In many ways, the third wave of private equity investment in physician-owned businesses is starting to mature. We view this third wave as having started around 2015 with investments in ophthalmology and dermatology practices. Earlier investments in radiology and emergency medicine, or pure-play ASCs, are really part of an earlier wave.
Now, we see increasing interest and activity around medication-based specialties and groups that manage specific populations.
Here is how we think about the landscape so far -
Ambulatory Surgery Centers (Amsurg, USPI)
Hospital/Staffing-Oriented Practices (Emergency Medicine, Radiology)
Surgical Specialties (Ophthalmology, Dermatology, GI, Urology, Orthopedics, Women's Health)
Medication/Management Specialties (ENT & Allergy, Rheumatology, Cardiology, Oncology, Primary Care)
Interestingly, some of the first investments in the fourth wave (and later ones in the third wave) are really hybrids. ENT & Allergy is both a surgical and medication-based specialty, as are retina subspecialty practices within ophthalmology. Prairie Capital launched Family Allergy & Asthma in 2018. Webster Equity Partners launched Retina Consultants of America in early 2020.
Fourth wave interest is spurred by success in earlier waves but also the desire to address a different market need.
All the above investment waves are, in many ways, driven by the same market forces - a growing patient population with defined needs and a shortage of resources to meet those needs. Private equity's challenge and opportunity is to iterate delivery methods to meet those demands.
Third wave surgical specialties are defined by specific population surgical needs - cataracts, cancerous cell removal, hips & knees. Groups that can deliver that care with more quality and efficiency will benefit patients, payors, providers, and others in the healthcare ecosystem.
Parallel defined needs exist on the medication side - retina injections, cancer treatment, allergy injections, infusions, etc. We are in the early stages of that investment wave.
At the same time, we see increased interest in population management - particularly primary care and at-risk primary care practices. This represents a step backward to manage earlier stages of care prior to an acute intervention or ongoing medication need. PE groups are already taking on that challenge, and we expect to see many of these deals in 2021 and beyond.
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FOCUS Managing Director and Healthcare Team Leader