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How Orthopedic Practice Groups can Maximize Business and Revenue Growth

Orthopedic care remains one of the fastest-growing sectors in health care, generating more than 137 million visits to providers annually.

Demand is continuing to increase nationwide as more Americans grow older and as a result private equity firms are looking to partner with orthopedic practices to help them make investments to support growing demand for outpatient surgeries.   

For orthopedic practices considering private equity or mergers and acquisition (M&A), the market is robust and active: as of 2019, private equity firms had $29.2 billion in capital waiting to be invested in health care.

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Here are some of the top factors that make the orthopedic industry well positioned for investment and ripe for private practices to consider pursuing capital funding, acquisitions and/or M&A:

Migration of volume from inpatient to outpatient settings

Orthopedic services that can be administered outside of the hospital environment are becoming more attractive to patients and insurance companies, largely driven due to cost and convenience. The pandemic has accelerated the shift in consumer preferences towards the outpatient setting. 

Key Takeaway:

To handle this expected increase in volume, orthopedic practice groups should consider making significant investments into ambulatory surgery centers to be positioned to capture the influx of volume shifting out of the hospital.  According to The Advisory Board Company approximately 30% of orthopedic procedures were performed in ASCs in 2019, which indicates there is significant room for outpatient migration.  

If practices do not have established ambulatory surgery centers (ASCs) or partnerships with an ASC, they should strongly consider their options for establishing ASCs whether through strategic partnerships or new investments. 

The Growing Aging Population

The aging U.S. population will likely lead to an increased demand for orthopedic procedures and potentially an overall increase in surgical candidates. Total knee replacements are projected to increase by 189 percent to nearly 1.3 million by 2030, according to American Academy of Orthopaedic Surgeons (AAOS) projections. In addition, the number of U.S. citizens over 65 is projected to more than double by 2030.  

These trends, paired with a rise in poor joint health caused by obesity and age-related conditions, signal growing demand for orthopedic services. 

Key Takeaway:

Orthopedic practice groups would be wise to make investments to position themselves with the capabilities to meet these trends. Practices which deliver high-quality, high-touch patient care while leveraging cutting-edge technology will maintain a competitive edge.  Orthopedic practices that prioritize patient experience, such as ease of scheduling, price transparency and high-quality care will be best positioned to experience success.

Positioning your orthopedic practice for success: Conduct SWOT Analysis, Make Strategic Practice Group Investments

As orthopedic practices consider how to best strengthen their positioning for 2022 and into the future, we recommend conducting a SWOT analysis to identify areas for investment and fortification.

* Example is for illustrative purposes only

After a SWOT analysis and strategic plan is conducted, the success of that plan is dependent on proper execution of the necessary investments. 

For orthopedic practices, it is recommended to follow innovative and strategic investment avenues to drive success. Each of the investment decisions should be analyzed based on an orthopedic practice group’s unique circumstance, including type of practices and industry pressures, cash flow profile, competitive forces, legislative policy updates, forecasted patient demand, staffing, capabilities and technology. 

When looking to grow an orthopedic practice, owners should focus on three pillars of growth –implementing new service lines, increasing market share and building scale. On the tactical level, this means investing in the technology, management and personnel needed to grow their business into a “platform” group versus integrating into an established platform by means of an acquisition or merger. 

If organic growth is not an option, orthopedic private practice groups can achieve scale by partnering with regional or national groups. Through these partnerships, practice owners can avoid short-term owner distributions while receiving the resources needed to achieve growth. National group models typically present a smart option for sustainable growth that allows local groups to maintain clinical control and governance. Meanwhile, the partner can streamline administrative tasks while providing needed support through capital, technology and operations to quickly scale the business. 

Creating a long-term strategic plan that allows practices to show their competitive differentiation and build scale is critical in helping to ensure long-term sustainable success. It is not practical to make all investments at once, but the first step should include outlining a long-term plan that envisions incremental growth. Incremental growth is integral to the success of any practice and will help ensure your practice is prepared to quickly navigate future market changes if needed. 

The Bottom Line

Investment in the orthopedic care space is likely to increase given the limited supply of orthopedic surgeons, fragmented state of the market, the increased accessibility to care and a rapidly aging population. 

These trends suggest that investment in orthopedics will become increasingly impactful. The orthopedic practice groups that will likely fare best will be those that have made strategic investments in their platforms as a result of a SWOT analysis, bolstering their ability to scale and arming themselves with tools needed to address whatever challenges the future might bring. 

Andrew Colbert is a senior managing director and founding member of Ziegler’s Healthcare Investment Banking practice. He specializes in advising physician groups on strategic and financing alternatives including merger and acquisitions, joint ventures, capital raising transactions, and partnership development. More information is available at www.ziegler.com/physician-groups.

Ziegler is a privately held, national boutique investment bank, capital markets and proprietary investments firm. It has a unique focus on healthcare, senior living, and education sectors, as well as general municipal and structured finance. Headquartered in Chicago with regional and branch offices throughout the U.S., Ziegler provides its clients with capital raising, strategic advisory services, fixed income sales, underwriting and trading as well as Ziegler Credit, Surveillance and Analytics. To learn more, visit www.ziegler.com.

Information contained or referenced in this document is for informational purposes only and is not intended to be a solicitation of any security or services.” “B.C. Ziegler and Company | Member SIPC & FINRA.

Healthcare Business Today is a leading online publication that covers the business of healthcare. Our stories are written from those who are entrenched in this field and helping to shape the future of this industry. Healthcare Business Today offers readers access to fresh developments in health, medicine, science, and technology as well as the latest in patient news, with an emphasis on how these developments affect our lives.

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