions come from centralizing and consolidating operations, compliance, and administration. Their larger size also leverages economies of scale on purchasing and more favorable payer rates. Lastly, while uncertainty lies in the ever-present calls and efforts for healthcare system reform, the demand is solid. Americans are living longer and are more active later in life than ever before. Americans are also becoming more aware and educated on the specialists they need. As such, forecasts are showing strong growth for these specialists without a corresponding growth in providers.

Focusing on Ophthalmologists

As an example, the number of practicing ophthalmologists is expected to remain stable at 18,000 through 2020. Meanwhile, the U.S. population over age 65 will nearly double by 2030, according to the U.S. Census Bureau. That older population will naturally need more eye care. Cataracts, macular degeneration, and glaucoma occur at a rate of 17.2%, 7.6%, and 1.9%, respectively in populations over 40 years old. From 2019 to 2020 alone, eye surgeries are expected to grow 14%, from $2,195B to $2,529B.

Meanwhile, ophthalmology remains one of the most fragmented specialties. This combination of growth potential along with the lack of consolidation makes for a compelling story to private equity investors. But these numbers alone don’t tell the whole story. Nor do they translate into easy returns.

First of all, there are personnel and operational challenges in rollups. Integrating them in the tight timeframe needed to drive optimized returns takes a knowledgeable and skilled team. We touched on the CFO’s role during this time in this blog post.

Secondly, there are specialist-specific challenges that go deep into the details of each transaction. Ensuring success requires a team with:

  • A deep understanding of the specialist or physician services market to leverage and deliver leadership in the accounting and finance department.
  • A focus on the sponsor’s strategic objectives
  • Execution expertise in standing-up an accounting and finance back-office to meet organizational structure and service agreement requirements for the company.
  • Robust accounting, financial and operational processes that drive successful outcomes.

At Element78, we work with our private equity clients to identify rollup opportunities in the practice management industry, including dental, ophthalmology, and dermatology services. We then map out the transaction and execute on the transition with experienced teams. Bookmark our blog and follow us on Linkedin for more content on how to drive success across PMOs and other healthcare industry insights.