Home healthcare agencies engage a variety of providers and non-providers, including nurses, therapists, and social workers, with care coordinated with the patient’s physician. Hospice care, on the other hand, is provided through many of the same types of providers as home health but can also include religious or spiritual counselors and bereavement specialists. Hospice care can also include services outside of traditional medicine, including animal and music therapy. Personal care can be provided by family members or caregivers employed by a personal care agency.

SIZE OF THE MARKET

As of 2021, the most recently reported CMS data, there were approximately 3 million Medicare beneficiaries receiving home healthcare services, and 1.7 million Medicare beneficiaries receiving hospice services. There are approximately 11,300 Medicare certified home health agencies and 5,900 hospice agencies in the United States, as presented in Figure 2.[1]

According to CMS, total expenditures for home healthcare in 2021 was $125.[2] billion.2 Home healthcare expenditures had been increasing at a rate of approximately four to five percent per year from 2014 through 2019. In 2020, expenditures increased approximately 11 percent, but remained flat in 2021. The large increase in 2020 was related to COVID-19 as patients preferred to avoid long-term care and other healthcare facilities, which were often the source of outbreaks. Figure 3 presents home health expenditures from 2014 through 2021, as well as projected expenditures through 2031. CMS projects annual increases ranging from 6 percent to 8 percent for home healthcare expenditures through 2031.

There are many growth drivers impacting the increase in home healthcare expenditures in the United States. Major factors include the aging population, the shift to value-based care and recognition by providers and payors that home healthcare can help reduce readmissions, and the overall push to control costs within the healthcare system. In particular, home healthcare is increasingly being utilized to keep elderly patients in their homes as opposed to assisted-living communities. Home healthcare providers are also being used as an alternative to, or an extender of, primary care physicians, and this trend is expected to accelerate as the shortage of primary care physicians is anticipated to worsen in the coming years.[4]

REIMBURSEMENT
Home Health

Beginning in 2020, the implementation of Patient-Driven Groupings Model (“PDGM”) significantly altered how home healthcare services are reimbursed. Under this payment model, the number of payment groupings increased from 153 to 432 and are classified based on episode timing, referral source, clinical category, functional/cognitive level, and presence of comorbidities. CMS also eliminated the Request for Anticipated Payment (“RAP”) for new providers in 2020 and for existing providers in 2021. It had been foreseen that the increasing complexity of the payment model, as well as cash flow issues arising from the RAP phase out, would lead to increasing consolidation within the industry; although, thus far, this has not come to fruition. Instead, ongoing uncertainty surrounding pay cuts from CMS and headwinds associated with Medicare Advantage (“MA”) reimbursement have hung over the M&A markets and led to fewer transactions.

In addition to PDGM, CMS recently implemented the nationwide rollout of the Home Health Value-Based Purchasing (“HHVBP”) Model, which applies an adjustment to home health agencies’ reimbursement based on certain quality metrics. The quality metrics include measurements related to mobility, self care, improvements in breathing, improving medication management, various hospital utilization metrics, and patient satisfaction surveys. HHVBP has been tested in several states in recent years and the nationwide rollout took effect in 2023. Under the model, all agencies are eligible for an adjustment of up to 5 percent (positive or negative) based on their performance relative to the benchmarks discussed herein. Given that the program was only recently implemented nationally, there is no data yet regarding outcomes[5], but during the testing phase in the first nine states[6], CMS reported that the program generated average annual savings of $141 million and quality scores generally improved.[7] Our work in the space suggests providers are still learning how to optimize care under the model, but larger providers are likely better able to adjust operationally in order to benefit from the payment system.

The 2024 final rule for home health included a 0.8 percent increase in reimbursement, which, given the inflationary environment in recent years, was met with significant pushback from operators in the space. The final rule was less detrimental than the initial proposed rule, which included a 2.2 percent cut to reimbursement. For multiple years in a row, CMS has proposed significant cuts to reimbursement in the proposed rule and then finalized less severe cuts or slight increases in the final rule. This uncertainty hanging over the industry has created difficulty for operators and created headwinds to M&A activity.

In addition to headwinds from CMS reimbursement, many home health operators struggle to achieve favorable reimbursement rates from MA plans. The market for home health remains highly fragmented, and the lack of scale in geographic markets makes it difficult for operators to negotiate with MA plans. Unlike many types of providers, including hospitals and dialysis clinics, which operate in consolidated markets where MA plans pay similar rates to Medicare fee-for-service (“FFS”), in home health, MA rates are typically lower than Medicare FFS. Several large operators in the space have publicly discussed canceling contracts with MA plans and focusing on providing care to patients with Medicare FFS or other payor arrangements. Recent studies suggest that some patients with MA plans may receive fewer visits and have worse functional outcomes compared to Medicare FFS patients.[8] We also believe several of the large transactions in the space, including LHC Group and Amedisys[9] being acquired by UnitedHealth Group’s Optum, have been driven at least in part by MA related headwinds.

HOSPICE

Hospice reimbursement is based on a daily payment rate that is determined according to a fee schedule depending on the level of care provided. There are four levels of care that can be provided under the hospice Medicare benefit, each with its own payment rate. The most common is routine home care, which accounts for 98 percent of all hospice days and has a 2024 payment rate of $218 per day for the first 60 days, and $172 per day thereafter. The four levels of care and the associated base payment rates are presented in Figure 4.[10] The base rates are then adjusted to reflect different labor costs in different geographic locations throughout the United States. There is a cap on aggregate hospice payments per patient, which, for FY 2024, is $33,494. Payments exceeding this cap can result in claw backs by CMS in subsequent years. CMS’s 2024 final rule resulted in a 3.1 percent increase in total payments to hospice providers.

PERSONAL CARE

Reimbursement for personal care services varies from state to state and can be paid for by Medicaid, MA, private insurance, or cash pay patients. Many state Medicaid plans reimburse for personal care services through a time-based payment method. This is typically an hourly rate, and can range from less than $20 to more than $30 per hour. A few states reimburse on a per day or per visit basis.[11]

In April of 2023, CMS proposed the Ensuring Access to Medicaid Services proposed rule. Among other provisions, the rule would require 80 percent of Medicaid payments for personal care, home health aide, and home maker services be spent on compensation for the direct care workforce. This would leave the remaining 20 percent of the payment to cover overhead expenses and profit of the provider. We note that several states already have similar rules in place, but the CMS rule would apply nationally.[12] While the rule appears to be on track to be finalized, the exact contents of the final rule have not been publicized and could contain different terms from the proposal. Assuming there is an 80 percent passthrough requirement, we believe it could catalyze a period of consolidation, as providers with scale will have the ability to spread a larger revenue base over their fixed cost structure. The following quote illustrates how operators in the space are thinking about the new rule.

OUTLOOK
Higher Acuity Care

Recent improvements in technology and care provision standards have enabled home health providers to admit higher acuity patients. The largest operators in the space have focused on initiatives including “agingin- place,” “hospital-at-home,” and “SNF-at-home” models involving caring for higher acuity patients in the home setting. The increasing prevalence of value-based care arrangements and the rapid growth of MA, are expected to contribute to an acceleration of these trends. A recent example is Amedisys’ acquisition of Contessa Health in June of 2021 for 3.9x LTM revenue, which significantly expanded Amedisys’ footprint in the hospital-at-home, SNF-at-home, and palliative care space. This transaction, and the ability to provide care to higher acuity patients, increases the total addressable market for Amedisys (and other home health providers) from $44 billion to $73 billion.[13] There has also been a push to provide more dialysis in the home, which could provide an additional avenue for growth for home health companies. For more information on home dialysis, and the dialysis industry overall, lookout for our forthcoming Industry Outlook article on the dialysis and kidney care industry.

Recent studies of hospital-at-home programs suggest the care model is effective and many operators believe we are approaching a tipping point of adoption. Specifically, one study of hospital-at-home patients showed relatively few patients were transferred to the hospital[14], while another showed patients were less likely to experience delirium at the home than in the hospital.[15] CMS’s Acute Hospital Care at Home waiver, which started under COVID, has been extended through 2024, and market participants expect another extension through 2025. As of the date of this publication, there are 312 hospitals across 131 health systems that have been approved to participate in the program. There is also proposed legislation (the HOME Services Act) that would expand the scope of services that can be offered through hospitalat- home models to include patients under observational status.

We have observed multiple hospital-at-home models and continue to see interest in the space from operators and investors. The growth and success of Contessa’s joint venture model, and recent improvements in technology, point toward continued expansion of these services, particularly in connection with value-based care arrangements. In addition to the joint venture model, there are hospital-at-home companies, like Medically Home, that enable hospitals and home care providers to implement hospital-athome programs through the use of licensed technology and other services. The lack of long-term clarity on the regulatory environment remains a key risk for operators in the sector, although the continued extension of the CMS waiver and proposed HOME Services Act serve as an indication that the models are here to stay. The ability to find nurses to care for patients in these arrangements remains a challenge, and, in our experience, operators typically recruit nurses with hospital-based work experience due to the requirements of the role. The need for a rapid response network (including 30-minute call response time) requires providers to place a premium on nursing. Utilizing virtual visits has been, and will continue to be, critical to growth of hospital-at-home arrangements, as is the use of social workers. Thus far, more than 100 hospital DRGs are covered by MA plans for hospital-at-home. The most common conditions treated under the CMS Waiver have been respiratory infection, heart failure and shock, and severe sepsis or septicemia, all with a comorbidity or severe complication.[16] An example of a hospital-at-home joint venture model is presented in the following infographic.

Staffing Shortage, Access to Care, and Telehealth

As with many other healthcare sectors, home health companies have struggled with recruiting and retaining nurses, resulting in a shortage of providers and higher costs to provide care. The rise of travel nursing and contract labor, burnout resulting from COVID-19 and other work-related stress, and providers seeking more flexibility and work-life balance, have contributed to the shortage. The shortage of providers leads to a higher reliance on contract labor, which typically is more expensive compared to the cost of employed clinicians. In the hospice space specifically, clinical staff turnover and job vacancies reached elevated levels in 2022 and 2023, leading to a record high rejection rate of 41 percent among hospices.[17] While many of the companies we work with indicate that the staffing situation has improved in recent quarters, reducing turnover and securing adequate supply of clinicians will continue to be a focus for home health providers in the coming years.

In addition to staffing shortages, other factors can contribute to lack of access to care. One factor that influences the availability of home health and hospice services is certificate of need (“CON”) requirements of the state. Based on our analysis of data from CMS, there is a correlation between states where home health and hospice services are regulated by CON laws, and the ratio of Medicare enrollees per agency in that state. For example, when looking at the 10 states with the highest number of enrollees per agency (i.e., less care available per enrollee), 8 have CON laws regulating home health and/or hospice. Conversely, the 10 states with lowest number of enrollees per agency (i.e., more care available per enrollee), 7 have no CON laws regulating home health or hospice, 1 regulates hospice only, and 2 have CON laws pertaining to home health.[18] While this analysis does not account for the size of the agency, this analysis suggests that CON laws, which create barriers to entry for regulated services, has limited the number of agencies per enrollee. The following maps illustrate the relationship between CON regulations and availability of care, with blue states on the CON map encompassing more of the darker blue on the availability of care map. Overall, there are 16 states and the District of Columbia which have CON laws regulating home health and hospice, as well as Florida, which regulates hospice only. Valuation multiples in these states also tend to be higher due to the lesser supply and competition.

Telehealth has played a role in reshaping the home health landscape as providers increase their use of technology to provide better care for patients at lower costs. Some of the most common applications of telehealth in the home health space include patient monitoring, medication management, image sharing technology, mobile apps for telehealth consultations with providers, and population health.[19] The ability to provide these services to patients in their homes without sending a provider to the patient represents a significant opportunity for home health agencies to reach more patients, particularly in rural areas or markets with a material shortage of providers. Similarly, with recent Medicare expansions in reimbursement for telehealth services,[20] home health will increase in prominence as part of the continuum of care after discharge. CMS has made permanent some of the changes to telehealth regulations that were put in place during the pandemic, which should enable continued growth of telehealth services within the home health space. Given the steep Medicare penalties associated with patient readmissions, we have observed many health systems utilize home health as a means to treat patients before they require hospital care. Providers are combining chronic care management with remote patient monitoring to provide costeffective treatment to patients with ongoing serious health conditions. Examples abound of increasing adoption (including among physicians) of remote monitoring devices in the patient’s home in order to improve care.[21]

PACE and Other Specialty Models

We have observed increased interest in the Programs of All-Inclusive Care for the Elderly (“PACE”) program in recent years. PACE is a capitated payment model for dual eligibles that covers both Medicaid and Medicare services for those individuals that enroll in the program. The program provides comprehensive care through a number of providers, but typically includes a substantial home health component, as the goal is to enable the patients to stay in the home as long as possible. There are 159 PACE organizations operating in 32 states, and more than 72,000 individuals are enrolled in the program, up from 35,000 in 2015.[22] Most PACE providers are nonprofit organizations, but InnovAge (Nasdaq: INNV) is one of the larger, for-profit providers in the space. While the program remains relatively small, InnovAge estimates the addressable market to be 2.2 million lives and $235 billion in revenue, and projects the market will grow to approximately 200,000 participants by 2028.[23]

There continues to be significant activity in the in-home physician services space as well. Many of these providers incorporate APPs, home health, and personal care to provide a high touch care model that manages chronic disease and reduces hospitalizations. These groups work with Medicare Advantage, Medicaid, and other value-focused payors. In some models, the provider is sub-capitated beneath the MA plan, while other models involve shared savings/losses or other risk arrangements. Many of the providers we work with in the space emphasize the need to bring as much care as possible under the primary care umbrella and refer patients to specialized settings as needed.

Behavioral home health represents a growing subsector within the home health space, with many operators focused on providing substance abuse, depression, anxiety, and other forms of clinical care in the patient’s home. These providers typically utilize high touch care models and rely on telehealth as well. Types of care provided include psychiatric evaluations, physical assessments, medication management, counseling, patient and family member/care giver education, care coordination, as well as others. With growing focus on behavioral health and the recognition of its contribution to overall patient and population health, we expect this area to continue to generate interest and activity in the coming years.

Consolidation and Value-Based Care

Consolidation activity in the home health sector in recent years has been characterized by large platform transactions, the largest of which were acquired by payors or “payviders.” UnitedHealth Group, through its Optum subsidiary, acquired LHC Group and is in the process of acquiring Amedisys, which would make it the largest home health provider in the country with approximately 10 percent market share. CVS, which owns Aetna, acquired Signify Health, and Humana remains active in building its home health and senior primary care business.

Much of this acquisition activity by large insurance companies is driven by value-based care strategies, particularly in the MA space. UnitedHealth and Humana, in particular, have discussed using home health as a means of delivering ongoing care outside of facilities and helping to manage chronic care patients. Similarly, BrightSpring Health Services recently went public through an initial public offering and provides home health and pharmacy services to senior and specialty patients. BrightSpring focuses on complex patients with multiple health conditions, which represent approximately 5 percent of the population but comprise 50 percent of healthcare spending.[24]

More broadly, the shift to value-based care across the healthcare continuum will likely lead to further demand for home health as the increasing prevalence of capitated payment models and population health initiatives incentivizes groups of providers to lean more heavily on lower-cost settings, when clinically appropriate, for patient care. Home health can be utilized to reduce the cost of post-acute care by keeping patients out of expensive facilities and institutions, as well as to better maintain health and monitor chronic conditions, which could lower emergency room utilization and reduce the overall cost burden associated with these conditions. In general, larger providers are better able to participate in these models given their scale and access to resources and technology. We expect this will contribute to further consolidation.

TRANSACTION ACTIVITY AND VALUATIONS

Transaction activity peaked in 2021 and early 2022 before starting to normalize, with 2023 representing a return to pre-COVID levels of transaction volume. As interest rates increased in 2022 and 2023, buyers were less willing to pay elevated multiples, and sellers took time to adjust to the new market dynamics. In addition, the reimbursement headwinds in home health discussed earlier played a role in slowing transaction activity. The prior figure, which is based on data from Irving Levin, DealStats, and Mertz Taggart, presents transaction volume from 2018 through 2023. Based on publicly available transaction data and our experience working on many home health and hospice transactions, smaller agencies are typically transacting in the 4x to 8x EBITDA range (Figure 10). Larger providers with a regional footprint and/or higher acuity services can transact in the mid-teens in terms of EBITDA multiples, although valuations have come down from 2021 levels.

As illustrated in Figure 11 there have been many notable, transformative transactions in recent years. In addition to large, publicly traded home health operators, several private equity firms have established large, regional or national organizations, and health systems and payors, such as UnitedHealth and Humana, are heavily involved in the space. In particular, UnitedHealth acquired LHC Group for approximately 25x EBITDA (22x forward EBITDA). UnitedHealth then announced it intends to acquire Amedisys, which was in talks to merge with Option Care Health (Nasdaq: OPCH), a provider of in-home infusion services. The Amedisys deal has not yet closed, and UnitedHealth Group is currently facing antitrust investigation from the Department of Justice, although the investigation is not limited to its home health business. Once the deal closes, the combined platform would have approximately 10 percent market share. CVS Health acquired Signify Health for 31x estimated forward EBITDA (46x trailing 12-month EBITDA). As valuebased care increases in prominence and importance within the healthcare industry, we expect more integration of the care continuum with payors and health systems bringing more home health services into their networks. We note that many of these valuation multiples include synergies (both revenue and cost synergies), and the ability to execute on those synergies will determine whether or not the transactions are a success.

Figures 12 and 13 present valuation multiples and analyst-estimated revenue growth rates for the publicly traded operators in the home care sector. Valuation multiples have come down in recent years due to several of the factors discussed throughout this article, including higher interest rates, provider shortages, and reimbursement uncertainties. Despite these headwinds, analysts project positive revenue growth rates as the shift toward home care and an aging population should provide support for revenue growth going forward. We anticipate many of these public operators may be active in closing bolt-on acquisitions as they may be better positioned than their private-equity backed competitors given the current interest rate environment.

CONCLUSION

Despite some of the headwinds discussed herein, including staffing shortages and reimbursement challenges, home care continues to represent an important aspect of the continuum of care. We believe deal volumes will improve in 2024 as both buyers and sellers have had time to adjust to the new interest rate and operating environment. The experts at HealthCare Appraisers have provided advisory and valuation services to home care operators and acquirers for more than 20 years and are well equipped to help navigate the changing landscape.

CONTACT THE EXPERTS AT HEALTHCARE APPRAISERS TO DISCUSS YOUR ADVISORY AND VALUATION NEEDS REGARDING HOME HEALTH, HOSPICE AND PERSONAL CARE IN 2024.

[1] MedPAC.gov; Payment Basics; Accessed February 29, 2024
[2] CMS.gov; CMS analyzed healthcare expenditures based on funding sources, as well as site of service; therefore, healthcare expenditure data for home healthcare includes hospice spending that takes place in the home of the patient but does not include hospice spending taking place in a nursing facility, hospital, or any other clinical setting.
[3] Ibid 2
[4] Health Affairs, https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2019.00529, Accessed February 29, 2024
[5] We anticipate CMS reporting data in 2025 or some time thereabouts.
[6] The nine states were Arizona, Florida, Iowa, Massachusetts, Maryland, Nebraska, North Carolina, Tennessee and Washington.
[7] CMS.gov, https://www.cms.gov/priorities/innovation/innovation-models/expanded-home-health-value-based-purchasing-model, Accessed March 12, 2024
[8] JAMA, https://jamanetwork.com/journals/jama-health-forum/fullarticle/2815745, Accessed March 5, 2024
[9] This transaction was announced in June of 2023 but has not yet closed.
[10] Ibid 1
[11] KFF.org; https://www.kff.org/medicaid/issue-brief/payment-rates-for-medicaid-home-and-community-based-services-states-responses-toworkforce- challenges/, Accessed February 27, 2024
[12] CMS.gov; https://www.cms.gov/newsroom/fact-sheets/ensuring-access-medicaid-services-cms-2442-p-notice-proposed-rulemaking; Accessed February 27, 2024
[13] Amedisys, https://investors.amedisys.com/news/news-details/2021/Amedisys-Announces-Agreement-to-Acquire-Contessa-Health-Creating-a- Comprehensive-Home-Healthcare-Delivery-Platform/default.aspx, Accessed February 28, 2024
[14] Homehealthcarenews.com, https://homehealthcarenews.com/2023/11/cms-acute-hospital-care-at-home-waiver-delivers-promising-results/; Accessed February 28, 2024
[15] JAMA, https://jamanetwork.com/journals/jama-health-forum/fullarticle/2811346, Accessed February 28, 2024
[16] Healthcarefinancenews.com, https://www.healthcarefinancenews.com/news/acute-hospital-care-home-gets-good-grades-cms-research, accessed March 11, 2024
[17] Hospital & Healthcare Compensation Service; https://www.hhcsinc.com/hcs-reports.html, Accessed February 29, 2024
[18] Includes District of Columbia
[19] Healthcare Dive, https://www.healthcaredive.com/news/home-health-agencies-expanding-rolling-out-more-telehealth-services/568320/, Accessed February 29, 2024
[20] Mhealthintelligence.com, https://mhealthintelligence.com/news/cms-finalizes-new-reimbursement-rules-for-remote-patient-monitoring, Accessed February 28, 2024
[21] Mhealthintelligence.com, https://mhealthintelligence.com/news/current-and-future-doctors-are-more-than-ready-to-use-mhealth-wearables, Accessed February 28, 2024
[22] National PACE Association, https://www.npaonline.org/find-a-pace-program#:~:text=Find%20a%20PACE%20Program%20Near,72%2C000%20 participants%20across%20the%20country.&text=Start%20with%20a%20state%20search,search%20to%20refine%20the%20results., Accessed March 12, 2024
[23] InnovAge Investor Presentation, https://investor.innovage.com/static-files/f964ac5b-8cc2-4941-9fcb-22e91cd53032, Accessed March 12, 2024
[24] SEC.gov, BrightSpring Health Services, Inc. S-1 Filing, Accessed March 5, 2024
[25] DealStats, Mertz Taggart, LevinPro HC, Levin Associates, 2024, March, levinassociates.com
[26] DealStats, Accessed March 5, 2024

[1] RadNet, Inc. Earnings Call on November 9, 2023
[2] RadNet, Inc. Investor Presentation; Accessed January 2, 2024
[3] IBISWorld Reports; Accessed January 2, 2024
[4] Ibid 1
[5] Advisory Board; Scrutiny over hospital imaging prices continues: How you should respond to UHC’s new policy; https://www.advisory.com/research/imaging-performance-partnership/the-reading-room/2018/10/uhc-imaging-policy Accessed January 2, 2024
[6] Health Affairs; https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2014.0168 Accessed January 2, 2024
[7] State Health Compare; https://statehealthcompare.shadac.org/Data; Accessed January 2, 2024
[8] RadNet, Inc. Earnings Call on August 8, 2023
[9] This 40 percent rate is related to services implicated by the site neutral provisions, while the 30 percent referenced in the RadNet quote earlier pertains to all imaging services.
[10] Advisory Board; https://www.advisory.com/blog/2018/08/site-neutral#:%7E:text=Here%E2%80%99s%20 Accessed January 3, 2024
[11] HealthcareDive; https://www.healthcaredive.com/news/anthem-will-no-longer-pay-hospitals-for-outpatient-mris-ct-scans/503706/ Accessed January 3, 2024
[12] Urban Institute; https://www.urban.org/sites/default/files/publication/104945/commercial-health-insurance-markups-over-medicare-prices-forphysician- services-vary-widely-by-specialty_0.pdf, Accessed January 10, 2024
[13] Health Affairs; https://www.healthaffairs.org/doi/10.1377/hlthaff.2023.00039, Accessed January 10, 2024
[14] Federal Register.gov, https://www.federalregister.gov/documents/2021/07/13/2021-14379/requirements-related-to-surprise-billing-part-i, Accessed October 5, 2023
[15] Pediatrix Medical Group Investor Presentation on May 9, 2023
[16] https://restructuring.ra.kroll.com/Envision/; Disclosure Statement for the Joint Chapter 11 Plan of Reorganization of the EVPS Debtors; Last Accessed January 25, 2024
[17] CMS.gov, https://www.cms.gov/files/document/federal-idr-processstatus-update-april-2023.pdf, Accessed October 5, 2023
[18] CMS.gov, https://www.cms.gov/files/document/partial-report-idr-process-octoberdecember-2022.pdf, Accessed October 5, 2023
[19] United States District Court Central District of California; https://storage.courtlistener.com/recap/gov.uscourts.cacd.881502/gov.uscourts. cacd.881502.1.0.pdf; Accessed January 11, 2024
[20] Ibid 8
[21] Ibid 8
[22] LevinPro HC, Levin Associates, 2024, January, levinassociates.com , S&P Capital IQ, Company Filings. May not represent complete data on all transactions.
[23] Radiology Business; https://www.radiologybusiness.com/sponsored/1077/topics/leadership/100-largest-private-radiology-practices Accessed January 11, 2024
[24] Irving Levin, S&P Capital IQ, and other publicly available resources
[25] Ibid 2
[26] S&P Capital IQ
[27] Ibid 19

 ALLERGY AND ASTHMA SPECIALTY OVERVIEW

Allergy and Asthma physicians are involved in the diagnosis and treatment of certain medical issues and conditions, some of the more common of which are outlined below:[3]

Asthma and Frequent Cough;
Hay Fever (Allergic Rhinitis);
Skin allergies, such as contact dermatitis, eczema, and hives;
Eye or Food Allergies;
Anaphylaxis, which results in symptoms such as hives, wheezing, nausea, dizziness, and swelling of the tongue, throat, nose and lips; and
Sinus Infections.

 TRANSACTION ENVIRONMENT

Figure 2 illustrates annual transaction volume for ENTA&A practices in the United States from 2017 through 2023. We note that the data presented has been sourced from a single transaction database and is not meant to represent total ENTA&A transaction volume, but to serve as a proxy for recent increased transaction activity. We note that most ENTA&A transactions are private and not publicly disclosed.

Transaction activity has increased over the last several years as PPM investors in the sector have increased, and sellers see the valuation proposition of partnering with a management organization or health system. For an independent medical group, the administrative burden, staffing pressures, inflation, and difficult reimbursement environment can all play a factor in a group deciding to partner with a PPM or health system. As outlined in Figure 3, while changes in Medicare reimbursement in the ENTA&A sector were positive in 2021, other recent years were generally flat or negative.

Compensation for ENTA&A physicians has increased at nominal levels in recent years, with an approximate compound annual growth rate of approximately 1.8 percent for the four-year period ended 2022, based on our review of median compensation reported by MGMA[5] for the specialties of Allergy/Immunology and Otorhinolaryngology. Reimbursement from governmental payors that has not kept up with inflation, paired with inflationary pressures on staff wages and supplies expenses that we have observed, are likely the culprits of fairly stagnant compensation levels for ENTA&A physicians in private practice.

Some of the financial and administrative challenges faced by independent practices can result in an opportunity for a health system or PPM partner. While acquisitions in the ENTA&A sector in recent years have started a trend toward industry consolidation, there still appears to be fragmentation in the sector. While the number of otolaryngologists increased approximately 18 percent between 2014 and 2021, the number of practices fell approximately 12 percent during the same period. While a PPM or health system partner can typically assist in addressing burdens associated with items such as negotiating favorable payor contracting, they may also have the experience and expertise to start or expand new ancillary service lines. Ancillary income streams in an ENT practice often includes sources such as those outlined in Figure 4.

Surgery Centers

Surgery Centers can be a notable source of ancillary income for otolaryngologists. Figure 5 depicts EBITDA margins for ASCs based on HealthCare Appraisers’ 2021 ASC Valuation and Benchmarking Survey.

A broad-based trend in healthcare has been a shift in cases from a hospital-based setting to an ASC setting. In the otolaryngology sector, we note that ASCs have been going in-network with payors to perform Inspire sleep apnea cases, which are generally anticipated to be financially lucrative to an ASC on a contribution margin basis. However, given the expensive device cost in performing these procedures, regional differences in Medicare reimbursement may result in profitability challenges in performing these cases in the ASC setting. This topic was discussed at a presentation given by Inspire Medical Systems (NYSE: INSP) at The Stifel 2023 Annual Healthcare Conference:

Hearing Aids

Hearing aids have traditionally been a notable ancillary income source for otolaryngology practices.[6] However, the U.S. Food and Drug Administration issued a final rule in 2022[7], effective October 17 of that year, which established the ability for consumers to purchase over-the counter (OTC) hearing aids for adults with mild to moderate hearing loss. While some sources suggest the financial impact of this change is still playing out,[8] it highlights an overarching broad trend of federal regulation that continues to impact the delivery of healthcare in the United States, and that practices need to be continually adaptive to this changing environment to avoid potentially negative financial ramifications.

Allergy and Asthma

Another trend we have broadly observed in healthcare post-COVID involves a shift towards patient care that is convenient and cost effective – in their homes. In the allergy and asthma sector, we have observed a shift in the administration of biologics to treat severe asthma from the office to the home setting.[9]

Additionally, we note increasing instances of asthma in the United States. The Centers for Disease Control reported that the percent of the U.S. population with asthma has increased from 7.4 percent, or approximately 20.3 million people in 2001, to 7.7 percent of the population, or approximately 25.0 million people, in 2021.[10] Impacts of seasonal allergies are also on the rise. A study spanning 1990 to 2018 found that pollen seasons are starting 20 days earlier, and lasting 10 days longer, and feature a 21 percent increase in the amount of pollen.[11] Overall, nearly one in three U.S. adults and more than one in four U.S. children reported having a seasonal allergy, eczema, or food allergy in 2021.[12]

 VALUATION MULTIPLES

PPM acquisition multiples of medical practices can vary greatly, with factors such as size of the group, location, ancillary offerings in place, and growth outlook being a few of the factors that can impact transaction consideration. Based on our experience observing closed PPM transactions, in many instances, small to mid-size groups are likely to attract EBITDA multiples in the mid-to-high single digits, with large, platform acquisitions commanding double digit multiples, as displayed via the examples in Figure 6.

Health system transactions tend to differ from PPMs in that health systems typically focus their offers on employment contract compensation, as compared to the levels of upfront transaction consideration offered by PPMs. Some notable transactions in the ENTA&A space over the last year are presented in Figure 7.

Major active PPM companies presently have operations in several areas of the United States as shown in Figure 8.

How Different Buyers Approach Transactions

Based on our involvement with physician practice transactions involving private equity-backed PPMs, a common strategy involves the owner physicians of the target practice agreeing to take a “scrape” (i.e., pay cut) post transaction, which increases EBITDA on an adjusted basis, and, in turn, purchase price. Figure 9 depicts an example of a scrape and the coinciding purchase price in a hypothetical transaction.

Under this transaction approach, physicians sacrifice annual compensation in exchange for a higher upfront purchase price. We note that a portion of the upfront purchase price is typically paid as rollover equity in the post-transaction business, which typically ranges from 20 to 40 percent of the total purchase consideration. The provision of rollover equity incentivizes the physician group to stay engaged post transaction as a second lucrative payment can be achieved should the PPM sell the medical group for a high exit multiple. These higher exit multiples can be achieved through organic growth and the PPM’s willingness to invest in the addition of ancillary services (ASCs, OBLs, etc.) post transaction. Many smaller physician groups lack the capital needed to build and develop these ancillary services on their own, which motivates them to enter into an agreement with a PPM. Physician involvement in a transaction with a PPM does carry risk, as the rollover equity could potentially decrease in value depending on how the PPM is able to execute both on its ability to roll-up additional ENTA&A medical groups into its PPM, as well as its ability to grow the revenue and/or profitability of the groups that comprise the PPM. Rollover equity is another item that makes it difficult to compare a PPM transaction to a health system transaction.

We note that physicians do not solely inherit risk by partnering with PPMs. A PPM typically manages all of the non-clinical administrative work post transaction, which allows the physicians to focus on providing the best care possible for their patients without the burden of managing the business aspects of a medical practice. The ability to leverage the C-suite of a PPM can allow a practice to grow in ways that many would not be able to achieve on their own.

Conversely, health systems tend to approach physician groups with lower upfront purchase prices but higher ongoing compensation packages. Based on the health systems we have worked with, posttransaction compensation tends to be tied to productivity (typically a compensation per wRVU metric), which rewards physicians for high productivity and motivates them to continue building their practices. The dynamics vary depending on the physician group’s compensation pre transaction, with some health system transactions still commanding upfront purchase prices above tangible asset value as the target physician groups historically were compensated at high levels. Another important item to note is that the compensation health systems pay the physicians post transaction must be consistent with fair market value (“FMV”). Should the target physician group already have high compensation levels, the health system may be constrained by FMV and not be able to provide a higher compensation package. In many instances, this is the result of practices in which there are many employed physicians, Advanced Practice Providers, and in-office ancillary services, allowing owner physicians to earn high levels of compensation compared to peers producing at similar levels of personally performed services. Figure 10 highlights a scenario where a physician group receives a higher compensation package, while Figure 11 highlights a scenario where FMV constrains the ability of the health system to increase compensation post transaction.

As highlighted in the figures, purchase price and post-transaction compensation are inversely related. Transactions involving health systems typically leave the physician group with different risk than transactions involving PPMs. While there is uncertainty surrounding the future value of rollover equity and achieving of income repair in a PPM transaction, uncertainty surrounding the future compensation levels under an employment contract, which are typically governed by what compensation level is FMV, can be a risk factor under a health system transaction.

Potential Impacts of FTC Proposal to Ban Non-Compete Agreements

On January 5, 2023, the Federal Trade Commission (“FTC”) proposed a rule that would ban noncompete agreements if enacted. If put into effect, employers would be barred from entering into future noncompetes with employees and all noncompete agreements currently in effect would be disbanded. The major exception to this proposed rule is that transactional noncompete agreements would still be allowed for those who own a 25 percent or greater interest in the subject business of the transaction.[14] We also note that this is only a proposed rule by the FTC that will need to go through a commentary and review process. Following the commentary and review process, a majority vote of the FTC commissioners will be needed to finalize the rule. Even after going final, there is the potential for legal challenge that could delay or block the enactment of the rule. The vote has already been delayed, pushed to an April 2024 date. Ultimately, the impact on how this potential new rule may impact acquisition activity of ENTA&A medical practices is uncertain. However, one could speculate that the absence of enforceable noncompete agreements for physicians in medical practice transactions may result in transactions involving more payback provisions, earnouts tied to achieving certain operational and/or employment milestones, and/or other deferred retention and incentive plans tied to certain post-transaction metrics.

 CONCLUSION

The ENTA&A space should continue to enjoy a strong demand for services, and consolidation in the industry should likewise continue. While we note the rising interest rates in 2023 have been a headwind for transaction activity in general, the future appears positive for acquisition activity to rebound, as the Federal Reserve is expected to cut rates several times in 2024.[15] A transaction has the opportunity to be mutually beneficial for both the physician sellers, as well as a PPM or health system acquirer. As sellers, physicians can shift their focus from the administrative burdens of managing a practice, to clinical care of their patients. Meanwhile, PPMs and health systems can use their size and administrative expertise to help alleviate the burdens of practice management and capital investment decision making.

CONTACT THE EXPERTS AT HEALTHCARE APPRAISERS TO DISCUSS YOUR ADVISORY AND VALUATION NEEDS REGARDING ANY CONTEMPLATED ACTIVITY IN THE ENTA&A SPACE.

NICHOLAS J. JANIGA, ASA
PARTNER
(303) 566-3173
NJANIGA@HCFMV.COM

MATTHEW MULLER, ASA
DIRECTOR
(303) 566-3179
MMULLER@HCFMV.COM

[1] Obtained from https://www.enthealth.org/whats-an-ent/ Last accessed February 3, 2024
[2] Obtained from: https://my.clevelandclinic.org/health/articles/24635-otolaryngologist Last accessed February 3, 2024
[3] Obtained from https://acaai.org/do-you-need-an-allergist/what-does-an-allergist-treat/ Last accessed February 3, 2024
[4] LevinPro HC, Levin Associates, 2024, January, levinassociates.com.
[5] Obtained from DataDive by Medical Group Management Association
[6] Obtained from: https://www.entnet.org/wp-content/uploads/2023/07/2022-Otolaryngology-Workforce.pdf Last accessed February 3, 2024
[7] Obtained from: https://www.federalregister.gov/documents/2022/08/17/2022-17230/medical-devices-ear-nose-and-throat-devices-establishingover-the-counter-hearing-aids Last accessed February 3, 2024
[8] Obtained from: https://www.medpagetoday.com/surgery/otolaryngology/104711 Last accessed February 3, 2024
[9] Obtained from: https://www.managedhealthcareexecutive.com/view/several-biologics-to-treat-severe-asthma-can-be-self-administered-at-homepatients-prefer-it Last accessed February 3, 2024
[10] Obtained from: https://www.cdc.gov/asthma/asthma-prevalence-us-2023-508.pdf Last accessed on February 3, 2024
[11] Obtained from: https://www.nifa.usda.gov/about-nifa/impacts/yes-allergy-seasons-are-getting-worse blame-climate-change Last accessed February 3, 2024
[12] Obtained from https://www.cdc.gov/nchs/pressroom/nchs_press_releases/2022/20220126.htm Last accessed February 3, 2024
[13] LevinPro HC, Levin Associates, 2024, January, levinassociates.com.
[14] University of Maryland Francis King Carey School of Law, “The FTC’s New Noncompete Proposal: A Potential Win for Workers and Possible Mass Changeover Across All Industries?” Last accessed February 3, 2024, https://www.law.umaryland.edu/content/articles/name-659569-en.html
[15] Obtained from: https://www.cnbc.com/2023/12/13/fed-interest-rate-decision-december-2023.html Last accessed February 3, 2024

[1] United States District Court for the District of Arizona Case, 3:18-cv-08041-DGC, https://www.govinfo. gov/content/pkg/USCOURTS-azd-3_18-cv-08041/pdf/USCOURTS-azd-3_18-cv-08041-2.pdf

Joint venture arrangements have the potential to offer participants the opportunity to reduce their risk while simultaneously realizing an increase in economic benefits. We have observed that healthcare companies can enter into new markets more effectively by setting up a joint venture with an established entity in the market, rather than entering unaided. When a new market participant enters into a joint venture with an established health system or other similarly situated entity, both parties have the potential to see greater benefits from working together. The new entrant typically benefits from the use of the established firm’s existing operations or assets in place, such as a tradename. The established business generally benefits from the new market participant’s value proposition such as high patient satisfaction scores, superior health outcomes, and managerial expertise.

In other situations, there are resources in the market that are either underutilized, or that perform inefficiently when operated separately from other complimentary resources. For example, hospitals are capital intensive entities that may need to acquire and maintain costly assets or services, even if it has a low utilization rate. Conversely, a local practice in the market may have demand for services that require the use of these assets or services, but the practice may not have the resources to acquire the assets and provide the services on their own, or they may not have sufficient demand to justify the investment. By entering into a joint venture, the hospital can increase its return on assets while the local practice can benefit by serving more patients. Alternatively, companies can enter into block lease arrangements, which enables two different entities to effectively collaborate and leverage a single asset base and service location rather than directly and inefficiently competing in the market.

In addition to combining resources, joint ventures can allow companies to pool expertise in a way that would take significant investment in terms of both time and funding. Human capital represents a large portion of spending in the healthcare industry as shown in Figure 2, and the ability to combine this resource can have sigificant results. For example, physician groups often partner with management services organinzations which reduce the administrative burden on providers. This has the potential to improve health outcomes, and both patient and physician satisfaction, as providers are able to better focus on their practice.

The benefit of partnering with organizations with administrative expertise extends to most joint venture situations, especially if one partner operates a service line that is unfamiliar to the other. The operational requirements, financial barriers, licenses and certificates of need, regulations, and many other considerations could take a significant amount of time to understand and integrate if an organization were to expand from the ground up.

Joint ventures also allow for greater flexibility than traditional business combinations since nearly all joint venture contracts have exit agreements in place.[4] If the joint venture does not perform to either party’s minimum expectations, either entity may have the option to exit. While there may be a variety of costs associated with the exit, the costs of leaving a joint venture often are less than the costs of more traditional business combination failures.

 JOINT VENTURE STRUCTURES AND VALUATION IMPLICATIONS IN THE HEALTHCARE INDUSTRY

A joint venture is a separate legal entity owned and operated by two or more contributing entities and can take on many legal structures.[5] Figure 3 demonstrates an example of the basic structure of a joint venture formed by two companies.

The structure of the joint venture has the potential to impact the valuation of each entity’s contribution, and these structures are frequently more complicated than the example displayed in Figure 3. There are situations where one entity contributes less than fifty percent of value of the joint venture for a wide variety of reasons. For example, Company 1 may contribute significantly more assets of value to the joint venture than Company 2, and rather than contribute cash to bring their contribution value up to 50 percent, Company 2 may instead hold a noncontrolling position in the joint venture.

 WHICH HEALTHCARE COMPANIES ENGAGE IN JOINT VENTURES?

A considerable number of the joint ventures we observe involve hospitals and health systems due to a variety of market and regulatory pressures that incentivize health systems to seek out partnerships within the industry. These entities typically have tight operating margins due to the competitive nature of the industry, restrictions placed upon tax-exempt organizations under the tax code, and requirements to provide emergency services regardless of ability to pay under the Emergency Medical Treatment & Labor Act (EMTALA). By entering into joint ventures, hospitals and health systems can benefit financially and better fulfill their mission. Figure 4 outlines some of the common entities that hospitals partner with.

While hospitals and health systems often have the most incentive to enter into joint ventures and similar agreements with other healthcare providers, there are many other cases and situations where joint ventures can be advantageous. Other examples include:

 JOINT VENTURE EXAMPLES

Imaging Center – A for-profit operator of diagnostic imaging centers, and a hospital, entered into a joint venture arrangement to address an industry-wide trend of payors actively redirecting patient volume from inpatient to outpatient settings. The for-profit operator contributed its existing freestanding imaging center operating business, which included imaging equipment, and its expertise in operating an efficient outpatient center. The hospital contributed its tradename, and its existing imaging business service line. The fair market value of these assets served to determine each entity’s respective ownership interest in the newly formed joint venture.

This example underscores an astute strategy that effectively addresses the industry trend of downward pressure on healthcare spending and payors redirecting patients to independent diagnostic testing facilities (IDTFs) and other outpatient healthcare providers and facilities. Emphasizing partnerships in the medical imaging sector, RadNet’s VP & CFO stated on a 2023 investor presentation: “More forwardthinking hospitals are looking for a strategy that gives a long-term viability in diagnostic imaging and one of those strategies is to partner with an outpatient player [that already have] assets or has the expertise to run outpatient centers efficiently.”

Physical Therapy – A for-profit operator of physical therapy centers and a non-profit health system entered into an arrangement to collaborate on providing physical therapy services in a shared service area. Each entity had several existing physical therapy centers that were contributed to the joint venture, which helped determine the initial ownership interest split of the two partners.

As the partners desired to split ownership such that each partner held a 50 percent ownership interest, a cash contribution occurred to supplement the entity whose operating business contribution was valued at an amount less than that of the other partner. The for-profit entity planned to provide management services to the joint venture on a go-forward basis as well. The joint venture planned to continue to open de novo locations in the future, leveraging each respective operating partners’ valued-added strengths to make the entity stronger, and more profitable, than the entities were when the parties competed. The combined portfolio of locations allowed for greater operating flexibility as well, such as the ability to flex certain staff members at different locations.

Joint Operating Agreement/Virtual Merger – Two health systems entered into an agreement to enhance musculoskeletal services in their community. By entering into a joint operating agreement, each party retained legal ownership of their respective service line assets, while allowing them to share financial risk as well as financial capital. This aligned their respective organizations to improve the quality of care in their community through increased efficiency, shared technology, and clinical integration between the parties.

Through the joint operating agreement, the parties shared in the profit and loss of the combined musculoskeletal joint operating company. When setting up the joint operating agreement, the parties determined the relative contribution of each party in order to determine the split of profit (or loss) shared by each entity going forward.

Behavioral Health Hospital – A for-profit hospital operator and a non-profit health system entered into a joint venture arrangement to improve behavioral healthcare in a community. The non-profit health system contributed its existing inpatient behavioral health service line operations to the joint venture, including intangible assets associated with the service line, such as its tradename, certificate of need, and other licensures. Vacant land was also contributed to the joint venture by the non-profit system. The appraised value of these tangible and intangible assets helped determine the health system’s initial ownership interest in the joint venture. The contribution of the for-profit health system consisted primarily of cash to fund the building of a new inpatient facility, purchase of new equipment, and initial net working capital. However, the for-profit partner also planned to contribute valuable management services to the joint venture post-transaction.

This example highlights a success story in which each party to the joint venture contributed various tangible assets, intangible assets, cash consideration, and services to improve healthcare in a community. This outcome would have been financially and operationally more difficult without a partner. Highlighting joint ventures in the behavioral health sector, Universal Health Services’ CFO indicated on a 2022 earnings call: “We think that the opportunity to joint venture with some acute care hospitals and probably even more importantly, some acute care hospital systems to offer behavioral services is a significant opportunity over the next 5 or 7 years.” For more in-depth information on Behavioral Health, read: Behavioral Healthcare: Public Company Commentary, Outlook, and Trends – Summer 2023

 POTENTIAL REGULATORY ISSUES TO CONSIDER

While there are several benefits associated with setting up a joint venture arrangement, there are also regulatory issues to consider. Many of these are considered regularly throughout the normal course of business in the healthcare industry; however, joint venture agreements have the potential to add a layer of complexity.

Tax Implications
Many hospitals and health systems that have obtained tax-exempt status operate on tight margins or even budget deficits and have limited resources to expand and take advantage of growth opportunities. Historically, tax exempt bonds have been among the most attractive sources of financing with the lowest cost; however, these bonds come with a variety of restrictions. Joint ventures provide an alternative source of financing that not only provide capital but can more directly lead to growth and superior patient outcomes. Therefore, entering into a joint venture with a for-profit entity is an attractive strategy to fill in budgetary gaps while furthering the organization’s mission.

Referrals
Many of the joint ventures in the healthcare industry are created between referral sources and competitors. In these situations, it is essential to ensure and maintain compliance with the Physician Self-Referral Law (aka Stark Law) and the Anti-Kickback Statute. The Office of the Inspector General summarizes these laws as outlined herein.[6]

Physician Self-Referral Law
Prohibits physicians from referring patients to receive “designated health services” payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies.

Anti-kickback Statute (AKS)
The AKS is a criminal law that prohibits the knowing and willful payment of “remuneration” to induce or reward patient referrals or the generation of business involving any item or service payable by the Federal health care programs.

It is essential to be in compliance with these laws when entering into a joint venture. The best way to ensure compliance is to obtain fair market value and commercial reasonableness opinions that are independent and defensible.

 VALUING JOINT VENTURE CONTRIBUTIONS

Contributions to a joint venture can take many forms. Cash is certainly the most straight-forward item that can be contributed to a joint venture, but other items such as tangible and intangible asset contributions may need to be appraised. Physical assets, such as medical equipment, are another item that is commonly contributed, particularly by hospitals, imaging centers, and other capital-intensive healthcare businesses. We often value these physical assets under a market approach and/or cost approach to determine their fair market value.

An existing operating business or service line can be contributed to a joint venture as well. A service line is a component of a larger business enterprise operation. It is important to be aware of the level of financial reporting of the subject service line when reviewing its income statements in connection with the valuation. For example, some service lines only report revenue and direct expenses of the service line, thus excluding other indirect operating expenses. Conversely, some service lines may report a substantial corporate overhead allocation expense in their income statements to account for indirect expenses attributable to the service line and/or health system. When valuing a service line, particularly under an income or market approach, it is important to closely understand the service line’s financial statements.

Intangible contributions are common contributions to joint ventures. Figure 6 illustrates the effect of a hospital’s intangible asset contribution to a joint venture with a physician practice. The hospital agrees to contribute cash and the use of its tradename while the physician group agrees to contribute its services. The tradename could have significant value depending on a variety of factors. The value of the parties’ contributions should balance and the value of cash should offset the value of the other assets being contributed by the investing entity, assuming a desired 50/50 ownership split. Failure to properly value the tradename could result in the hospital contributing more (or less) cash than is necessary to achieve a particular ownership split between the parties.

Other intangible assets could include those such as licenses (such as a Certificate of Need) and medical data. Certificates of Need are required in many states to operate a variety of healthcare entities and can be the primary reason a joint venture is established. Certain groups entering into a joint venture may have valuable clinical data that could be contributed to the joint venture. These are just a few examples of the many intangible assets that are often contributed to joint ventures in the healthcare industry. For a more in-depth discussion, read Intangible Assets in Healthcare. Intangible assets can be valued using cost, income or market approaches, or a combination of these three approaches.

 CONCLUSION

We have consulted numerous companies on creative and sophisticated joint venture arrangements in the healthcare industry. Economic concerns and the regulatory environment are certainly driving factors that will continue to incentivize decision makers in the healthcare industry to engage in these arrangements. There are a wide variety of assets that can be contributed to joint ventures and the accurate valuation of these contributions is essential to ensure that the interests of all parties involved are properly allocated. If you are considering engaging in a joint venture, contact the experts at HealthCare Appraisers for advisory and valuation solutions surrounding your transaction.

For more information, please contact:

Landon Forsythe, Analyst at lforsythe@hcfmv.com or (303) 276-3324
Matthew Muller, ASA, Director at mmuller@hcfmv.com or (303) 566-3179
Nicholas J. Janiga, ASA, Partner at njaniga@hcfmv.com or (303) 566-3173

[1] Regulatory Overload: Assessing the Regulatory Burden on Health Systems, Hospitals, and Post-acute Care Providers. American Hospital Association. October 2017
[2] Barrueta, A (2023). Hiring alone won’t solve the health care worker shortage. Last accesses October 27, 2023 from: https://about.kaiserpermanente.org/news/hiring-alone-wont-solve-health-care-worker-shortage
[3] ASC 323-10-20. Financial Accounting Standards Board. Last accessed on October 25, 2023 from: https://asc.fasb.org/1943274/2147481813.
[4] Johnson, B. (2016). Exit Playbooks Rather than Just Exit Clauses. Joint Venture Advisory Practice. Last accessed on October 25, 2023 from: https://assets.kpmg.com/content/dam/kpmg/pdf/2016/07/JointVenture-04.pdf
[5] (2020, November 30). Identifying a Joint Venture. US Equity Method Accounting Guide, 6.2. https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/equity_method_of_accounting/Equity_method_account/chapter_6/62_identifying_a_joint.html#pwc-topic.dita_912db7b4-e843-4ebb-847c-d6c43a148a09
[6] Office of the Inspector General (n.d.). Fraud and Abuse Laws. Last accessed October 25, 2023, from: https://oig.hhs.gov/compliance/physician-education/fraud-abuse-laws/

[1] George, Cindy. “Nursing home agrees to pay $3M in ambulance-swapping case.” EMS1.com, https://www.ems1.com/legal/articles/nursing-homeagrees-to-pay-3m-in-ambulance-swapping-case-KxPPvCroKDlFy7cm/. Accessed 9 August 2023.
[2] Adams, Andie. “Ambulance Companies to Pay $11.5M in “Swapping Kickback” Scheme.” NBCSanDiego.com, https://www.nbcsandiego.com/news/local/ambulance-companies-to-pay-115m-in-swapping-kickback-scheme/113875/. Accessed 9 August 2023.
[3] “Emergency Medical Treatment and Labor Act (EMTALA) Requirements and Implications Related to Coronavirus Disease 2019 (COVID-19).” CMS.gov, https://www.cms.gov/files/document/qso-20-15-emtala-requirements-and-coronavirus-0311-updated-003pdf.pdf-1. Accessed 9 August 2023.
[4] While consumer protections vary by state and ambulance company ownership structure, states with some level of balance bills protection include the following: Colorado, Delaware, Florida, Illinois, Maine, Maryland, New York, Ohio, Vermont, and West Virginia.
[5] “No Surprises Act Considerations for Ground Ambulance Billing.” MossAdams.com, https://www.mossadams.com/articles/2022/08/no-surprisesact-for-ground-ambulance-billing. Accessed 2 October 2023.
[6] Based on national study of billions of private healthcare claims from FAIR Health’s repository
[7] A Window into Utilization and Cost of Ground Ambulance Services, FAIR Health, Inc., September 2023.
[8] PHILLIP TUESDELL and LEGACY MEDICAL TRANSPORT, LLC, v. ADAM MEIER, in his official capacity as Secretary of the Kentucky Cabinet for Health and Family Services; KRISTI PUTNAM and TIMOTHY FEELEY, in their official capacities as Deputy Secretaries of the Kentucky Cabinet for Health and Family Services; and STEVEN DAVIS in his official capacity as Inspector General of the Kentucky Cabinet for Health and Family Services
[9] Such states include: Arizona, Arkansas, California, Connecticut, Florida, Hawaii, Illinois, Louisiana, Massachusetts, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Texas, Utah, Washington
[10] Basic Life Support (i.e., BLS)
[11] Advanced Life Support (i.e., ALS)
[12] Transaction data sourced from S&P Capital IQ
[13] LevinPro HC, Levin Associates, 2023, October, levinassociates.com

On the OB/GYN side, practices benefit from increasing levels of insurance coverage and reimbursements. Patients are more likely to visit doctors for preventive care when they have health insurance, and a material portion of OB/GYN care is preventive. In 2021, the most recent data available, the Census Bureau reported 91.7 percent of people are covered by public or private health insurance, up 0.3 percentage points from the prior year.[5] However, the OB/GYN industry faces challenges with low reimbursement rates, particularly from Medicare and Medicaid. According to IBISWorld, government payors account for over one-third of total industry revenue in 2022, with the majority of this revenue derived from Medicaid to be approximately 29.6 percent and Medicare accounting for a smaller portion estimated to be 6.0 percent.[6] Changes in Medicare reimbursements for OB/GYNs have historically been modest (see Figure 2).[7]

A unique aspect of women’s health practices is a high concentration of customers within specific demographic groups and a high concentration of products and services. IBISWorld reports over two-thirds of products and services offered by OB/GYN practices are segmented to preventive care, and less than one-third of services include new problems, chronic problems, and pre- or post-surgery or injury cases. Preventive care offerings include pelvic exams, cancer screenings, prenatal testing, and contraceptive services. While a narrow concentration of services can be seen as a risk, OB/GYN preventive care services benefit from being medically necessary and therefore lead to lower volatility for OB/GYN practices as compared to other healthcare providers.

Figure 3 illustrates the change in general fertility rates in the United States since 1980.[8] The number of births in the United States has declined at an annualized rate of 1.5 percent over the five years to 2022. While this trend does present a challenge to the industry, it also creates opportunities for increased contraceptive care. Common contraceptive measures include prescription oral and implantable contraceptives, both of which require patients to maintain consistent visits with an OB/GYN provider. Implantable contraception in particular comes with a higher initial cost, and many OB/GYN practices are able to generate consistent profits by offering this service.

The women’s health industry has been experiencing a shortage of doctors. According to the Association of American Medical Colleges, from 2016 to 2021, the number of active OB/GYN physicians grew only 0.8 percent to 42,496 OB/GYNs.[9] However, the demand for OB/GYNs has been rising faster than the supply, as reported by the American Congress of Obstetrics and Gynecologists (ACOG). A 2017 report by ACOG estimated that 40 to 75 percent of OB/GYNs experience some form of professional burnout.[10]

While the traditional model for women’s health was that OB/GYNs made an extraordinary commitment to their patients providing pre-natal, delivery, and post-delivery care, today’s OB/GYNs are looking for more stability and work-life balance. This shifting mindset has given rise to the growing use of Obstetric Hospitalists also known as “laborists.” Laborists are OB/GYNs dedicated solely to attending labor and deliveries in the hospital. This approach not only allows OB/GYNs to focus on broader maternal health issues, but but also fosters a more manageable schedule. Another factor is the growing trend of OB/GYNs choosing subspecialties such as gynecologic oncology, reproductive endocrinology and infertility, and female pelvic medicine and reconstructive surgery. While these specialized fields contribute to advancing women’s health, they also contribute to a reduced pool of available OB/GYNs for routine maternal preventive care and normal deliveries.

Furthermore, obstetric physicians face mounting challenges due to the ongoing closures of maternity units across the nation. Since 2011, a staggering 217 hospitals in the United States have closed their labor and delivery departments.[11] The trend shows no signs of stopping, with at least 13 closures announced in the past year alone.[12] In certain markets where hospitals are discontinuing labor and delivery services, the responsibility to bridge the care gap is falling on physician practices.

In this complex landscape of women’s healthcare challenges, payors are becoming increasingly sensitive to the profound impact of social determinants of health (SDOH). These SDOHs not only influence the prevalence of health conditions but also affect women’s access to care and their overall well-being. Addressing these underlying societal factors is essential for achieving equitable healthcare outcomes for women, particularly in the face of ongoing hospital closures and the need for enhanced research efforts. Reimbursement models are evolving to consider socioeconomic status, access to education, employment opportunities, and housing conditions which play pivotal roles in determining women’s health outcomes.

Historically, women’s health has been an under-resourced and underserved area of healthcare. A 2022 study published in the Journal of Obstetrics and Gynecology found that only 11 percent of the funding allocated by the National Institutes of Health supported research focused on women’s health.[13] Additionally, McKinsey & Co. reported only 1.0 percent of healthcare research funding, excluding Oncology, is allocated to women’s health conditions.[14] McKinsey & Co. estimates that for every woman officially diagnosed with a women’s health condition, there are roughly four cases that remain undiagnosed. In contrast, the disparity between epidemiological prevalence and documented diagnoses for men’s health conditions narrows down to approximately 1.5 times (see Figure 4). Insufficient research on women’s health persists, despite a compelling need that more evidence-based information would lead to better outcomes.

The financial burden of women’s healthcare is substantial for employers and families. Menopause care alone costs employers $27 billion annually, while maternal morbidity results in $6.6 billion in productivity losses each year. Approximately $80 billion is spent annually on autoimmune condition management for women, who account for 80 percent of all autoimmune disorders. Furthermore, 20 percent of women of reproductive age have multiple chronic conditions, contributing significantly to the nearly $3.15 trillion spent annually on care for chronic conditions.[20]

Investment in physician practices across the entire healthcare spectrum has been on the rise. Notably, medical group deals increased 33 percent from 2021 to 2022.[21] Regarding women’s health in particular, heightened sociocultural factors, expanded coverage, and rising incidence levels have created an attractive investment opportunity in the industry.

KEY TRENDS

Several key trends are shaping the women’s health industry in 2023:

1. Adoption of Value-Based Care: The industry is experiencing a shift towards value-based care arrangements. This transition incentivizes providers to focus on prevention, outcomes, and utilization, leading to higher quality care at a lower cost. Providers are increasingly integrating care models to deliver a comprehensive suite of services, leading to improved patient outcomes and cost savings. Given that 68 percent of the dual eligible population[22] are women, Medicaid and Medicare Advantage value-based offerings will be shaped by the needs of that population. According to a study published by the Medicaid and CHIP Payment and Access Commission (MACPAC), a 2020 review of all Medicaid programs found that 41 states implemented programs focused on payment initiatives to improve maternal health. The vast majority of these payment initiatives focused on policies to encourage the use of long-acting reversible contraception (LARC) immediately postpartum, and approximately onethird of the payment initiatives used reductions in payment to discourage certain interventions. Per the study, 14 states implemented pay-for-performance programs that provide financial incentives to providers that meet certain metrics, 10 states have implemented perinatal episode of care models, and four states have implemented pregnancy medical homes (PMH).[23]

Additionally, CMS’s Center for Medicare & Medicaid Innovation (CMMI) funded a study from 2013 to 2017 called the Strong Start for Mothers and Newborns. The study’s findings, published in 2018, found that women who received prenatal care in Strong Start Birth Centers had better birth outcomes and lower costs relative to similar Medicaid beneficiaries not enrolled in Strong Start. In particular, rates of preterm birth, low birthweight, and cesarean section were lower among Birth Center participants, and costs were more than $2,000 lower per mother-infant pair during birth and the following year. CMS hopes the findings will prove useful to state Medicaid programs seeking to improve the health outcomes of their covered populations.[24] In 2022, the Biden-Harris Maternal Health Blueprint was published, outlining five national priorities to improve maternal health. In support of these priorities, the U.S. Department of Health and Human Services (HHS) awarded over $65 million to HRSA-funded centers to address the maternal mortality crisis.[25]

In addition to these efforts, CMS has recently published new changes aimed at advancing health equity and increasing participation under the Accountable Care Organization (ACO) Realizing Equity, Access, and Community Health (REACH) model.These changes are expected to enhance healthcare for Medicare patients and the model’s financial and operational stability. Currently, 132 participants are enrolled under ACO REACH, a value-based care model that commenced in January this year, replacing the Direct Contracting Model.26 The new model encourages providers to form ACOs for fee-for-service Medicare enrollees and allows providers to take on more financial risk, with participants required to implement health equity plans to address disparities in care.

2. Expansion of Integrated Care Models: Women’s health providers are diversifying their service offerings through strategic expansions into relevant subspecialties. For example, OB/GYN practices have expanded into fertility services, at-home diagnostics, hormonal care, pelvic floor rehabilitation, endometriosis and PCOS care – among other services – capitalizing on the growing demand for fertility services. This trend enables practices to capture new patient volumes, provide care across more of the continuum, and create diversified revenue streams.

3. Maternal-Fetal Medicine Focus: Maternal-Fetal Medicine (“MFM”) has gained increased partnership interest from investors and strategic acquirers. Hospitals are now placing a higher demand on MFM and other subspecialists to staff hospital departments, such as neonatal intensive care units and spearhead integrated care programs. This demand is particularly pronounced in states like Texas, where stringent level-of-care guidelines mandate that MFM physicians must arrive at the patient bedside within 30 minutes for urgent requests.[27] Additionally, addressing the persistent maternal mortality disparities between rural and urban populations, investments in MFM solutions in rural communities have been on the rise. The integration of MFM services with regionally dominant OB/GYN practices is expected to drive revenue diversification and support the growth of comprehensive women’s health platforms.

We note Pediatrix Medical Group, Inc. (NYSE: MD) is a prominent provider of newborn, maternalfetal, and various pediatric subspecialty care services in the United States. Pediatrix is pursuing an organic growth strategy that involves collaborating with hospital partners to develop integrated service programs. This strategy positions Pediatrix as a solutions provider across the maternal-fetal, newborn, and pediatric continuum of care.[28]

4. Menopause Opportunity: Historically, menopause care has been overlooked, often limited to addressing acute symptoms through hormonal therapy, and only a fraction of women were aware of such options. Presently, a greater understanding has emerged regarding the link between menopause and prevalent daily symptoms like insomnia, fatigue, cognitive fogginess, and weight fluctuations. If left untreated, these issues can lead to metabolic changes that heighten menopausal women’s vulnerability to conditions like osteoporosis, diabetes, and heart disease, which subsequently strain healthcare systems. A 2023 study by Mayo Clinic found that 15 percent of women either missed work or cut back on hours because of menopause symptoms, and that loss of productivity costs women an estimated $1.8 billion annually.[29] Despite the severity of these symptoms, they continue to be inadequately addressed. The gap in care is disconcerting, considering women spend over a third of their lives in the peri- to postmenopausal phase.

Leading players in this market are poised to provide comprehensive solutions for both hormonal and nonhormonal menopausal symptoms, aiming to proactively mitigate adverse health outcomes. Successful ventures will adopt a holistic approach, combining personalized dietary and lifestyle adjustments with hormone therapy and routine metabolic health screenings. Numerous companies are already meeting the demand for tailored menopause care. For instance, Gennev, integrated within Unified Women’s Healthcare, offers virtual menopause management through its OB/GYNs and dietitians. Additionally, True Women’s Health provides its members personalized care through both the clinic setting and telehealth, that encompasses a wide range of women’s health services, from hormones and sexual health to nutrition, weight optimization, mental health, and more.

Just as companies have broadened their benefits packages to attract and retain talent through fertility treatments, parental leave, and childcare provisions, a similar trend is emerging with the integration of menopause-specific care. These benefits can include virtual access to the limited pool of approximately 1,000 certified specialists across the United States, who can be challenging to find locally. Additionally, these benefits can include coverage for potentially costly hormone treatments that might not be covered by certain insurance plans.

Changes in life expectancy are shaping the composition of the Medicare Advantage and dualeligible population. The 50+ market is expected to realize annual grow of 6.7 percent through 2030, meaning that the menopausal and post-menopausal populations are growing, and agerelated conditions are increasing in prevalence.[30] Given a history of underrepresentation of women in medical research and limitations on access to care, significant gaps in expertise and service availability have given rise to extensive potential for growth and a need to fill broad white space within the market. With changing life expectancy and increasing prevalence of conditions disproportionately affecting women, there is a growing interest in establishing women-focused services.

Notably, the pharmaceutical company, Bristol Myers Squibb, and Samsung’s venture capital arm are eyeing menopause healthcare as the global population ages. About 100 startups are now developing menopause interventions.[31] Although often labeled a niche health topic, menopause will impact roughly half the population at some point in their life and with a greater number of working women the impact to both patients and their employers will be significant. Therefore, expansion into menopause products and services is expected to offer a significant market opportunity in the coming years.

5. Increased Coverage for Infertility Treatment: Statewide mandates in the United States have expanded coverage for infertility diagnosis and treatment, with an increasing number of states requiring health insurance companies to offer or cover these services (see Figure 1). This regulatory change, combined with a larger proportion of women in the workforce, has led to an increased prevalence of private insurance and out-of-pocket payments for fertility services. Launched in 2016, Progyny, Inc. is a benefits management company specializing in fertility and family building benefits solutions in the United States. Progyny announced its Initial Public Offering (IPO) in 2019 and currently has contracts with over 370 employers to provide coverage to 5.4 million employees and their partners. Per its most recent annual report, Progyny estimates that the addressable market for fertility benefits consists of approximately 8,000 self-insured employers representing approximately 75 million covered lives in total. Additionally, Progyny notes that when comparing the United States to other countries, the percentage of babies born utilizing assisted reproductive technology (ART) is materially lower, at less than 2 percent in the United States compared to approximately 10 percent in Denmark and 6 percent in Japan.[32] Based on these factors, there is room for significant growth for fertility treatment coverage in the United States.

6. Physician Shortage and Provider Compensation: The American Congress of Obstetricians and Gynecologists (ACOG) projected a shortage of up to 8,800 OB/GYNs by 2020 and up to 22,000 by 2050.[33] As previously mentioned, the number of active OB/GYN physicians increased only 0.8 percent from 2016 to 2021.[34] Additionally, per MGMA Provider Compensation data, total compensation for OB/GYN generalists has remained fairly muted. Between the 2018 and 2023 MGMA Provider Compensation Surveys, median total compensation for OB/GYN generalists has increased at a compound annual growth rate of 2.7 percent, compared to an annual growth rate of 4.3 percent for all nonfarm employees in the United States over the same period (see Figures 5, 6, and 7).[35] Slow wage growth and projected provider shortages are likely to be primary headwinds in the women’s health industry going forward.

TRANSACTION ACTIVITY

Transaction activity in the women’s health industry has been robust, driven by the growing interest of investors and the consolidation of market participants. Figure 8 illustrates annual transaction volume for women’s health in the United States from 2013 to 2022. The data presented has been sourced from a single transaction database and is not meant to represent total women’s health transaction volume, but to serve as a proxy for the increased transaction activity in recent years. Between 2021 and 2022, approximately 90 transactions have occurred, accounting for around 70 percent of the deal volume over the past five years.

Private equity-backed platforms have been at the forefront of transaction activity, leveraging their capital resources and expertise in building scalable businesses. Larger platforms have pursued consolidation trategies, acquiring smaller physician groups to achieve greater scale and operational efficiencies (see Figures 9 and 10). This trend is expected to continue as private equity sponsors aim to position their platforms for strategic exits or public offerings. Secondary buyouts have also gained prominence, as existing private equity-backed platforms reach the end of their investment horizons. Secondary acquisitions present an opportunity for new investors to enter the market, injecting fresh capital and driving further consolidation within the industry.

Notable Transactions

The increased transaction volume in the women’s health industry reflects a growing interest from both strategic and financial buyers, as the industry continues to experience growth and faces new challenges.

Notable transactions in the industry include Kindbody raising $100 million in capital funding from Perceptive Advisors in March 2023.[37] Kindbody, a fertility clinic operator and employer benefits provider, is a later stage venture capital-backed startup that was founded in late 2018. In 2022, Kindbody made three strategic acquisitions, including Vios Fertility Institute, Phosphorus Labs, and a gestational surrogacy agency. Today, Kindbody offers comprehensive women’s health and fertility services, including fertility treatments, adoption, surrogacy, maternity care, gynecology, and holistic wellness services. They leverage modern technology to provide accessible and high-quality care at low prices. Kindbody has raised over $290 million in equity and debt funding from leading investors including Perceptive Advisors, GV (formerly Google Ventures), RRE Ventures, Claritas Health Ventures, Rock Springs Capital, NFP Ventures, and TQ Ventures. With its latest financing increasing its valuation to $1.8 billion, the company now holds the title of the largest women-owned fertility company serving employers and consumers.

In May 2020, Amulet Capital Partners, a middle-market private equity investment firm based in Greenwich, Connecticut, focused exclusively on the healthcare sector, and Shady Grove Fertility, the largest independent fertility practice in the United States, announced the formation of US Fertility, a business support services platform. US Fertility supports fertility focused physician practices with a range of non-clinical services, including clinical and business information systems, facilities and operations management, finance and accounting, and fertility treatment financing programs.[38] As of August 2023, US Fertility is comprised of six fertility groups across the country.

Another notable transaction is the acquisition of Gennev by Unified Women’s Healthcare for an undisclosed amount in October 2022, making Unified Women’s Healthcare the leader in menopause care in the U.S.[39] Currently, Gennev consists of 28 board-certified OB/GYNs supporting their patients through menopause and midlife.[40]

LifeStance, a major behavioral health provider, has formed a partnership with Gennev, a digital health platform focused on menopause care, to enhance its integrated care offerings. The collaboration aims to address the growing importance of women’s health, particularly menopause, within the behavioral health industry. With a team of OB/GYNs, registered dietitians, and health coaches, Gennev provides personalized menopause care plans. The partnership aligns with LifeStance’s strategic goal of offering comprehensive care and reflects the need to proactively address behavioral health conditions during menopause. This collaboration signifies the recognition of the interconnectedness between mental health, primary care, and reproductive health in delivering holistic care for women.[41]

Women’s Health is a leading healthcare industry of interest for private equity investment. Women’s health platforms and private equity sponsors across the nation are shown in Figure 11.

PRACTICE VALUATIONS IN THE WOMEN’S HEALTH SPACE

Valuation expectations in the women’s health space have been influenced by multiple factors, including revenue growth, profitability, patient volume, and market share. While there is no one-size-fits-all approach, certain financial metrics and considerations play a significant role in determining practice valuations.

Historically, valuations in the women’s health industry have been driven by revenue multiples. However, as the industry evolves towards value-based care and integrated care models, there is an increasing focus on the quality of earnings and patient outcomes. Practices with well-documented patient outcomes, effective cost management strategies, and strong referral networks often command higher valuations.

Moreover, the presence of ancillary revenue streams, such as in-house diagnostics, genetic testing, or telehealth services, can positively impact practice valuations. Diversified revenue streams provide stability and the potential for incremental revenue growth, making the practice more attractive to investors.

According to research published in 2017 by the medical social network Doximity, approximately 36 percent of OB/GYNs are 55 years-old or older and of the 50 metropolitan areas evaluated in the research, Doximity found 32 metro areas where at least one third of OB/GYNs are 55 years-old or older. Additionally, the Doximity report noted that ACOG found that most OB/GYNs tend to retire between the ages of 59-69 years, with the median retirement age being 64 years old. The Doximity analysis also found that nationally, the average age of OB/GYNs is 51, and the Association of American Medical Colleges’ (AAMC) 2021 Active Physicians by Sex and Specialty report found that approximately 60 percent of OB/GYNs are now female (as compared to only 7 percent in 1970).[43, 44, 45] Based on these figures, many retiring OB/GYNs may be contemplating the sale of their practices in the coming years. In order to recognize the highest possible value for their practices, retiring OB/GYNs will need to consider the aforementioned factors and begin preparations well in advance of an anticipated retirement date.

 CONCLUSION

The women’s health industry continues to undergo rapid transformation, driven by demographic trends, growth in demand, expanding coverage, and increased investment interest. Key trends such as the adoption of value-based care, expansion of integrated care models, a focus on maternal-fetal medicine and menopause, and increased coverage for infertility treatment are shaping the industry landscape.

Transaction activity remains robust, with unprecedented venture capital investment and private equity-backed platforms driving consolidation and strategic acquisitions. Valuation expectations are influenced by financial metrics, patient outcomes, and the presence of ancillary revenue streams.

As the industry continues to evolve, it is crucial for women’s health providers, investors, and other stakeholders to stay informed about emerging trends and market dynamics. By embracing innovative care models, leveraging technology, and adapting to changing patient needs, the women’s health industry can deliver improved outcomes and drive sustainable growth in the years to come.

If you are looking to engage in a women’s health practice deal or compensation arrangement, contact the experts at HealthCare Appraisers for assistance with valuation and advisory issues surrounding your transaction.

For more information, please contact:

Cecelia R. Chavez, AM, Senior Associate at cchavez@hcfmv.com or (469) 995-7148
Chris Vaughan, MBA, ABV, Manager at cvaughan@hcfmv.com or (225) 307-0859
Nicholas J. Janiga, ASA, Partner at njaniga@hcfmv.com or (303) 566-3173

Read the other articles in our 2023 Trends and Outlook series: 

2023 Cardiology Industry Outlook: A Reviving Heartbeat

2023 Industry Outlook: Gastroenterology Practices and Ancillary Services

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[4] Resolve: The National Infertility Association, June 2023, Insurance Coverage by State. (https://resolve.org/learn/financial-resources-for-familybuilding/insurance-coverage/insurance-coverage-by-state/)
[5] U.S. Census Bureau, Current Population Survey, 2022 Annual Social and Economic Supplement (CPS ASEC). (https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-hi/hi.html)
[6] IBISWorld, December 2022, Industry Report Gynecologists & Obstetrics in the US.
[7] Centers for Medicare and Medicaid Services (“CMS”), Final Rule, 2006 through 2023.
[8] Centers for Disease Control and Prevention, Data from the National Vital Statistics System. Accessed August 2023. (https://www.cdc.gov/nchs/data_access/Vitalstatsonline.htm#Births)
[9] Association of American Medical Colleges, 2022 Physician Specialty Data Report. (https://www.aamc.org/data-reports/workforce/data/percentage-change-number-active-physicians-specialty-2016-2021)
[10] The American College of Obstetricians and Gynecologists (ACOG), October 2019, Why Ob-Gyns Are Burning Out. (https://www.acog.org/news/news-articles/2019/10/why-ob-gyns-are-burning-out)
[11] Chartis, February 2023, Rural Health Safety Net Under Renewed Pressure as Pandemic Fades. (https://www.chartis.com/insights/rural-healthsafety-net-under-renewed-pressure-pandemic-fades)
[12] CNN, April 2023, Maternity Units Are Closing Across America Forcing Expectant Mothers to Hit the Road. (https://www.cnn.com/2023/04/07/health/maternity-units-closing/index.html)
[13] Temkin SM, Noursi S, Regensteiner JG, Stratton P, Clayton JA. Perspectives From Advancing National Institutes of Health Research to Inform and Improve the Health of Women: A Conference Summary. Obstet Gynecol. 2022 Jul 1;140(1):10-19. doi: 10.1097/AOG.0000000000004821. Epub 2022 Jun 7. PMID: 35849451; PMCID: PMC9205296.
[14] McKinsey & Company, April 2023, Closing the data gaps in women’s health. (https://www.mckinsey.com/industries/life-sciences/our-insights/closing-the-data-gaps-in-womens-health)
[15] Estimated US female population experiencing vasomotor symptoms; Craig Best et al., “Prevalence of menopausal symptoms among mid-life women: findings from electronic medical records,” BMC Women’s Health, August 2015, Volume 15.
[16] “Endometriosis,” Office on Women’s Health, US Department of Health & Human Services.
[17] Arthur L. Burnett et al., “Prevalence and risk factors for erectile dysfunction in the US,” American Journal of Medicine, February 2007, Volume 120, Number 2.
[18] Benign prostatic hyperplasia with lower urinary tract symptoms; Gary Boas, “Prostatic Artery Embolization (PAE),” Radiology Rounds, Massachusetts General Hospital Department of Radiology, September 2019, Volume 17, Number 9.
[19] Image re-created from “Closing the data gaps in women’s health,” McKinsey & Company, April 2023.
[20] Fierce Healthcare, May 2023, Parsley Health Rolls Out Comprehensive Women’s Health Program as Company Rapidly Builds Out Employer-Focused Business. (https://www.fiercehealthcare.com/providers/parsley-health-rolls-out-comprehensive-womens-health-program-companyrapidly-moves)
[21] Levin Associates, January 2023, Record-Breaking Health Care M&A Activity Recorded in 2022. (https://www.levinassociates.com/press/recordbreaking-health-care-ma-activity-recorded-in-2022-according-to-acquisition-data-from-levinpro-hc/)
[22] Medicaid.gov (https://www.medicaid.gov/about-us/program-history/medicaid-50th-anniversary/entry/47704).
[23] MACPAC – Value-Based Payment for Maternity Care in Medicaid: Findings from Five States (https://www.macpac.gov/wp-content/uploads/2021/09/Value-Based-Payment-for-Maternity-Care-in-Medicaid-Findings-from-Five-States.pdf)
[24] Strong Start for Mothers and Newborns – Evaluation of Full Performance Period 2018. (https://innovation.cms.gov/files/reports/strongstartprenatal-fg-finalevalrpt.pdf)
[25] US Department of HHS. (https://www.hhs.gov/about/news/2023/05/19/hhs-announces-over-65-million-address-maternal-health-crisis-investnew- approaches-care.html).
[26] Fierce Healthcare, August 2023, CMS Unveils New Changes to ACO REACH Model. (https://www.fiercehealthcare.com/payers/cms-drop-newchanges- aco-reach-model)
[27] 25 Tex. Admin. Code §133.209 (2023). (https://texreg.sos.state.tx.us/public/readtac$ext.TacPage?sl=R&app=9&p_dir=&p_rloc=&p_tloc=&p_ ploc=&pg=1&p_tac=&ti=25&pt=1&ch=133&rl=209)
[28] Pediatrix Medical Group, Inc., Form 10-K, February 2023.
[29] Mayo Clinic, April 2023, Impact of Menopause Symptoms on Women in the Workplace. (https://www.mayoclinicproceedings.org/pb-assets/Health%20Advance/journals/jmcp/JMCP4097_proof.pdf)
[30] Nature, May 2023, Women’s Health Research Lacks Funding – These Charts Show How. (https://www.nature.com/immersive/d41586-023-01475- 2/index.html)
[31] Modern Healthcare, May 2023, Women’s Health Investor Summit 2023 Takeaways. (https://www.modernhealthcare.com/digital-health/womenshealth-investor-summit-2023-nyse-supernode-ventures-takeaways)
[32] Progyny, Inc. Form 10-K, March 2023. (https://www.sec.gov/ix?doc=/Archives/edgar/data/1551306/000155130623000015/pgny-20221231.htm)
[33] Doximity, June 2018, 2018 OB-GYN Workforce Study – Looming Physician Shortages: A Growing Women’s Health Crisis. (https://assets.doxcdn.com/image/upload/pdfs/ob-gyn-workload-and-potential-shortages-2018.pdf)
[34] Association of American Medical Colleges, 2022 Physician Specialty Data Report. (https://www.aamc.org/data-reports/workforce/data/percentage-change-number-active-physicians-specialty-2016-2021)
[35] Economic Policy Institute – Nominal Wage Tracker. (https://www.epi.org/nominal-wage-tracker/)
[36] LevinPro HC, Levin Associates, 2023, June, levinassociates.com
[37] PR Newswire, March 2023, Kindbody Announces $100 Million in New Funding to Further Accelerate Growth. (https://www.prnewswire.com/newsreleases/kindbody-announces-100-million-in-new-funding-to-further-accelerate-growth-301761116.html)
[38] US Fertility Press Release, May 2020. (https://www.usfertility.com/about-us-fertility/newsroom/amulet-capital-and-shady-grove-fertility-form-usfertility/)
[39] Business Wire, October 2022, Unified Women’s Healthcare acquires Gennev to become the leader in menopause care in the U.S. (https://www.businesswire.com/news/home/20221017006101/en/Unified-Women%E2%80%99s-Healthcare-acquires-Gennev-to-become-the-leader-inmenopause- care-in-the-U.S)
[40] Gennev, August 2023, Meet Your Menopause Care Team. (https://www.gennev.com/doctors)
[41] Behavioral Health Business, May 2023, How LiftStance’s Latest Partnership Reflects One of Health Care’s Biggest Trends. (https://www.bhbusiness.com/2023/05/16/how-lifestances-latest-partnership-reflects-one-of-health-cares-biggest-trends/)
[42] Sourced from each platform and/or private equity sponsor’s respective website. Accessed August 2023.
[43] Doximity, June 2018, 2018 OB-GYN Workforce Study – Looming Physician Shortages: A Growing Women’s Health Crisis (https://assets.doxcdn.com/image/upload/pdfs/ob-gyn-workload-and-potential-shortages-2018.pdf)
[44] Association of American Medical Colleges, 2022 Physician Specialty Data Report. (https://www.aamc.org/data-reports/workforce/data/activephysicians-sex-specialty-2021)
[45] Novant Health, October 2018, Female ob-gyns are now the majority (https://www.novanthealth.org/healthy-headlines/having-choice-means-a-lot)

[1] LevinPro HC, Levin Associates, 2023, August, levinassociates.com. We note that the data presented has been sourced from a single transaction database and is not meant to represent total GI transaction volume but serve as a proxy for the increased transaction activity. Many GI transactions are private and may not be publicly disclosed.
[2] Ibid.
[3] CRH Medical; https://www.prnewswire.com/news-releases/crh-medical-announces-agreement-to-be-acquired-by-well-health-301223713.html; Accessed September 11, 2023
[4] LevinPro HC, Levin Associates, 2023, August, levinassociates.com.
[5] Employed physicians can also take a reduction in post-transaction compensation and receive upfront consideration and rollover equity.
[6] Gastroenterologyandhepatology.net; The Rise of Private Equity in Gastroenterology Practices; Accessed August 29, 2023
[7] Census.gov; https://www.census.gov/content/dam/Census/library/publications/2020/demo/p25-1144.pdf?utm_ source=adwords&gclid=EAIaIQobChMI0KTlzviA5gIVCoeGCh0ewgyUEAAYAyAAEgI4_fD_BwE?utm_medium=ppc; Accessed April 18, 2023
[8] JAMA Network.com; https://jamanetwork.com/journals/jama/fullarticle/2779985; Accessed August 29, 2023
[9] PEGI Journal.com; https://www.pegijournal.com/how-the-new-screening-age-will-impact-the-gi-landscape/; Accessed August 29, 2023
[10] MGMA DataDive
[11] Urban.org; https://www.urban.org/sites/default/files/publication/104945/commercial-health-insurance-markups-over-medicare-prices-forphysician- services-vary-widely-by-specialty.pdf; Accessed August 29, 2023
[12] Beckers.com; https://www.beckershospitalreview.com/hospital-physician-relationships/american-physician-partners-to-close.html#:~:text=It%20 is%20a%20portfolio%20company,in%20a%20statement%20to%20Bloomberg.; Accessed September 11, 2023
[13] Health Resources and Services Administration; https://bhw.hrsa.gov/sites/default/files/bureau-health-workforce/data-research/internalmedicine- subspecialty-report.pdf; Accessed April 18, 2023
[14] AAMC.org; https://www.aamc.org/media/45976/download; Accessed April 18, 2023
[15] Per the MGMA DataDive Glossary, the “Hospital/IDS Owned” category includes hospitals, integrated health systems or integrated delivery systems, management services organizations, and physician practice management companies.

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[15] LevinPro HC, Levin Associates, 2023, May, levinassociates.com. Italicized percentages depict year over year growth in observed transactions.
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[18] University of Maryland Francis King Carey School of Law, “The FTC’s New Noncompete Proposal: A Potential Win for Workers and Possible Mass Changeover Across All Industries?” Last accessed April 19, 2023, https://www.law.umaryland.edu/content/articles/name-659569-en.html