Heath Law Talk discusses Private Equity

Intro (00:01):
Welcome to Health Law Talk, presented by Chehardy Sherman Williams Health Law. Broken down through expert discussion, real client issues and real life experiences, breaking barriers to understanding complex healthcare issues is our job.

Conrad Meyer (00:20):
And good morning, good afternoon, wherever. What time it is that you’re listening to this podcast. Welcome to another edition of Health Law Talk with Chehardy Sherman Williams and in the studio today we have the three originators, I guess George Mueller, Rory Bellina, Conrad Meyer behind the mics, and sort of wrapping out 2023, we decided we would like to come do an episode on private equity and healthcare and what that means, what does that look like and some of the issues that I guess when you bring in private equity into healthcare, whether it’s buying out of group practice, whether it’s buying a private hospital, what does that look like? What are some of the issues that you face as a provider dealing with private equity and what does that usually mean? Could mean for the public, good, bad or not. And so it was a good topic, especially timely because of some of the things that are going on the news, some of the things that are happening in politics, especially on DC. And so we thought it was a great idea to bring it up. So I’m going to defer right now. Rory. George, what do you guys think? Private equity, healthcare 2023, getting bigger, smaller, what, what’s on your radar when you think of private equity?

Rory Bellina (01:35):
I definitely wouldn’t say that it’s getting smaller. I would say that it’s continuing to grow and that you see these private equity companies are targeting slowly but surely different sectors, different practice types. There was a trend for a while to do dermatology and now we see that shifting to more of the surgery center spaces. They see that the revenue comes in from so many different sources of providers, but I definitely would not say that it’s slowing down. If anything, I think they’re just looking at new areas to expand to or maneuver over to.

George Mueller (02:08):
Yeah, I would say I would echo Rory’s sentiment and then say that I think that there are certain groups, certain I’d say groups of money, people who want to roll up and acquire certain specialties and subspecialties. And so as kind of acquisition penetration occurs regionally and throughout the country in certain subspecialties, you’ll find ebbs and flow of which specialties are getting bought up and at what rate and what size and what region. So I think there are, within specialties, there are different kind of speeds and I guess ages insofar as who’s buying what and where.

Conrad Meyer (02:55):
When you say the ebb and flow, and I understand where both of y’all are coming from, what, what’s been on your radar this year in terms of the specialties and of the spread of private equity acquisition? We gone from dermatology, like you said, Rory, what have both of you seen the expansion? Where is it going now?

George Mueller (03:17):
Well, I think we’ve seen certainly in imaging seen that there’s a lot of radiology roll-ups going on. I’ve seen dermatology is another area where I think some surgery practices, of course we’ve seen that as well in different areas. We do have sort of different internal medicine to some degree. You have insurers who are sort of sponsoring clinics or opening clinics and then trying to staff those with internists and then using practice extenders to be able to leverage down and try to penetrate the internal medicine, primary care family care market in certain particular populations. But I think if we go back to the first two examples, radiology and surgery, I think in derm maybe perceived to be some areas where private equity through how they structure and manage can frankly make some money and do well efficiencies, so to speak. I think a lot of owners turn into employees, which compensation’s a little different. Also, I think from a macro perspective, you have to realize that the population of physicians in their age relative to where they are in terms of

Conrad Meyer (04:33):
Seniority,

George Mueller (04:34):
Well where they are in terms of their horizon, their personal horizon, maybe it’s 60, 65 and you really start to contemplate within that five to 10 year period, how much longer do I want to do this? How much longer can I do this? Depending on how physically demanding your specialty is. And I think Durham versus orthopedic surgery, arguably

Conrad Meyer (04:52):
Because when you say surgery, you mean ortho cardio neuro, is that what you think

George Mueller (04:56):
Top? I was thinking primarily top three, primarily ortho. I think now we have had some, right in Louisiana we had

Conrad Meyer (05:02):
The cardio. We’ve had some

George Mueller (05:03):
Cardiology Institute of the South as recently as That’s right, yeah, those specialties. And there are probably a bunch of others if we were to do the research and kind of line it up to the extent those deals are reported. But yeah, I think you see basically as the provider, as the physician owner population ages out, you will see that more people are starting to come into that and then the structure and the availability of money has been plentiful. So if you add all that up, you’re going to get some consolidation, right? You’re going to get some roll-ups. And so the younger physicians really aren’t in a spot to sell out yet, right? And they maybe don’t want to. They’ve owning their own practice, they kind of making their hay so to speak. But I think when you get to a point where you’re 65, 68, 72, maybe you start thinking about it and then so you’re more likely to be someone who’s going to sell your controlling interest and bring along your partners, structure your retirement in a way where you’re going to work three to five more years, maybe get the air quotes, rollover equity, and then hopefully you get to second bite it to Apple three to five to seven years after that.

Conrad Meyer (06:14):
When we talk about a private equity deal, Rory, what does that look like? I heard George touch on it a little bit. What does it look like from a practice standpoint when you’ve got private equity contacting a group practice and saying, okay, we want to come in. What’s been your experience when dealing with a deal? How’s it structured? What do you see?

Rory Bellina (06:35):
I mean, it could be as fast or as slow as the acquiring company wants to go. A lot of times before they do anything, they’ll get the confidentiality agreements in place and they’re going to want to look at the financials to see is this even worth the go or no go analysis? Is this even worth proceeding with? And that seems to take a huge chunk of time. Once you get past that, then they’ll start asking more. And that’s when you start to see the data rooms open and start to look at, okay, well let’s look at who your vendors, your provider contract with. We need to see your billing, which is a whole other separate issue to start to look and see the next step of this. Do we again want to proceed? And then a lot of times, like George mentioned is what is the demographics of the practice?

(07:20):
Is it a practice where you’ve got a lot of older providers on top who own the majority of, let’s say the stock in the company and they’re going to use this as their way to cash out and there’ll be employees for a couple more years and go, or do you have, and you could have a split where you have that group, but then you also have a lot of young employed physicians who they’re straight out of residency that have been in this practice that’s now going to get purchased by private equity and they’re going to be become an employee. And this is not what they thought that they signed up for. Maybe they thought that they were going to slowly buy into this practice and become an owner. So you have to juggle that because the purchaser wants, most of the time they want to keep all the providers in because they’ll keeps the cash flow going.

(08:07):
And so you don’t want all the young physicians to quit. You definitely don’t want the older ones to leave because they have the established patient base. So that becomes a delicate balance as well as trying to keep everyone happy and how do you keep the older physicians that own the stock in the company, they’re going to be happy because they’re going to get paid out the most. The younger ones that really have nothing figuring out how do you keep them in and keep them happy to be the workhorses when really they’re just going to be earning a salary and they have no shot at getting ownership. I think that becomes a delicate talking point. I know George, we’ve gone through that with some different clients. It that’s always a juggle to deal with the breakdown of the older tenured physicians,

George Mueller (08:52):
Their investment expectations. I think their professional horizons and what they want to do for the next 10 to 20 years are two dramatically different groups of people and both are pretty critical to the continued cashflow based on the model, based on the enterprise value, based on the spreadsheet. That’s the decisional framework for private equity coming in and buying. When they set all that, they’ve got to presume all the information about current revenue levels, future patient retention, and then case money collections, et cetera. All that has to be considered when they put a price on ’em, right? And so they’ve got to be able to retain those people. Obviously, employment agreements and retention are a certain amount of people are kind of key because all those revenue assumptions are based on that. So they’ve got to keep those in there.

Conrad Meyer (09:38):
And we talk about revenue assumptions and how they value, meaning private equity values of practice. And I know the three of us have mentioned this before when looking at a deal, but are we seeing the similar trend across the board with private equity coming in and dangling the carrot in front of these doctors knowing the demographic makeup of the practice where they say, oh, we’re going to give you a 10 x multiple or even higher. And then during the whole modeling show the whole beauty pageant. And then suddenly as we start getting into the LOI and getting into the definitive agreements and reviewing, like Rory, you said the data room of the actual vendors and the payer mix and so forth, that multiple seems to decrease a lot. And then you have the holdover. And so now when you really get down to the actual closing of the deal, it’s not as sweet as it started

Rory Bellina (10:37):
Often, but you’re so exhausted from negotiating it and spent so much time in attorney’s fees that you just want to close how often,

Conrad Meyer (10:44):
But how often does that happen? Is that a SY thing from private

Rory Bellina (10:48):
Every time and you call in the most complicated attorneys at the end to muddy up something to have more money put in escrow or to lower that projection a little bit? We see that every time and kind of expect it that with buying a house, your first offer is your Beth offer. Same thing with this. The first number that they’re going to give to you is as good as it’s going to get, and it’s only going to go down from there. But it’s hard to, we’ve had George, we had.

George Mueller (11:19):
Sure. So depending on how much information particular pursuer has on a given target, they may have, the indication of interest is usually, Hey, this is what we’ve liked. And we kind get, as Rory was saying earlier, confidentiality, generally speaking, if they’re working with a broker, then the broker will usually have some sort of a deal book available that has some sanitized but fairly specific parameter as to revenue level, number of physicians, all the key drivers that any particular buyer would want to see to arouse dication of interest. And then from there they may develop some expectations and then look at what their enterprise value is and set up. So you have these couple of working pieces. You have the enterprise value, which is that total of EBITDA times a given multiple, like the big shiny object at the top. That’s the carrot,

Conrad Meyer (12:21):
The star on the tree. That’s right. That’s

George Mueller (12:23):
Right. And then because we’re seasonally appropriate here,

Conrad Meyer (12:26):
Star, I like

George Mueller (12:27):
That then, but then you’ve got to look at A, are they going to keep the multiple there, right? And B, that enterprise value that ebitda. So what normalizations air quotes for those of you listening are going to impact that number once they get into the data room and look at it start to beat up the quality of earnings. Well,

Conrad Meyer (12:48):
We usually have it on the group side. So I mean that number, that multiple that all of us are talking about right here, the star on the tree, it’s so hard to manage client expectations because when they hear that number, it’s usually before we even get to ’em,

Rory Bellina (13:04):
Each usually had a steak dinner. It’s usually

Conrad Meyer (13:06):
A steak dinner or kind. And so by the time we get it, suddenly we have to manage client’s expectations and saying, well, they said 13 x or 12 x or 15

George Mueller (13:18):
X instead put it into numbers. The letter says, we believe this thing’s worth $150 million. And then the dinging yellow, those dollar signs are going off and it’s hearts and flowers and everything

Rory Bellina (13:29):
Start to mentally spend it. There’s

Conrad Meyer (13:30):
A lot of hearts and flowers.

George Mueller (13:31):
Mental millions are spent instantly on second homes, third boats and fourth whatevers. I mean just

Conrad Meyer (13:37):
Everything, right?

George Mueller (13:38):
So

Conrad Meyer (13:40):
That’s hard though. It’s hard to manage that.

George Mueller (13:43):
It’s human nature and believe me, that these things are played upon because of that. So then what happens is that number will begin to erode and typically erodes for valid reasons. I mean, they’re going to come and say, well, hey, look, this physician’s not going to be here that long. Or Hey, we are expecting some headwinds on this cost or your reimbursement in this probably going to go down because it’s going to be some downward pressure because the charge master is going to go down or because whatever derivative Medicare schedule we’re using is they’re going to squeeze that more blah. Then all the parade of horror suddenly comes out. It goes from hearts and flowers, 150 million to erode. Look at all these things. Look at this. It’s terrible. It’s like, and you’ve hired X brothers inspectors to go into your house and shoot holes in the thing, and

Rory Bellina (14:26):
While it’s eroding, it’s eroding and the erosion is being put in little buckets that you can only touch at certain points in time. So that 150 million for your example, might now be down to one 30,

George Mueller (14:39):
But

Rory Bellina (14:39):
30 million of that is going to be put in escrow and 20 million is going to be

Conrad Meyer (14:45):
Held for two or three years.

Rory Bellina (14:46):
Some of this is rollover, so it’s not

George Mueller (14:49):
Dollars. We haven’t gotten to that rollover yet. That’s a separate big deal. The enterprise value is the whole pie, but they’re not going to buy the whole pie. They’ll buy a piece of the pie. Okay,

Conrad Meyer (14:59):
So let’s talk about that. But they’re

George Mueller (15:00):
Going to have a hundred percent control. So the idea, and look, if you have, let’s say you have a pot of money, 2.3 billion at Crud Rock Inc or whatever. And so you’ve got a bunch of guys in the Patagonia vests and they’re all doing their thing. They have a spreadsheet, slick fast, got to use a major firm, blah, blah, blah. So those guys, they have a limited amount of money, so they’ve got to shoot the biggest elephants using the fewest bullets as possible. And so that’s what we see you value a hundred percent, but they’re maybe going to acquire 65% and you’re going to get 35% of rollover equity to all of those key partners and the other people, but you’re going to have a hundred percent control and that 35% is locked up. It’s hard to get a put on it without giving them a call.

(15:50):
And then there’s no guarantee. You can’t just go and say, Hey, in five years you need to buy me out my same multiple cash. I really want to be out out. I’ll take the rod. I want my second bite at the apple. You said it’s going to be at a 13 x, not at a nine x that you’re buying us at. Wow. It’s four x more and it’s a tax efficient. So everyone has a script that they follow. First thing they say is, well, you’re going to get way more on it. You’re not going to pay tax on it. So it’s very tax efficient. You don’t have to pay that tax. And then you don’t want to have to redeploy it in another investment. They say all the things you don’t want to do with your own money in your pocket besides say, spend it, give it to your kids or reinvest it in something that has nothing to do with what you’ve been doing for the last 30 years.

(16:26):
All those things really play into what happens. And some people like it because if you’re young enough and then you’re going to be involved enough, then yeah, they’ll take the ride on it. They believe in the company they built, they’re going to sell it. They think it’s only going to get better. They drape the Kool-Aid. And it may well though mean, to be fair, some of these things do work out favorably. Yeah, sure. I think this particular discussion point really emphasizes the importance of trying to get a put right or an exit for your seller who has that carryover equity in terms that if nothing else, if they really want to get out, and it kind of depends on their age and their investment horizon, but if you can get them a guaranteed out at no less a price than what they sold the day you did it, then that might give the buyer private equity an opportunity to buy them at the nine x when it’s worth 13, they’re going to sell it. But if you want out now, you may like that. You may not want to wait or you may be ill, well, you might

Conrad Meyer (17:21):
Want to do it now because you’re not going to have control once the deal closes, you’re done. And so if you don’t exercise it before you’re going to lose

George Mueller (17:28):
It. And so with that, just generally speaking, rollover equity like it to be as close to 30, 40% as possible. I think sellers, depending on their tax scenario, if it’s been around 20, 30 years, maybe some anti churning things, some rare tax stuff that happens with corporations, then you may not to go above 20% and you want to get as much problem is they’ve got to use more cash or more debt financing on a company you’re going to buy. So it’s either way, whether they’re putting their own cash up from that big pile of money we talked about a few minutes ago, or they’re going to go borrow, the company will borrow debt and pay you with it, but the borrowed debt directly devalues, it’s on the balance sheet of the rollover equity you have. So one way or another you’re

Conrad Meyer (18:13):
Going to earn it back over the years.

George Mueller (18:14):
One way or another, it’s out of your pocket as a seller. And so that’s a critical kind of economic distinction to make when

Conrad Meyer (18:20):
You’re doing it. And see, lemme just say

George Mueller (18:21):
You get no control. I mean, they’re going to run it. They’re going to have the back office as we’re going through a list of kind of talking points that y’all see in your earbuds going to really, the idea is private equity is supposed to pull out the money by managing it, by providing financing, by doing all the payroll. It’s going to be a management services agreement. They’re going to streamline, by the way they, you’re an employee now. So even if you work in a magical RV U thing, you’re probably still making less and you’re not going to get those same equity distributions. That’s right. It’s a little less money. So all in all, it is a good economic prospect, but it is a liquidity solution for someone who wants to get out. And so that’s not all bad.

Conrad Meyer (19:02):
Very complicated concepts you just said. And I know Rory, you’ve dealt with that too, but let me ask you this guys, how hard is what you just digested in a very, very good summary in a few minutes. How hard is that to relay to providers when doing a deal after they’ve been told at the steak dinner it’s going to be a 13 x multiple, now you’re walking it back. They have, I think it

George Mueller (19:28):
Varies. Honestly, it’s humans. And so I know we all have different clients with different aptitudes and different attitudes and different, and so some may be absolutely just focus on that and they’re going to go, go, go. And they’ve kind of persuaded by a

Conrad Meyer (19:44):
Ready, fire aim.

George Mueller (19:45):
But I think to their credit, a lot of our physician clients are very shrewd and they’re not just fabulous practitioners. They’re not just really good at what they do with their subspecialty. They read a lot. They’re polymaths, they’re bright, they’re good business people, not all of them, but some of them are. And I find the ones that have a tendency to be good business people immediately understand the economic alternatives and pivot points of control versus liquidity versus price versus the normalizations versus as Rory was talking about even the last second, healthcare, healthcare compliance and regulatory issues never come up in the first 30 days of a deal. They always come up in the last 10, 20 days, and it’s always someone who’s in a corner in a little fax office somewhere. They don’t have particularly good social skills. They have a tendency to be very verbose, almost like when you’re on the phone with them, they’re avoiding eye contact with you on the phone.

(20:49):
That’s how awkward it is. And it’s just basically their regulatory wonks and they’re like engineers, they’re like light switches, God bless. We love our engineer clients, but it’s all or nothing. Everything’s immediate report full, blah, blah, blah. Everything is like to the max or you’re going to die, right? I mean it’s like, it’s literally an on off switch, which is interesting because a lot of these things really do have a subjective factor to them. Some of them are objective, but I think they’re intentionally brought up at the end they say, oh, look what we got to do. And all of a sudden more money goes in and it doesn’t hurt. The buyer doesn’t care. They’re just going to take the money. They would pay you and report it to buy regulatory peace and quiet where there’s a lot of practical issues about how efficacious those claims would be. And of course, we don’t advise people to not comply with all federal laws and regulations, but it’s just at some point in time, it comes kind of, for lack of a better term, what’s the word you would use where something is just absolutely, maybe technically there’s a concern, but from a practical standpoint, anecdotally, it’s a total nothing burger. So I,

Rory Bellina (22:02):
I don’t know if there’s a term for it, but I agree with that. You have those situations where like you said, it could be very subjective and that regulatory attorney wants to do a self-report and it’s going to go to Washington and sit on someone’s desk for a year and they’ll gladly take your money and that’s it. And there may not have been there. But like you said, I think what brought us to this conversation was issues going on nationwide about there was a large private equity company who purchased up a system and purchased up a hospital, and there was some issues with staffing there and that got Congress involved. And the larger question has been presented, is private equity good for healthcare or not? And I think that yes, it’s good, but I think that in some spots maybe it’s not good. So I’d love to hear both of your opinion when we got about 10 more minutes left in this

George Mueller (22:59):
Overall

Rory Bellina (23:00):
Good or bad in how it’s helpful, but also

George Mueller (23:03):
Not. So it’s always, we’ve seen it happen in the insurance sector and I think we’re seeing it happen in the hospital sector. And then I don’t think physicians have, there’s a limitation on physician owned hospitals now from the Affordable Care Act. That’s right. And so overall, if we view this more than just through a keyhole or a telescope and see the broader issue, things seem to continue to be moving towards consolidation. And so you have consolidation of common ownership and control over various practice sectors that are either because financially or just situationally, they’re more ripe for acquisition because funds will naturally see if we have this money, are we going to buy groups? Who are we going to roll up? Where can we make the most money their role? And then what are most susceptible to roll up for those various drivers? I think when that happens, invariably you get larger groups.

(24:04):
Larger groups typically means more bargaining power, right? Because they have greater percentages of market share in any particular geography. And state contracts are kind of state by state with respect to various insurers. So all that in your larger cities where a lot of these roll-ups focus because of patient population, right? Yeah. I think you just see continued consolidation. Now if you’re of the big theory that government wants to consolidate everything because someday we’ve got to go to single payer because that’s what everyone else in the world does, but everyone else in the world comes here for healthcare. It’s just odd. There may be a correlation, maybe it’s just coincidence. I don’t know. We get political here, but I think the point is that the government doesn’t seem to want to allow, if Humana wants to merge with someone that were trying to merge earlier, that got blown up.

(24:57):
I think too, I think Elance and someone else maybe were trying to merge. They had to go back and change their terms. It’s strange because while antitrust and FTC issues certainly abound with respect to consolidation and whether or not you need a Hart Scout rodino issue, but I would think they would want consolidation because eventually if they have all the tune in one bucket, how easy it is at some point in time to just take the one bucket and let ’em all swim into the bucket freely. I think that’s what I see happening. That said, it gets interesting for patients. It gets interesting for payers because you lose the ability to have multiple choices to go to if everyone’s getting bought up in or consolidated, right? Industry by industry.

Conrad Meyer (25:40):
I echo that and I’m thinking more operationally from a private equity standpoint, when you take over a group practice, a surgery center, even still a private hospital, because they can still take over private hospitals, they can even buy hospitals now because they’re not providers. So there’s no prohibition on that. So they can go out and buy a system like what happened here? My question is what happens when you get private equity administrators who are really focused on profitability, and we all talk about, well, they could debt service, they could upgrade, whatever. But really what they’re going to be trying to do is because the continued fee schedules are being scrutinized every year at CMS, which all private payers, not private pay, but commercial payers then follow the suit right from CMS, then if I’m private equity, I’m going to be trying to decrease my expenses any way I can and maximize reimbursement any way I can. How do I do

George Mueller (26:43):
That? Well, we hope that patient care is in compromised. I mean, we still have really good physicians. All

Conrad Meyer (26:47):
It’s easy to say to anybody though, George, I mean, everybody can get on a podium and say, we’re going to give you high quality low cost healthcare, and how many times have we heard that? But when you get down on the front lines, it becomes a different story. For the example we were talking about before the show, the issue telemetry monitoring. The remote monitoring, I’ve watched over the years, the remote monitoring go from one monitor to 10 20 patients to now I’m seeing 40, 50 patients. Is

George Mueller (27:16):
There a standard of care

Conrad Meyer (27:17):
For, we’ve talked about that

George Mueller (27:19):
With all the tech and

Conrad Meyer (27:21):
Interestingly, I know that I saw the other night where HCA was saying that they have a 40 to one ratio or something like that. It was on the news, and they allegedly abide by the guidelines that the American Heart Association says, which is 40 to one, 40 patients to one monitor. And then I saw the A HA says, well, we never said that. So I don’t know if there’s a regulatory baseline on the monitoring, but my point is, take that aside, that private equity, when you have an administrator from private equity come in for a group a SC or even a system, you’ve got people who’ve never had any healthcare experience come in and their sole focus is to cut the fat, get rid of expenses, and how can we do that? I’ll give you an example for-profit hospital situation, and I’m not going to say who it is, but I witnessed this, I watched this happen.

(28:13):
MedSurg floors used to be med-surg floors would have 20, 30, sometimes 40 basis on a MedSurg floor, and you would have at least on a four to one ratio coverage, maybe six to one ratio, where you had an RN covering that kind of patient base, and it was all RNs. And so I know four profit companies come in and say, oh, we don’t need four RNs on a med-surg floor. We need three LPNs and one RN to monitor all the LPNs. So is that patient care? Is that quality? Do we go from monitoring a 20 to one telemetry to a 60 to one? Is that quality? Do we go from having 10 sets of hardware at a hospital? Because each surgeon likes to have their Medtronic, their Stryker, whatever hardware they like to do their cases to where it only can have one set like going to a tool like an automotive mechanic. Some might want cobalt, some might want whatever, snap on, snap on, right?

(29:14):
Matco, Matco, Matco. And so then you say, we’re only going to have one set. So I mean, there’s ways to streamline it, but what I see operationally is I don’t see that. I don’t see the good outcomes from that. I see examples of the bad outcomes now I guess I’m wearing tanned glasses. I like to see the good outcomes, but I don’t know how you can look at someone and say, putting a 40 to 50 to one on a telemetry monitoring is good healthcare. I dunno how you could say four RNs. Now we’re going to take away those people and give LPNs. I don’t think

George Mueller (29:47):
He can do that as a split of industries. I’m just as

Conrad Meyer (29:49):
An example.

George Mueller (29:50):
Yeah. Do you think that because of the nature of the services, do you think that maybe that private equity consolidation has more of a potential negative effect on quality of care for say, facilities versus practices?

Conrad Meyer (30:07):
I think that yes and no. Yes, I would say for facilities yes practices, what you’re going to have is

George Mueller (30:14):
The physicians are still providing the care. The care,

Conrad Meyer (30:17):
That’s right. They’re going to cut the fat of those practices. So if you’ve got a low performing doc, that person is going to be gone. And then how many mid-levels do you really, how many apps do you really need to cover for a given practice? I mean, a lot of docs want their apps to do their closing, their opening

George Mueller (30:37):
And so forth. I expect they have an optimization calculation. I’m

Conrad Meyer (30:40):
Sure they

George Mueller (30:41):
Do, which is pretty lean and probably has a little ouch factor with it. And they strive to push it towards that ouch factor without causing a reverse.

Conrad Meyer (30:50):
Let me just say this, and I’m going to say this to both, that most

George Mueller (30:52):
Of the pressure points in those sort of operational quantities,

Conrad Meyer (30:56):
I’m going to say this lastly, because I do think there’s a good point on private equity acquisition of facilities, and I’ll tell you the good point. I have watched over the years, I’ve been in healthcare for almost 30 years, even from an administrative side, how many administrators do we need to run a hospital? How many? Because every time I look, and I bet you if you ask the providers this question, they would shake their head, I agree with you. How many VPs of X do we need to run the facility? And if you look at an org chart, it looks like a fricking spiderweb. I mean, because you’re looking at it like, oh my gosh, we have a VP of what? We have a VP of this. Yeah.

George Mueller (31:38):
So there I think, sorry.

Conrad Meyer (31:39):
No, no,

George Mueller (31:40):
Ran. What I was going to say is

Conrad Meyer (31:42):
Do y’all agree, disagree?

George Mueller (31:43):
Well, I will say this certainly in the air quote spreadsheet that they use to look to analyze earnings and come up with enterprise value based on operational management and budget assumptions. I think they certainly achieve some efficiencies by having some more remote or regional back office crammed into the quote unquote MSA that typically gets signed. And I think it’s the same probably with hospitals to some degree. Obviously there’s going to be some, the Bobs will come and ask you what you do, Bob, right? Bob, what exactly do you do here? Great movie and metaphor. And that happens. That happens in all industries, not just healthcare’s

Conrad Meyer (32:21):
Everywhere. I would ask both of you to look at the ratio of administrators to providers in a facility and then look at it, the ratio of administrators to providers and the system.

George Mueller (32:32):
There’s a lot of paperwork and a lot of nonsense involved in the provision of healthcare.

Conrad Meyer (32:37):
Well, you have your back office for that. Yeah,

George Mueller (32:39):
But I mean effectively that’s what they

Conrad Meyer (32:42):
Are. No, no. I’m talking about administrators. I’m not talking about your back office staff for claims. And I get that. I do get that. I’m talking about your VP of admin over business development, for example, or marketing or whatever. Feel good. You want to title someone as a VP of something, look at your administrator to provide a ratio. Yeah. I

George Mueller (33:02):
Think what happens is with size of organizations, those have a tendency to grow because people who would be responsible for multiple parts of those just don’t want it. And they appear that there’s maybe room in the budget. And I think again, it can grow like government, right? And nothing grows except for maybe Kudzu in Mississippi, nothing grows like government, right? Because once it goes, it doesn’t stop. You can’t retard it, you can’t eat it.

Conrad Meyer (33:31):
Love your analogy.

George Mueller (33:32):
Nothing can do. And so

Conrad Meyer (33:33):
Those people who are not from Mississippi or mother don’t even know what katsu is. I mean, it’s like a weeded and it starts and it just grows at an exponential rate. Doesn’t stop, does not stop it’s vine. Anyway, that’s what I thought. Rory, sorry for the long-winded answer.

George Mueller (33:49):
No, it presents and for law firms, it presents great opportunities. It does to advise your clients through a critical one-time practice exit. For us, it’s advising them on the culmination of valuing a big component of the life’s work and then making sure they maximize value for that. And then you have an appreciation of what those exit points and what those value parameters are going to be when the deal’s done

Conrad Meyer (34:18):
Well. Good. Alright. Well, gentlemen, I think I know Rory had a rollout, so we’re going to end this a little earlier. I will tell you this, I think we

George Mueller (34:24):
Scratched the surface. There’s a lot going

Conrad Meyer (34:26):
Think there’s a lot going.

George Mueller (34:27):
Probably hit this topic with a lot of depth on either how the deals are structured and kind of a narrative of what goes on at various stages to say, as you say, to kind of have a particular client digest that, and then maybe go into a little bit of some of the regulatory issues that we’ve been seeing with respect to how Congress views it, what their attitude towards is, which I think is kind of duplicitous. I think in one way they want consolidation. If they want single payer, then you’ve got to have consolidation to get all the tune in a bucket. At the same time, they don’t want consolidation in a way that upsets the air quotes balance of power or things.

Conrad Meyer (35:04):
But we’re, lemme just say this, we’re going to, and we’ll get to that. I think let’s ask the listeners here, if you are interested in anyone listening to the podcast that wanted to do some additional, maybe a multi-part series on an in-depth private equity transaction and the issues that we face, give us an email, send us an email, let us know what you think and we’ll be happy to look at this and maybe add some more, I guess, colorful commentation and discussion and future series. So gentlemen, thank you very much for this, George Mueller. Conrad Meyer here. We really appreciate everybody. And look, it’s getting close. I think we’re doing this way. We’re close to Christmas, right? Yes, we are.

George Mueller (35:45):
I’m wearing my plaid, which is red and green and everything else. Ho ho. Merry Christmas.

Conrad Meyer (35:51):
Yes. So for those of you who are listening to this around Christmas time, Merry Christmas to you and your families. I’ll enjoy. And until the next time, we’ll see you soon. Take care.

Intro (36:01):
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