EDITOR’s CHOICE: Law360, ‘Concierge Medicine Market Offers Investment Opportunities.’

By Amber McGraw Walsh

Amber McGraw Walsh, Law360
Amber McGraw Walsh, Law360

Law360, New York (January 28, 2015, 10:36 AM ET) — Concierge Medicine, also known as “boutique” or “retainer” medicine, has grown from a regional industry catering to a select, wealthy population of patients to a national industry that provides a viable alternative to many patients with more modest incomes. As implementation of the Affordable Care Act moves forward, primary care physicians will be asked to serve even larger patient populations. As a result, the concierge medicine industry is primed for further growth as patients seek better access to physicians. As a young and growing field, Concierge Medicine may ultimately provide a solid market for private equity investors.

The Evolving Concierge Model

The name Concierge Medicine covers a wide range of physician-patient relationships. Common to all of the models is that a patient pays an annual fee in order to secure better access to a physician. Physicians that participate in concierge medicine generally provide care for hundreds of patients rather than thousands. Examples of services offered by concierge providers are immediate appointment scheduling, house calls and direct access to physicians through cell phone and email. The annual fee charged by concierge providers may cover a limited range of services not normally covered by public or private insurance plans or, in order to navigate regulatory restrictions on public plans, may require patients to opt out of insurance and pay out of pocket.

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As the name implies, early Concierge Medicine models offered premium service for prices out of reach of the average consumer. However, new concierge models have helped the industry grow and reach new consumer bases. Some providers now offer basic packages of services for hundreds of dollars a year rather than tens of thousands. In addition to convenience, patients may find that more access means spending less on health care in the long run. Concierge Medicine offers physicians a means to cut back on patient loads in order to provide higher quality care. The ability to avoid billing insurance can also mean cutting back on administrative fees.

concierge medicine startup businessGrowth and Investor Interest.

Because of its appeal to patients and physicians, as well as innovative models that have brought its services within the reach of a broader patient base, concierge medicine has undergone significant growth within the past few years. For much of the 1990s, only a few hundred physicians practiced under a concierge medicine model. However, current estimates are that around 5,000 physicians have moved to concierge service, with physician growth rates of around 20 to 25 percent per year.

This rate is only expected to increase. There are already shortages within primary care because of lower incomes and burgeoning caseloads. The ACA’s introduction of potentially 30 million newly insured Americans is only expected to exacerbate these issues. The Association of American Medical Colleges has estimated that demand will exceed supply of primary care physicians by 45,000 by 2020.

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For a private equity investor, the market presents both challenges and opportunities. A number of lower middle-market private equity firms have begun to develop expertise within the concierge medicine industry. For example, Silver Oak Services Partners provides that it is interested in concierge medicine entities with revenues between $15 million and $150 million. Shore Capital Partners indicates that they target concierge medicine entities with revenues between $5 million and $50 million. In determining where to invest, private equity funds must balance opportunity for growth and potential regulatory risk. Additionally, investors must consider what size entity and particular payment model offers the best chance of returns.

cmt selft test 2015In its 2012 Global Healthcare Private Equity Report, Bain & Co. cited the increasing role of the consumer as a reason to be bullish about the future of concierge medicine. Bain predicted that consolidation and models demonstrating potential cost improvement would likely present the most opportunity for private equity investors.

Concierge Investment Activity.

Traditional Concierge Providers. Deals within the concierge medicine sector provide an indication of where investors see potential growth. Alphaeon, a “lifestyle health care company,” received backing from private equity firm Strathspey Crown to build a national platform for concierge services. Alphaeon has made a number of acquisitions and licensing agreements in order to offer concierge services for medical device and pharmaceutical treatments.

There have also been deals made involving established concierge providers. Summit Partners, a growth equity firm, recently acquired MDVIP. MDVIP is one of the oldest and largest concierge providers with 700 physicians and annual fees of between $1,500 and $1,800 per patient. Summit Partners had previously invested in MDVIP and sold to Proctor and Gamble in 2009. In June 2014, P&G sold back to Summit Partners for an undisclosed amount. From 2009 to 2014, MDVIP experienced significant growth as patient membership nearly doubled and the company expanded its reach across the United States. MDVIP’s 2013 earnings were estimated at $16 million pretax.

Employer Concierge Models.

direct primary care journal2SMALLInvestors may also consider models that deviate from the typical primary care physician and patient model. For example, concierge providers have begun offering premium services to self-insured employers rather than directly to patients. DaVita Healthcare Partners has been active in the employer-based concierge medicine space. In 2012, DaVita subsidiary Paladina Health acquired ModernMed, which provided concierge care at 16 locations in 12 states. Before the acquisition, Paladina had two concierge clinics. Since that time, Paladina has nearly doubled in size. Paladina appeals to self-insured employers by citing data indicating that employers can save money by providing employees with greater access to physicians, such as by operating clinics at the employer work site.

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The employer market may offer greater opportunities for growth than marketing directly to patients. Patients may be reluctant to sign up with concierge providers because of a general resistance to paying for each visit or service. Although overall costs within the concierge market may not exceed the costs of private insurance by a great deal, patients are accustomed to not having to pay more than nominal amounts on a per-visit or per-service basis. However, concierge providers may be able to appeal to employers by citing statistics that indicate an overall savings based on a reduction in hospital and emergency room visits.

Specialist Concierge Providers.

This is another area that has attracted investment is specialist concierge medicine. Companies are seeking to fill the demand to see a specialist immediately by contracting with such physicians using concierge models of care. One example of this model is Boston-based Concierge Medical Specialties, which promises patients access to top specialists and the ability to arrange surgery in as little as seven days with “executive suites, fine dining, private nursing and surgical concierges.” Currently such models are generally limited to high-income patients and frequently focus on medical tourism. Whether such models can be adapted to serve larger populations to attract mainstream private equity investment remains to be seen.

Conclusion

Although still a relatively young industry, concierge medicine has already established itself as a potential growth area for lower middle-market private equity firms. The implementation of the ACA promises a further crunch on the caseloads of primary care physicians, which is likely to increase demand for concierge services. Further, concierge models are just tapping into new markets, such as self-insured employers and specialty care, offering new possibilities for investment.

—By Geoff C. Cockrell, Amber McGraw Walsh and William T. Nash, McGuireWoods LLP

Geoff Cockrell is a partner in McGuireWoods’ Chicago office and chairman of the firm’s private equity group.

Amber Walsh is a partner with McGuireWoods in the firm’s Chicago office.

Will Nash is an associate in the firm’s Chicago office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

SOURCE: http://www.law360.com/articles/615636/concierge-medicine-market-offers-investment-opportunities

 

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