Showing the value proposition of deals and having physician leadership from the top down can help management service organizations draw interest from independent practices, according to Emil Engels, MD, CEO of Aligned Orthopedic Partners.
Dr. Engels spoke with Becker's about his goals for Aligned Orthopedic Partners and his advice for physicians looking into management service organization partnerships.
Note: This conversation was edited for clarity and length.
Question: What are your goals for Aligned Orthopedic Partners in the next five years?
Dr. Emil Engels: Our goal for the next five years is to continue to bring together the best and brightest in the orthopedic surgery and spine world. This growth will be achieved through acquisitions, as well as attracting fellows from top programs and other high performing physicians in the community. We also anticipate double digit organic growth by opening new offices and forming innovative partnerships to drive referrals. It's really exciting to be part of a platform like this. We are looking to build a best-in-class musculoskeletal platform that includes orthopedic surgeons, neurosurgeons, physiatrists and pain physicians. As far as goals, we want to continue to grow, and bring value to our patients, facilities, and physician partners. We are focused on achieving density in the mid-Atlantic market and building out ancillary services like physical therapy. Our growth trajectory is remarkable, having quadrupled in size in two years.
It's worth noting that we are physician led and majority physician owned. Our physicians have created work groups in all the orthopedic specialties to standardize care to best-in-class evidence-based protocols. We're also realizing synergies and taking advantage of economies of scale by getting bigger. In doing all of this, we believe we will bring value to healthcare. We will achieve better outcomes by bringing together high-quality physicians and coordinating the care we're providing. We are collecting data with PatientIQ and will be able to demonstrate superior outcomes. It will be at a lower cost because we are reducing complications and shifting care from inpatient hospital settings to outpatient surgery centers.
Q: How do you approach conversations with potential partners?
EE: It's really about demonstrating the value proposition. I have a unique perspective in that I am a physician by training who previously sold my practice. I understand how the physician views this. Most of the practices we're looking to partner with are very high-functioning practices. They don't need to do anything. Their practices are thriving. They're doing well financially. We need to answer the age-old question: "What's in it for me?" It's about being able to partner with some of the most skilled surgeons in the country to deliver better clinical outcomes. As a result of getting bigger, practices will realize synergies on the business side. These could be things like better managed care contracting, malpractice rates or purchasing agreements. Larger entities have the ability to self-insure when it comes to health insurance. There's also the ability to do things that you couldn't do as a smaller group, like having an organized research foundation, planning conferences, and hosting residency or fellowship programs. Joining a larger platform gives you access to capital. With capital, you can broaden your business and get involved in a lot of interesting activities. At Aligned Ortho, we're getting into the urgent care space and investing in surgery centers. Our surgery centers are jointly owned by our surgeons and the platform.
One aspect that surgeons focus on is the ability to monetize their practice. Physicians invest a lot of time and energy in building a practice. Partnering with us and selling is a way to capitalize on that in a tax-efficient way. The proceeds from selling a practice are usually taxed at long-term capital gains rates. There is also the ability over time to repair income through growth, efficiencies on the business side, and better managed care contracts. And then there's the ability to benefit from a second bite of the apple. All of our doctors are owners and investors in the platform. Eventually, we will sell this business to someone else. This will be another opportunity for the physicians to benefit financially.
Q: Some surgeons have expressed skepticism about private equity investment. What would you say to physicians and practice owners who are skeptical about private equity investment? What advice would you give to investment firms to help them build trust with potential partners?
EE: I understand the sentiment from the physicians. I've been on the other side of this. There will always be a healthy amount of skepticism when looking at some of these deals. The proof is in the results. I tell physicians evaluating this that it's critically important to partner with a platform that is physician led and owned. When I say physician led, it's not just at the top. We have a physician CEO, but our practices are governed by orthopedic surgeons in clinical governance committees. In addition, our private equity partner has a physician on their advisory team.
I tell physicians who are considering this to talk to your peers. Ask them if they're happy and how much autonomy they have. Has their practice changed after they joined the platform, and did it change for the better or for the worse? At the end of the day, physicians trust other physicians. As a leader of a platform like this, I need to make sure that we're delivering on what we promised to our physicians and that they're happy professionally and satisfied with the way their practices are running. Quality of care will always be our top priority. As a testament to our approach, we consistently attract surgeons from top residency and fellowship programs and have zero attrition.
Q: How do you expect the rising number of overall outside investors to affect the orthopedic landscape in the U.S.? Do you think we'll see more MSOs popping up?
EE: I absolutely believe we will see more MSOs in the future. I follow the PPM market closely, and I have spent time as a business professional in two different specialties. I attend meetings with other physicians, and I can say without hesitation that orthopedics and spine is the most exciting and interesting specialty to be a part of right now. I think there will be tremendous activity with more private equity backed platforms entering the market. In fact, we see a new platform popping up every few months. It's becoming a very competitive landscape, and that's good for physician practices. It's causing disruption. There are going to be companies that succeed and companies that don't. As a result, it's driving innovation and forcing platforms to differentiate themselves from others.