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1、Healthcare ServicesReportPE trends and investment strategiesINDUSTRY RESEARCHQ42022ContentsQ4 2022 Healthcare Services ReportPG 2PublishingReport designed by Julia Midkiff Published on February 3,2023Rebecca Springer,Ph.D.Senior Analyst,Healthcare Lead Institutional Research Group AnalysisDataMatthe
2、w Nacionales Data AnalystPE activity3Healthcare services PE ecosystem market map10Healthcare services PE investor map12Q4 2022 timeline13Key regulatory developments14Segment data15Generalist providers16Multispecialty providers17PPMs18Skilled care and behavioral health21Spotlights23Rheumatology24VBC
3、enablers26Medicaid/CHIP pediatric dentistry27Appendix29Q4 2022 Healthcare Services Report PG 3PE activityThe healthcare services PE landscape closed out 2022 with a declining,but still healthy,level of deal activity.Firms announced or closed an estimated 863 deals in the year,making 2022 easily the
4、second-best year for PE healthcare services dealmaking,after 2021.However,quarterly trends show a steady decline throughout the year,especially in Q4,for which we estimate 158 deals,26.4%off Q3s figure.It is important to keep these numbers in perspective:Q4s dealmaking figure is entirely respectable
5、 by 2018-2019 standards.But it is also more than a third less than the average quarterly deal count in 2021.The industry is adjusting to a new normal.The end-of-year decline in deal activity can be attributed principally to two factors.First,the pace of PE dealmaking has slowed due to macroeconomic
6、uncertainty and rising capital costs.Buyers and lenders alike are more circumspect,and the risk of overleveraging a platform is top of mind.Sellers in some cases still expect 2021-level valuations and will need to accept the reality of multiples a couple turns lower than the peak.Weeks-long deal pro
7、cesses seem like a distant memory.We are also hearing that many of the highest-quality assets traded in the dealmaking frenzy of late 2020 to 2021,meaning that deal pipelines are mixed in quality,with some top-shelf assets,plenty of middling ones,and some distress-driven sales.Healthcare services PE
8、 deal countSource:PitchBook|Geography:US and Canada|*As of December 31,202241,07200212022*Deal countEstimated deal countHealthcare services PE deal count by quarterSource:PitchBook|Geography:US and Canada|*As of December 31,202200Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1
9、Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q42002020212022*Deal countEstimated deal countQ4 2022 Healthcare Services Report PG 4Syndicated loan markets remain effectively closed,stymieing large deals.Paradigm Oral Surgery,EyeSouth Partners,and KabaFusion were the three main exceptions in Q4.Second,staffing cost
10、 inflation continues to plague healthcare services businesses.The lowest-skilled roles are most affected due to workers ability to maintain similar pay levels while transitioning into other industries.Here,the acyclical nature of many healthcare businesses is a double-edged sword because the demand
11、for workers remains unaffected by tightening economic conditions.Healthcare operators do not foresee a material change in labor costs for the next 18 to 24 months,and reimbursement rates will take far longer than that to catch up.Golub Capitals Q4 2022 Altman Index reports a 10.3%YoY growth in healt
12、hcare revenue but only a 1.3%growth in earnings,compared with 10.8%and 9.2%,respectively,across all sectors.1PE ACTIVITY1:“Golub Capital Middle Market Report,”Golub Capital,Q4 2022.US healthcare and social assistance employmentSource:US Bureau of Labor Statistics|Geography:US|*As of November 30,2022
13、05001,0001,5002,0002,50020000212022*Job openingsHiresHealthcare services PE exit countSource:PitchBook|Geography:US and Canada|*As of December 31,2022466245450212022*Q4 2022 Healthcare Services Report PG 5PE ACTIVITYSkilled care and behavioral h
14、ealthStaffing pressures have forced many skilled care and behavioral health businesses to slow their growth considerably despite seemingly limitless demand.PE firms may opt for elongated holds to avoid selling at depressed valuations.Deal activity in mental health and substance use disorder(SUD)trea
15、tment as well as in intellectual and developmental disabilities(IDD)care slowed in 2022,while the home health market nearly ground to a halt in Q3.We anticipate that many deals in skilled care and behavioral health will take place in 2023arguably,no segment of healthcare services has more compelling
16、 demand tailwinds and potential to reduce total cost of carebut that the deal mix will skew heavily toward new platform creations,minority equity infusions,and add-ons.Additionally,care models that sidestep the staffing crunch will see heightened interest.Self-directed care enablers,which facilitate
17、 Medicaid waiver payments to individuals caring for their family members,saw significant investor interest in 2022.Additionally,InTandem Capital Partners acquisition of HouseWorks may herald additional investment in private-duty(cash-pay)in-home care.The advantage of private duty is that agencies ca
18、n pass up to 100%of staffing cost inflation on to their customers,depending on their positioning in the local market.Source:Golub Capital Internal Data|Geography:US*As of December 31,2022Golub Capital Altman Index,Q4 2022SectorRevenue YoY growthEarnings YoY growthHealthcare10.3%1.3%Consumer9.4%9.2%I
19、ndustrials10.7%11.4%Technology12.8%14.3%Overall10.8%9.2%Infusion has been another bright spot within the skilled care and behavioral health segment.It was one of only two categories(the other being urology)in which deal activity accelerated from 2021 to 2022.The ambulatory infusion center(AIC)model
20、is particularly attractive in the current environment due to its workforce efficiency.We discuss an emerging variation on AIC investmentrheumatologylater on in this report.PPMs The landscape for physician practice management companies(PPMs)looks robust,as these companies are less exposed to staffing
21、 shortages.Notably,add-on activity in the dental;dermatology;ear,nose,and throat(ENT);and musculoskeletal(MSK)categories notched numbers that were roughly flat with those for 2021,meaning that 2022s deal activity in these categories will likely exceed 2021s once data collection is complete.Rapid ino
22、rganic growth implies ample free cash flow and thus underlying financial health.Economic uncertainty and financing constraints are the main impediments to PPM platform trades at present,and we anticipate that a backlog of PPMs will come to market or resume sale processes if leveraged loan markets re
23、vitalize later in 2023.Some firms may also follow Harvest Partners example with Dental Care Alliance and transfer assets to continuation vehicles to wait Q4 2022 Healthcare Services Report PG 6PE ACTIVITYout the storm.Other key PPM categories,namely veterinary and vision,saw add-on activity decline
24、significantly year over year.These categories may have hit a cyclical phase of slowing platform growth after a wave of heightened activity,similar to what dermatology has been experiencing since 2020.Primary care and multispecialty groupsAs we have written previously,2022 was characterized by signif
25、icant strategic M&A activity in primary care and multispecialty networks.Payviders(chiefly UnitedHealth Group and Humana)and retailers(chiefly Amazon,CVS,Walmart,and Walgreens)are jostling for advantageous positions in the transition to value-based care(VBC).The upshot for PE is that the exit landsc
26、ape is now extremely dynamic for regional or national primary care,behavioral health,home health,and multispecialty network assets,especially those with a track record of taking on risk or providing critical services to support managed care.Q4 saw a few noteworthy deals on this theme,including Lorie
27、nt Capital and Martis Capitals creation of Rise Health.This is the most recent entrant in a“second wave”of VBC enablement companies,which we discuss later in this report.Ascend Partners also executed a pair of deals for multispecialty networks.Investing out of a$570.0 million Fund I,Ascend employs a
28、 unique model:All of the healthcare providers in its portfolio contract with CareAbout,a company created by Ascend that functions as both a management services organization(MSO)and an investor.Ascends existing portfolio company Rendr acquired Excelsior,which is backed by Kain Capital;both focus on s
29、erving New York Citys Asian American population,so the deal is a natural one.Ascend and CareAbout also invested in Medical Specialists of the Palm Beaches,a multispecialty group in southern Florida.It will be interesting to see whether Ascend pursues a VBC strategy for these groups via CareAbout.202
30、3 outlookLooking ahead to the rest of 2023,we believe deal volumes may continue to decline in the first half of the year due to continued leverage-and staffing-related financial distress for some platforms,growing liquidity constraints,and the dwindling of war chests raised in 2020 and 2021.Although
31、 LPs are particularly interested in healthcare-focused managers during periods of economic volatility,the fundraising environment is increasingly inhospitable,especially for emerging and middle-market firms,and the sluggish pace of exits means institutional investors are running out of capital to al
32、locate.If macroeconomic conditions stabilize midyear,we could begin to see a rebound in deal activity in the second half of 2023.Q4 2022 Healthcare Services ReportPG 7New-issue spread for health services loansSource:LCD|Geography:US|*As of December 31,2022 0 100 200 300 400 50020015201620
33、02020212022*Average LBO leverage ratio0 x1x2x3x4x5x6x7x20000212022*All dealsHealth servicesAverage LBO purchase price multipleSource:LCD|Geography:US|*As of December 31,2022 Note:Based on borrowers with EBITDA of$50 million or more0 x2x4x6x8x10 x12x14x16x2
34、0000212022*All dealsHealth servicesLeveraged buyout(LBO)-related health services loan value and shareSource:LCD|Geography:US|*As of December 31,20220%2%4%6%8%10%$0$2$4$6$8$0022*Loan value($B)Share of total value5%4%200192021PE ACTIVIT
35、YSource:LCD|Geography:US|*As of December 31,2022 Note:Based on borrowers with EBITDA of$50 million or moreQ4 2022 Healthcare Services ReportPG 8PE ACTIVITYSelect PE healthcare services deals,Q4 2022 to present*CompanyCategoryDeal typeClosed/announced dateSponsor(s)AcquirerDentiveDentalBuyoutJanuary
36、19,2023HGGCN/AHouseWorksHome care,home health,and hospiceBuyoutJanuary 12,2023InTandem Capital PartnersN/AABA ConnectABA and pediatric therapyBuyoutDecember 12,2022MBF Healthcare PartnersN/AMedical Specialists of the Palm BeachesMultispecialty clinics and networksGrowthDecember 5,2022Ascend Partners
37、,CareAbout(Ascend Partners)N/AMedi-WeightlossOther medical specialistsBuyoutNovember 28,2022Buzz Franchise BrandsAudax GroupUnited Vein&Vascular CentersCardiovascularBuyoutNovember 18,2022Amulet Capital PartnersN/ACentrataMusculoskeletalGrowthNovember 1,2022Trinity Hunt PartnersN/APrime PsychiatryMe
38、ntal health and SUD treatmentGrowthNovember 1,2022Albaron PartnersN/ADiscovery Senior LivingSkilled nursingBuyoutOctober 12,2022Lee Equity PartnersCoastwood Senior Housing PartnersEnable DentalDentalGrowthOctober 1,2022Bardo CapitalN/ARise HealthPrimary carePlatform creationOctober 1,2022Lorient Cap
39、ital Management,Martis CapitalN/ASource:PitchBook|Geography:US and Canada|*As of January 31,2023Q4 2022 Healthcare Services ReportPG 9Select PE healthcare services exits,Q4 2022 to present*CompanyCategoryExit typeClose dateSponsor(s)Acquirer(s)Dental Care AllianceDentalBuyoutJanuary 16,2023Crescent
40、Capital GroupMubadala Investment Company,Harvest PartnersSummit Medical GroupMultispecialty clinics and networksAcquisitionJanuary 3,2023CityMD,Consonance CapitalVillageMD(Walgreens),Evernorth Health(Cigna)Excelsior Integrated Medical GroupMultispecialty clinics and networksAdd-onNovember 28,2022CFT
41、 Capital PartnersRendr(Ascend Partners),Kain CapitalParadigm Oral SurgeryDentalBuyoutNovember 16,2022InTandem Capital PartnersBlackRock Private Equity PartnersKabaFusionInfusionBuyoutNovember 2,2022Pritzker Private CapitalNovo HoldingsBradford Health ServicesMental health and SUD treatmentBuyoutOcto
42、ber 28,2022Centre Partners,Yukon PartnersLee Equity PartnersEyeSouth PartnersVisionBuyoutOctober 7,2022Shore Capital PartnersOlympus PartnersSource:PitchBook|Geography:US and Canada|*As of January 31,2023PE ACTIVITYQ4 2022 Healthcare Services ReportPG 10Healthcare services PE ecosystem market mapCli
43、ck to view the interactive market map on the PitchBook Platform.Market map is a representative overview of active PE-backed platforms headquartered in the US or Canada.Companies listed have undergone a PE buyout or growth equity investment.Health services category oneHealth services category twoHeal
44、th services category threeGeneralistsMultispecialtySkilled care and behavioral healthABA and pediatric therapyAmbulatory surgical centersOccupational and correctional healthHome health and hospiceClinical staffingPrimary careIDD careMultispecialty clinics and networksUrgent and emergency careInfusio
45、nHospitals and health systemsMental health and SUD treatmentSkilled nursingQ4 2022 Healthcare Services ReportPG 11Healthcare services PE ecosystem market mapClick to view the interactive market map on the PitchBook Platform.Market map is a representative overview of active PE-backed platforms headqu
46、artered in the US or Canada.Companies listed have undergone a PE buyout or growth equity investment.Health services category onePPMsMusculoskeletalUrology/renalVeterinaryVisionCardiovascularObstetrics and gynecologyDentalOncologyDermatologyOther medical specialistsEar,nose,and throatReproductive med
47、icineGastroenterologyQ4 2022 Healthcare Services ReportPG 12Healthcare services PE investor mapClick to view the interactive investor list on the PitchBook Platform.Investor map is a representative overview of active investors in US and Canada healthcare services buyouts and growth equity.Investors
48、are classified by the size of the fund out of which they primarily invest in healthcare services.Health services category oneLarge cap($5 billion+)Health services category oneHealth services category twoHealth services category threeLower middle market(less than$500 million)Middle market($500 millio
49、n to$1.5 billion)Upper middle market($1.5 billion to$5 billion)Q4 2022 Healthcare Services ReportPG 13Q4 2022 timelineOct 1Nov 1Dec 1Dec 31PE activity158total deals in Q4(estimated)863total deals in 2022(estimated)-26.4%QoQ change in deal count-56.2%YoY change in Q4 deal count-14.8%TTM YoY change in
50、 deal countPE exitOctober 7 In easily the largest sponsor-to-sponsor trade of the quarter,Shore Capital Partners sells EyeSouth Partners to Olympus Partners at a roughly$2 billion valuation.NewsNovember 1The Centers for Medicare&Medicaid Services(CMS)issues its 2023 finalized fee schedules,backing a
51、way from a proposed 4.2%cut to home health reimbursement and paving the way for a resumption of deal activity in the category.PE dealNovember 29Amulet Capital Partners acquires United Vein&Vascular Centers,proving that midsize platform creations are still feasible even as dealmaking slows.NewsOctobe
52、r 11The US Preventive Services Task Force recommends screening for anxiety in children ages 8 years and older and screening for depression in children ages 12 years and older,portending increased demand for mental health providers.NewsDecember 29President Biden signs the$1.7 trillion spending bill t
53、hat includes significant provisions relating to Medicare reimbursement,behavioral health,and Medicaid eligibility.PE exitNovember 7Consonance Capitals CityMD announces it will sell Summit Medical Group to Walgreens VillageMD for$8.9 billion.The deal supercharges Walgreens value-based care play and i
54、s a bullish sign for PE-backed multispecialty groups.Q4 2022 Healthcare Services Report PG 14Key regulatory developmentsEvolving antitrust landscapeIn the Q3 2022 Healthcare Services Report,we reported that hospital and health system mergers are the primary corner of healthcare services where antitr
55、ust action is significantly affecting dealmaking.However,recent state-level policy changes may have a broader effect over the coming years.In California,the newly created Office of Health Care Affordability(OHCA)has broad authority to review healthcare transactions for their effects not only on mark
56、et competition but also on healthcare affordability.Beginning April 1,2024,healthcare providers in California must notify OHCA 90 days in advance of all transactions,with some exceptions.OHCA will have the authority to conduct reviews,issue public reports,and refer findings to the state attorney gen
57、eral.The new OHCA review process is likely to elongate and add risk to healthcare services transactions in the state.According to Anthony Del Rio,Healthcare M&A Partner,and Andrea Murino,Antitrust and Competition Partner at Kirkland&Ellis,it is becoming increasingly important to engage in antitrust
58、risk assessments early in transaction processes.In addition to new state avenues of intervention like Californias OHCA,federal antitrust attention to healthcare continues to evolve,including through investigation of areas of healthcare that were not formerly scrutinized and changing positions on ver
59、tical mergers,according to Del Rio and Murino.2 Massachusetts,Rhode Island,New Hampshire,and Washington,DC,are also currently active in healthcare antitrust enforcement.Omnibus funding bill provisionsThe$1.7 trillion federal funding bill,signed by President Biden on December 29,2022,includes several
60、 provisions that will affect PE healthcare services investors.Congress delayed statutorily required reimbursement cuts,effectively increasing Medicare physician fee schedule rates by 2.5%over the 2023 Final Rule issued in November.The revenue increase will be significant for the many platforms facin
61、g margin pressures due to wage inflation.Participants in Advanced Alternative Payment models will also see a 3.5%bonus incentive for 2023;the current 5.0%incentive was previously set to expire.Medicare will now reimburse mental health services provided by licensed marriage and family therapists(LMFT
62、s),which represent around 25%of the behavioral health workforce.3 This should increase the supply of mental health providers,primarily by expanding the pool of mental health professionals available for established groups to hire,since many independent LMFTs do not accept insurance.Typically,commerci
63、al payers follow CMS lead in coverage expansion.Although the public health emergency will now end on May 11,states will resume Medicaid redeterminations beginning April 1,2023.As a result,an estimated 5 to 15 million people will lose coverage.However,Congress also required that children enrolled in
64、Medicaid/CHIP be granted 12 months of consecutive coverage and preserved states ability to offer Medicaid coverage to new mothers for 12 months postpartum.Taken together,these measures provide greater certainty for providers that accept Medicaid,despite the 2024 enrollment cliff.Pediatric Medicaid m
65、odels in categories such as dentistry(discussed later in this report)will benefit from reduced enrollment churn.2:Anthony Del Rio,Healthcare M&A Partner,and Andrea Murino,Antitrust and Competition Partner,Kirkland&Ellis,email to Rebecca Springer,January 20,2023.3:“Behavioral Health Workforce Project
66、ions,”Health Resources&Services Administration,August 2022.Segment dataGeneralist providersSkilled care and behavioral healthPPMsMultispecialty providersQ4 2022 Healthcare Services ReportPG 16Occupational and correctional health PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of De
67、cember 31,2022GrowthAdd-onPlatform024680022*Primary care PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,202205002020212022*GrowthAdd-onPlatformUrgent and emergency care PE deal count by typeSource:PitchBook|Geography:US an
68、d Canada|*As of December 31,20220500212022*GrowthAdd-onPlatformGENERALIST PROVIDERSQ4 2022 Healthcare Services ReportPG 17Ambulatory surgical centers PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,2022000212022*GrowthAdd-o
69、nPlatformClinical staffing PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,20220500212022*GrowthAdd-onPlatformHospitals and health systems PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,20220246882019
70、202020212022*GrowthAdd-onPlatformMultispecialty clinics and networks PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,20220200212022*GrowthAdd-onPlatformMULTISPECIALTY PROVIDERSQ4 2022 Healthcare Services Report PG 18Cardiovascular PE deal count
71、by typeSource:PitchBook|Geography:US and Canada|*As of December 31,202207200212022*GrowthAdd-onPlatformDental PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,202202040608002020212022*GrowthAdd-onPlatformDermatology PE deal
72、count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,202200702002020212022*GrowthAdd-onPlatformENT PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,2022024687200212022*GrowthAdd-onPlatformPPMSGastroentero
73、logy PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,20220552002020212022*GrowthAdd-onPlatformMSK PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,202202040608020022*GrowthAdd-onPlatformQ4 20
74、22 Healthcare Services ReportPG 19PPMSOther medical specialists PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,20220200212022*GrowthAdd-onPlatformObstetrics and gynecology PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of Dec
75、ember 31,20220246800212022*GrowthAdd-onPlatformReproductive medicine PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,20220500212022*GrowthAdd-onPlatformOncology PE deal count by typeSource:PitchBook|Geography:US and Canada|
76、*As of December 31,2022000212022*GrowthAdd-onPlatformQ4 2022 Healthcare Services ReportPG 20Vision PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,202202040608000212022*GrowthAdd-onPlatformPPMSVeterinary PE deal count by ty
77、peSource:PitchBook|Geography:US and Canada|*As of December 31,202205002002020212022*GrowthAdd-onPlatformUrology/renal PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,20220500212022*GrowthAdd-onPlatformQ4 2022 Healthcare Ser
78、vices ReportPG 21Applied behavior analysis(ABA)and pediatric therapy PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,202205002020212022*GrowthAdd-onPlatformHome care,home health,and hospice PE deal count by typeSource:PitchBook|Geography:US and
79、Canada|*As of December 31,202202040608020022*GrowthAdd-onPlatformIDD care PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,202202468820022*GrowthAdd-onPlatformInfusion PE deal count by typeSource:PitchBook|Geography:US and C
80、anada|*As of December 31,20220246800212022*GrowthAdd-onPlatformSKILLED CARE AND BEHAVIORAL HEALTHQ4 2022 Healthcare Services ReportPG 22SKILLED CARE AND BEHAVIORAL HEALTHSkilled nursing PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,20220246810
81、2002020212022*GrowthAdd-onPlatformMental health and SUD treatment PE deal count by typeSource:PitchBook|Geography:US and Canada|*As of December 31,20220070802002020212022*GrowthAdd-onPlatformSpotlightsVBC enablersMedicaid/CHIP pediatric dentistryRheumatologyVBC enabl
82、ement is now in its second wave.PEs first rheumatology platform heralds a new ambulatory infusion play.Investors seek social impact in an underserved and growing market.Q4 2022 Healthcare Services Report PG 24RheumatologyVSS Capital Partners September 2022 investment in the Los Angeles-based Center
83、for Rheumatology(CFR)represents an emerging PPM category and a variation on the AIC theme that has attracted significant investment of late.(See the Q3 2022 Healthcare Services Report for more on infusion.)Although several active PE-backed infusion and specialty pharmacy platforms offer infusion the
84、rapy treatment for rheumatology,including FlexCare Infusion Centers,Infusion Associates Management,Infusion for Health,IVX Health,and Vivo Infusion,we have not tracked any previous PE buyouts of rheumatology clinics.The group purchasing organization(GPO)space for rheumatology,which is dominated by M
85、cKessons Onmark,saw one deal in April when Linden-backed UroGPO,a urology-focused GPO,bought United Rheumatology.Rheumatology focuses on the treatment of diseases that affect the MSK system,such as osteoarthritis,osteoporosis,gout,myositis,fibromyalgia,and tendonitis,as well as autoimmune diseases,i
86、ncluding rheumatoid arthritis,lupus,antiphospholipid syndrome,scleroderma,and vasculitis.Rheumatology clinics may offer a range of in-house services,including imaging,bone density scanning,and labs in addition to infusion.They may also serve as clinical trial sites.Unlike physicians in other PPM cat
87、egories that have seen heavy PE investment,such as dentistry,dermatology,orthopedics,and vision,rheumatologists are among the lower-paid physician specialists,and margins for a small rheumatology practice can be tight.However,the arbitrage opportunity is significant:The rheumatology landscape is hig
88、hly fragmented,with only a handful of scaled practices nationally.CFR was a single-location,four-physician practice at the time of the deal,an extremely small platform for a$500.0 million fund.This fragmentation means that health systems are the only major buyers in the marketand they are currently
89、sitting on the sidelines.Like those of many other physician specialties,the provider demographic for rheumatology includes many independent practice owners who are contemplating retirement and therefore are open to buyouts.VSS strategy for CFR focuses on building market density in the LA metro area
90、primarily through small-practice M&A,the negotiation of improved commercial reimbursement rates,and the addition of infusion centers to integrated practices(and/or adding chairs to centers).Because of the complexity of managing specialty drug inventory,many small rheumatology practices do not own in
91、fusion centers.Since September,CFR has partnered with a two-physician practice and begun adding an infusion center to that practice.Out-of-state geographic expansion will follow a familiar playbook of focusing on states with large senior populations.As a first mover,the platform is likely to find pl
92、enty of runway for M&A.Demand for rheumatologists is expected to more than double supply by 2030,4 and payer-driven tailwinds in the AIC space also bode well.We would not be surprised to see additional rheumatology PE platform creations in the coming years.4:“2015 American College of Rheumatology Wo
93、rkforce Study:Supply and Demand Projections of Adult Rheumatology Workforce,2015-2030,”Arthritis Care&Research,Daniel F.Battafarano,et al.,April 2018.Q4 2022 Healthcare Services Report PG 25Select scaled,independent rheumatology groups*CompanyState(s)LocationsArticularis HealthcareAlabama,Florida,Ge
94、orgia,Kentucky,Oklahoma,South Carolina,Tennessee16Rheumatology AssociatesTexas10Arizona Arthritis Rheumatology ResearchArizona8Arthritis and Rheumatism AssociatesMaryland;Washington,DC7Rheumatology Specialty CenterPennsylvania5Source:PitchBook|Geography:US and Canada|*As of December 31,2022RHEUMATOL
95、OGYQ4 2022 Healthcare Services Report PG 26VBC enablersVBC enablement refers to a provider aggregation model premised on moving providers from fee-for-service(FFS)to value-based contracts.Although there are variations,the basic model is to affiliate independent practices with both an MSO and an acco
96、untable care organization(ACO);provide free population health software and some degree of care coordination and practice management support;negotiate Medicare Advantage(MA)contracts;enroll in ACO REACH programs with a progressively higher level of risk,and grow at-risk patient census;and split the u
97、pside,with the enabler taking around 70%to 75%.Enablers vary in their affiliation approach(MSO acquisition versus partnership,annual renewal versus long-term contract),the level of support they provide,their control over practice operations,their emphasis on MA versus ACO REACH,and their flexibility
98、 in provider partnership arrangements(for instance,adjusting the enablers split of upside based on the amount of risk taken by the provider).The first wave of VBC enablers,including agilon,Privia,Aledade,P3 Health Partners,and ApolloMed,has validated the thesis that guiding FFS primary care practice
99、s into risk contracts can materially improve outcomes,reduce variation,and lower the total cost of care within three years or so of going live.Additionally,despite an increasingly crowded primary care landscape of payviders,retailers,PE-backed aggregators,concierge clinics,and employer-focused hybri
100、d groups,VBC enablers appear to have plenty of runway and are not directly competing for either patients or providersat least for the time being.As a result,a crop of new entrants has emerged with participation from both VC and PE investors.These include Enlace Health,Wellvana,Pearl,UpStream,On Bela
101、y Health Solutions,and,most recently,Rise Health.Equality Health replicates the traditionally Medicare-focused VBC enablement model for Medicaid and duals-focused providers.This second wave of VBC enablers will be likely candidates for PE buyouts as they mature.We also expect to see enabler consolid
102、ation begin within the next five years or so as certain markets become more competitive and CMS tightens the belt on MA plans,currently the largest revenue drivers.Health system partnerships represent an important opportunity for VBC enablers to scale quickly in the coming years,as health systems ne
103、ed to pursue increased revenue by taking on risk but currently cannot make significant clinical and technology investments.Given the organizational idiosyncrasies of health systems,the challenge with these partnerships will be to create a model that scales.Q4 2022 Healthcare Services Report PG 27Med
104、icaid/CHIP pediatric dentistryPE-backed dental support organizations typically focus on commercially insured populations and cash-pay ancillaries such as orthodontics.However,Medicaid-focused pediatric dentistry platforms address an important health need for underserved populations and represent a g
105、reenfield PE play.We have tracked several platforms in this category,including Benevis(New Mountain Capital);Abra Health Group,formerly known as ChildSmiles(Clairvest Group);Lone Peak Dental Group(Tailwind Capital);and Childrens Choice Pediatric Dental Care(Amulet Capital Partners).In Q4,Austin-base
106、d Bardo Capital invested in Enable Dental,which provides in-home dental services to pediatric and adult patients enrolled in Medicaid,PACE,and MA.Medicaid and CHIP plans are required to cover routine dental care,as well as medically necessary orthodontics,for all beneficiaries under the age of 21 as
107、 part of the Early and Periodic Screening,Diagnostic,and Treatment benefit.Adult dental coverage through Medicaid is not federally required except for specific populations(such as mothers,from pregnancy through 60 days postpartum);however,the trend is toward state-level expansion of Medicaid Project
108、ed US dental spending,Medicaid/CHIP*Year-over-year change in US dental spending by insurance type*Sources:CMS and PitchBook|Geography:US|*As of December 31,2022Source:CMS|Geography:US|*As of December 31,2022 Note:The changes from 2021 to 2030 are projected.$0$5,000$10,000$15,000$20,000$25,000$30,000
109、2020202242025202620272028ChildAdult-5%5%15%25%35%20004200520062007200820092000002220232024202520262027202820292030CommercialMedicaid/CHIP30%20%10%0%Q4 2022 Healthcare Services Report PG 28dental coverage,and at least 39 states plus Wa
110、shington,DC,currently offer some level of nonemergency adult dental coverage via Medicaid.Medicaid dental benefits can be provided directly by the state in an FFS model with or without the assistance of a third-party administrator;directly contracted to a dental managed care organization(MCO);or“car
111、ved in”to the states medical MCOs,which may or may not subcontract to a dental MCO.There is a significant shortage of dentists who will take Medicaid patients,especially in medically underserved areas.In most cases,Medicaid rates are lower than commercial rates.On average,Medicaid FFS rates are 61.4
112、%of commercial rates for pediatric dentistry and 53.3%for adult dentistry,with significant variation by state.5 Additionally,dentistsespecially small-practice ownersoften find the administrative burden of Medicaid reimbursement difficult to manage and may feel restricted by Medicaid coverage limitat
113、ions.As a result,only 15%of dentists see more than 100 Medicaid patients in a given year in the median state6a remarkably low figure given that a single dentists active patient census is typically in the 1,500-1,800 range.In some cases,state-level expansion of Medicaid dental coverage has created ac
114、ute shortages due to pent-up demand.7 MEDICAID/CHIP PEDIATRIC DENTISTRYThis demand-supply imbalance creates an attractive opportunity for PE platforms that can leverage scale and navigate changing state reimbursement landscapesincluding policy changes and MCO procurement cyclesto create commercially
115、 viable pediatric dentistry practices for underserved communities.We estimate the US Medicaid/CHIP pediatric dental market will exceed$15 billion by 2028.This is despite the expected loss of Medicaid/CHIP coverage for more than 5 million children when states resume disenrollment in April 2023.8 Medi
116、caid/CHIP dental spending(both adult and pediatric)increased at a CAGR of 12.7%between 2000 and 2020 as federal and state regulators expanded coverage,and that growth is expected to slow to only 11.9%by 2030.By contrast,commercial-pay dental spending has grown at a rate of 6.5%since 2000.Access to o
117、ral surgery is also extremely limited for Medicaid/CHIP beneficiaries.Oral surgeries performed in hospitals or ambulatory surgical centers can be subject to elongated wait times for Medicaid patientsup to six months or more.Furthermore,most anesthesiologists do not accept Medicaid,resulting in high
118、out-of-pocket bills.OFFOR Health,which raised a series A1 in March 2022 led by AXA Venture Partners,contracts directly with MCOs to bring the operating room into the office,shifting the site of care closer to the patient.Services include providing anesthesia care teams for oral procedures.TPGs Blue
119、Cloud Pediatric Surgery Centers also focuses on providing oral surgery for pediatric and IDD patients covered by Medicaid/CHIP and touts a two-week wait time for appointments.Another noteworthy variation is Abra Health Groups combination of pediatric dentistry and oral surgery with primary care,crea
120、ting a one-stop shop for parents and facilitating care coordination.This mirrors the established trend in pediatric therapy whereby ABA clinics are combined with speech,educational,occupational,and physical therapy practices.We anticipate that medical-dental integration will become more common as th
121、e more sophisticated MCOs increasingly take a value-based approach to managing spend that is conscious of social determinants of health.We are also watching to see if PE-backed Medicaid pediatric dentistry platforms follow ABA practices upstream into the school setting,especially in markets like Chi
122、cago that have established school-based dental screening programs.5:“Reimbursement Rates for Child and Adult Dental Services in Medicaid by State,”Health Policy Institute,October 2021.6:“Dentist Participation in Medicaid:How Should It Be Measured?Does It Matter?”Health Policy Institute,Marko Vujicic
123、,Ph.D.,et al.,October 2021.7:“Lawmakers Expanded Dental Coverage but Mainers Are Still Struggling to Find Providers,”Beacon,Dan Neumann,August 9,2022.8:“Unwinding the Medicaid Continuous Enrollment Provision:Projected Enrollment Effects and Policy Approaches,”Office of the Assistant Secretary for Pl
124、anning and Evaluation,August 19,2022.Projected Enrollment Effects and Policy ApproachesQ4 2022 Healthcare Services ReportPG 29InvestorPlatform dealsShore Capital Partners23Petra Capital Partners9Trilogy Search Partners8Revelstoke Capital Partners8Webster Equity Partners7Vistria Group7Beecken Petty O
125、Keefe&Company7BPEA Private Equity6Endurance Search Partners6Partners Group6Source:PitchBook|Geography:US and Canada|*As of December 31,2022PlatformAdd-onsSouthern Veterinary Partners182Smile Doctors65AEG Vision55Ivy Rehab42National Veterinary Associates38Eyecare Partners34EyeSouth Partners31Texas Di
126、gestive Disease Consultants31Southern Orthodontic Partners29BayMark Health Services27Source:PitchBook|Geography:US and Canada|*As of December 31,2022Top PE investors in healthcare services by number of platform investments since 2020*Most acquisitive PE-backed healthcare services platforms since 202
127、0*AppendixPitchBook AnalystNote:Walmart,Amazon,and CVS Make Waves inHealthcare ServicesDownload the report herePitchBook AnalystNote:Walgreens Value-based Care PlayDownload the report herePitchBook Analyst Note:Takeaways from the 2023 J.P.Morgan Healthcare Conference:Deals,Trends,and PredictionsDown
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129、ission of PitchBook Data,Inc.Contents are based on information from sources believed to be reliable,but accuracy and completeness cannot be guaranteed.Nothing herein should be construed as any past,current or future recommendation to buy or sell any security or an offer to sell,or a solicitation of
130、an offer to buy any security.This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.Additional research2022 Annual US PE BreakdownDownload the report hereMore research available at and PEJohn Gabbert Founder,CEONizar Tarhuni Vice President,Institutional Research&EditorialPaul Condra Head of Emerging Technology ResearchPitchBook Data,Inc.