Private Equity in Urology: Opportunities and Challenges

On this episode of TMU, Dr. Mark Edney welcomes Dr. Deepak Kapoor as they dive into the world of private equity and healthcare policy. They discuss the opportunities and challenges faced by private practices in the field of Urology, and explore the topic of private equity with Dr. Kapoor's experiences as the chairman of Solaris Health. Listeners will gain insight into the differences between private equity and venture capital. Dr. Kapoor and Dr. Edney stress the importance of everyone having a voice in this thought-provoking conversation that highlights the ultimate goal of providing great patient care. 

Transcript

0:00:04.4 Speaker 1: Myriad Genetics proudly presents the Modern Urologist Podcast. This casual yet educational podcast is committed to keeping you informed on all things urology so you can continue to provide the highest level of care for your patients.
0:00:23.5 Mark Edney: Hello, and welcome back to the Modern Urologist Podcast. I'm your host,Dr. Mark Edney. I'm a urologist with Chesapeake Urology in Salisbury,  Maryland. My goal with this podcast is to provide you the listeners with the current leading edge of what's going on in urology from a policy advocacy experience, from business experience, the economics of running urology practice, and from time to time we'll even sprinkle in some clinical science. Today it's my pleasure to introduce a dear friend and colleague over the years, Dr. Deepak Kapoor. Dr. Kapoor is
Chairman and Chief Ecosystem Officer of Solaris Health Holdings, and he's market president for Integrated Medical Professionals and President of Advanced Urology Centers of New York. His expertise includes basic science research and molecular biology, as well as extensive experience in oncologic and reconstructive surgery. Dr. Kapoor's clinical Professor of Urology at the Icahn School of Medicine at Mount Sinai.
0:01:17.6 ME: He's chair of the LUGPA Health Policy Committee and Chairman of the SCRUBS Risk Retention Group. He also serves as a director of UROPAC in the past, as well as Chairman of Access to Integrated Cancer Care. Dr. Kapoor was founder of the New York Urology Trade Association and Integrated Medical Foundation. In addition, he's a fellow of the American College of Physician Executives. Dr. Kapoor is a piece published extensively on clinical business and health policy issues. And he's associate editor of the Journal of Urology Practice, he serves on a number of
medical advisory boards, including the New York State Governor's Prostate Cancer Advisory Panel. Dr. Kapoor has received numerous accolades, including the 2011 AUA AmbroseReed Socioeconomic Essay Award, the 2014 New York Section AUA Russell W Lavengood
Distinguished Service Award, and was recognized in 2018 by LUGPA for outstanding contributions to health policy and the preservation of independent medicine.
0:02:13.7 ME: He is one of the smartest people I know. DK is one of those onceinageneration minds who has the ability to process huge amounts of data, and from that data generate insights that most of us mere mortals can't get to. And it's fortunate for us in the House of Urology that he is chosen to apply his ability to both federal advocacy, both at the legislative level. He's got personal relationships with many members of Congress, and he has helped move many pieces of legislation
on all of our behalf but also with the regulatory agencies. And this is something that's a little less at the forefront. A lot of the work that's done with CMS and the rules that CMS publishes and the problems that that creates for the House of urology, DK is always at the forefront of this.
0:02:55.0 ME: He reads the rules and he creates the meetings he has the relationships with CMS to bring people together to say, this is harmful to the House of Urology and this is how things need to change. And I've personally been involved in several of those meetings. Again, it's a great pleasure and a great honor to have DK spend some time with us this afternoon. And so we're gonna move forward. A couple of things that I wanna explore with DK, certainly the private equity space where it's in the future, whether you're a private equity platform or you're just large and independent the
frame that occurs with hospital systems and payments and what it is to sort of compete with hospital as a large urology practice in those sorts of issues. So, DK welcome, thank you for joining us, and I really appreciate you being here.
0:03:41.2 Deepak Kapoor: Well, Mark, thank you very much for having me. It really is an honorand privilege to participate in this, and I certainly appreciate the kind words and not sure I deserve them. Just kind of pick up tasks as they go along. I think it's like anything else. If you make the mistake of going to the bathroom during a committee meeting, you wind up chairing it. And so I think that that's probably more by circumstances than any brilliance on my part. But I do appreciate the generous introduction.
0:04:14.2 ME: You're very welcome. And we can add to your many attributes humility. Very good. So let's start with private equity. And I don't wanna get as granular because I mean, I'm sure you, you've given spiels as a leader in the Solaris platform. You know, look forward, let's look forward eight or 10 years down the road. And when we look at the current landscape, the latest data that I looked at somewhere around, I think we're getting upwards of 10% of independent practice urologists are members of some private equity platform, and I think there are six or seven, there may be more, and you can probably update my numbers. Large platforms, if we define an active
platform as someone who has currently or in the recent past engaged in merger and acquisition activity, there are five or six large platforms in the country. Yours is the largest. You've got the largest headcount, you've been the most aggressive with M&A.
0:05:03.9 ME: But I wanna look forward 810 years and get your perspective on where's this all going. Because we know from a private equity partner perspective, these investment partners come in and they make a large investment in your platform with... On the knowledge that they're on a 37 year timeframe where they are then going to exit. So they want to invest a lot of money, they want to grow, and they want to exit and make money and sell the platform to either a larger equity investor or a strategic, which ultimately can be anything ranging from insurance company platform,
a national insurance company platform. Usually these are big publicly traded platforms, a CVS Aetna, some large healthcare conglomerate is sort of ultimately likely to be the final resting place of a lot of these platforms, but there may be turns of the screw before we get there. And so I guess starting off, how do you see this all playing out?
0:05:56.5 DK: Well, I think that the important thing to understand just in broad brushstrokes are two really, really important principles. The first is you have to view private equity as a means, not
an end. You know? One of the things that we spoke to when we form Solaris and we tell it to every group that's contemplating coming on board, is this is not a lifetime achievement award. You have to structure the transaction so that it is of equal, if not more benefit, to younger positions that are joining than it is to people that are nearing retirement. Because otherwise, you're creating a scenario that's self demising. And that's not what anybody really wants. Most independent practices have
spent a lot of blood, sweat, and tears building their group, and to see them evaporate because the initial transaction isn't structured well is really profoundly unwise.
0:06:48.6 DK: So the first thing is, is that you have to determine what it is that you're trying to look for. The other thing to understand is that private equity is not private equity is not private equity. Different firms have different strategies when it comes to acquiring practices. They have differentstrategies in terms to how much they'll invest in a platform afterwards. They have different hold strategies, they have different exit strategies. And if somebody's contemplating a private equity transaction in the upfront, it's really important to do a lot of diligence on the private equity firm
itself and really drill down into what that's going to look like. And once you drill down into what that's gonna look like to make sure that what you think that they're saying and what you are saying is actually codified in paper, on paper. You need to make that contract which is going to establish not only the bonafides, but the corporate culture of your platform.
0:07:46.7 DK: And you need to codify that contractually so that it's not subject to debate afterwards. And you need to make sure that those documents survive any future transaction. You don't wanna create something where you've created a culture that's consistent with what your historical practice is. In the future, you find out that upon an exit, as you've correctly alluded to, deal looks completely different than what you originally signed up for. And that, regrettably, has happened in the past in multiple specialties. It's also important to differentiate between private equity and venture capital. Private equity typically invests in companies that have a demonstrated
capacity for growth. And then whereas venture capital is far, far more speculative. So the the return on a private equity investment is much, much higher probability of success than with venture capital.
0:08:46.5 DK: So just as foundation, what is gonna happen in the future largely depends on what happens when you walk in the door, right? So if in the beginning you don't structure a transaction properly, the physicians may find themselves in a very difficult and occasionally untenable position down the road because they haven't structured their rights appropriately. And when we talk about
being aggressive, I don't know, we've been active, but we are simply responding to the market, and  we've created a system and the market without being overly parochial, the market seems to be  responding to the structure that we have. We're the only private equity platform that's majority position owned in urology, to my knowledge. That may be specious, but I believe that to be the case. What's gonna happen in the future depends on why you walked in in the beginning.
0:09:41.5 DK: If this was created by that you had a limited number of partners with a large number of employees and very few people participating in the initial transaction, it's not structured well, then the long term is gonna be very, very challenging for that group. If, however, you've structured the deal properly and you've had the right... And you've done it deliberately with intention, and key to that intention is to have a vision of where you wanna be in five years, in seven years. And for Gary Kirsh, my longtime friend and cofounder of Solaris, both of us have dedicated the last 15
years to the preservation of the independent practice of medicine. And this was a... This was not an end, but a means to an end. And that was the ability to secure capital and expertise for us to go ahead and adequately compete in a market that you alluded to is profoundly unfair to independent practices from both the negotiating and reimbursement standpoint.
0:10:43.5 ME: That's fantastic. That's a great answer. It's challenging, I mean, you can exit, I suppose, a private equity relationship. It's extremely challenging. But once you're in it in the landscape of private equity platforms, as I said, there are five, six, seven now, do you see in 10 years this becoming two big ones? And do you see those eventually partnering with a large publicly traded company? Is that kinda how this plays out? What do you think?
0:11:08.7 DK: I don't think so. I mean, that's not what's happened in other specialties. Urology and other point of care specialties are relatively late in the private equity game. Private equity has been  very active in certain circumstances where you have hospitalbased employees, ER physicians, radiologists, anesthesiologists, very, very active in those spaces, very active in spaces where you have a large number of employed physicians, particularly dermatology. And really compared to those specialties, the number of PE platform in urology is minuscule. I mean, there are dozens of platforms in some of these other specialties. And now as the groups become acquired, private equity just continues to look a little bit further and further afield as far as who they're interested in partnering with. So I think that it's possible that we see some merger activity among platforms. It's actually really difficult to do because it becomes very complicated in terms of control and funds flow. So I think that with the current landscape of private equity and urology, we may see a little
consolidation, but I suspect that they're all going to kind of pursue their own niches.
0:12:32.9 DK: And that's really more my view of it. And of course, I don't have a lot of data or statistics to back that view. It's just that when we take a look at the tenor and the character of each
platform, they're so profoundly different that that's the hardest thing to bridge even two practices together. When you get together with one part... When you join one other urologist and form a twoperson group, making sure that you're aligned in your vision and your culture, it's even difficult for two people. If you're trying to put groups with hundreds of people together, I can see it being a very
daunting task. So maybe circa 10, maybe a little more percent of urologists are involved in private equity, which means that 90% of people are not. So there's still vast opportunity for growth. So frankly, once we see the capital markets ease a little bit, I would anticipate rather than there being fewer platforms, that we're probably gonna see the emergence of more platforms as access to funds
becomes easier.
0:13:36.2 ME: Fantastic. Yeah. Yeah. I completely agree. I wanna pivot a little bit, and we'vealluded to this a couple times. One of the other many areas of your expertise of which you've had sort of primary leadership roles in is protecting the private integrated practice of urology from the friction with hospitals in large hospital systems. And one of the biggest inequities, I think, in that scenario is the disadvantage of the extra payments that get paid to hospitals for care that we deliver
on the outpatient side, much less expensively. And we call this the site of service differential. And you've done a tremendous amount of advocacy work with respect to that. We're up against the American Hospital Association, which is an incredibly large and wellfunded advocacy organization lobby firm in Washington DC.
0:14:26.2 ME: And as both of us who have had extensive experience in Washington, unfortunately,often it's not the best policy that makes it to the goal line. It's the best funded lobbying groups that push their policies ultimately to the end and sometimes to the detriment of our patients. And it's frustrating, but that's what we fight against. Set up for us where we are currently with respect to the protection of integrated practice outside of hospitals, because we know we can do it as well or better, we can do it less extensively but we're fighting these site of service notions. And it's
interesting, when you look at acquisition of urology practices, there was a period of time where hospitals were swallowing up small independent urology practices. That hospital acquisition seems to have slowed quite a bit. And most of the acquisitions are private equity platforms according to some of the more recent data that I'm aware of. Where are we with in terms of legislation and regulation with respect to kind of really preserving our space and independent practice vis a vis hospitals.
0:15:25.9 DK: I think that I probably wouldn't characterize it as friction. We're in a situation where we need hospitals, we need tertiary care centers, we need our academic brethren. They fulfill an important niche because there are certain things that cannot and should not be done in a primary or secondary setting and require tertiary or quaternary care to manage. And I believe in that very strongly. There's important roles in research and resident education that, again, independent
practices can contribute to that, but really can't bear the full national burden for that. So that sector of the healthcare profile is extraordinarily important. And it's very important that we not lose sight of it, you know? We historically have allowed ourselves to create some sort of town versus gown scenario where there's been some divisiveness between our brethren, our colleagues that are either hospital employed or academic, and those that are independent practices.
0:16:27.1 DK: And frankly, those are really artificial distinctions. If you take a look at what an academics practice looks like now and what a independent urologist practice and the comp models are largely similar, most of the work that's done is similar and except for a handful of individuals that have thirdparty grants, our daytoday
lives are pretty much identical, just depends on where you work. So it's important that to me, that we not allow some of the business practices of certain hospitals, and especially hospital systems, to bleed over into our relationship with our colleagues.
And because really as a specialty, there's no question in my mind that united we stand and divided we fall and we fall badly. So that said, there is no question that there are some hospital systems that are extraordinarily predatory.
0:17:22.9 DK: There's a variety of payment systems that lean very heavily on some historical models that really are no longer valid at what that was, is that there was a point in time when Medicare was created in 1967, and a lot of people don't know that the HOPD, the hospital payment rates, which is a completely separate fee schedule than the Medicare physician fee schedule, was not part of the original Medicare program. That didn't come to be until some decades later. And when all this was created, there was statutes around them were created at a time where it just wasn't
possible to do the procedures that we do on an outpatient basis. Think about when you and I were residents. I remember the first year that ESWL was introduced, and we admitted every single patient for ESWL. Every patient was admitted.
0:18:18.1 DK: Now, the thought that you would admit a patient for a litho and every patient had a general anesthetic, every patient stayed overnight. You know, it was a twoday hospital stay, and it was an enormous, enormous amount of wheels spinning. Well, now ESWL is nobody would really even consider doing an inpatient lithotripsy unless the patient was already an inpatient. What we've seen is the evolution of technology, particularly in terms of our technology, urologies are
extraordinarily creative, very entrepreneurial and extraordinarily innovative. So our specialty has seen the development of smaller and lighter scopes, has the ability of finer instrumentation, has developed all sorts of minimally invasive technologies, things that required inpatient stays years ago, just simply no longer needed. And that's what creates this imbalance, is that hospitals were paid facility fees.
0:19:12.3 DK: You know? Not only... The site of service differential has to do with specifically related to overall global of the Medicare physician fee schedule. But what, where the real differences is that hospitals can capture facility fees and those facility fees cannot be captured by independent physician practices. So the entire component of physician reimbursement is encompassed in the Medicare physician fee schedule. Whereas for a hospital, if a physician performs a service, they actually bill under both fee schedules. The hospital will bill a facility fee under the HOPD... Under the what's own as the OPPS, the outpatient prospective payment system,and the professional fee will be paid separately under the MPFS. But what makes the cumulative
fee higher is the addition of that facility fee. And that's what makes it challenging. You alluded to several factors.
0:20:07.6 DK: We like to call it better, faster, cheaper. At this point in time, I know, for example, in my group in New York, 40% of my doctors are fellowship trained. And that's a very high percentage. We have people that specialize in female urology and male urology and robotic surgery and infertility, just like you would see in an academic institution. You're 100% right, Mark. It could be even more. That in many respects, very little difference between the services that can be offered in an independent practice and those that are offered in a hospital. The problem is that those same
services in the hospital are vastly more money. We are aggressively pushing for transparency in payments. So it provides the patients with agency in terms of making their own decisions.
0:20:55.4 DK: But that's one of the reasons why integrating... The original integration for LUGPA to put groups together on a regional level was very important. So you can enjoy a certain degree of economies of scale. The problem is, Mark, that you can't get national recognition from Medicare, which is the primary payer for 45%, 50% of urologists unless you achieve national scale. And that was really our main point, is that we wanted to build a national practice of scale and view the private equity vehicle as the ability to go ahead and do so. But we can talk about the payment
differentials for surgical fees. We can talk about the payment differential that exists between ASCs and hospitals, because typically the ASC fee is 42% of the HOPD fee. We can talk about the difference in reimbursement for ancillary services.
0:21:51.6 DK: We can talk about the 340B program. These are all problems that require, not regulatory, but statutory fixes. And at this point in time, there's a couple of criteria that have gone into play and that have really gotten the attention of lawmakers. The first is, everybody knows that healthcare costs are rising, but the rate of change in the United States is among the highest of all ODA countries. The developed industrial nations in the world. The second biggest problem, which
is really problematic because politicians, they don't necessarily feel that strongly about doctors, but they do feel pretty strongly about their constituents because votes matter to them. Not only are costs rising, but the percentage of those costs that are being borne by patients is rising astronomically. As far as the percentage of healthcare costs that are borne by patients in the entire industrial world, only for whatever reason, the Czech Republic does the patient bear a greater load of their care than
in the United States.
0:22:54.9 DK: And this has resulted in a circumstance that has been come to talk financial toxicity in healthcare. So the financial toxicity in healthcare suggest that patients are becoming profoundly distressed by the cost of their care, because there's this massive differential then, and they don't know that there's a less expensive site of service that can produce an equivalent outcome. So what we see is that one thing, I wasn't even aware of this term until about three or four months ago when
I was researching to do a talk, but I was flabbergasted and stunned when I read a study by the Kaiser Family Foundation, that 23%, 23, nearly 1 in 4 patients who have developed a neoplasm, okay, developed some type of cancer, 23% of them will lose their home for one or another reason, economic reason, within five years.
0:23:49.5 ME: Wow.
0:23:49.6 DK: One out of four Americans stricken with cancer will lose their home within five years of the diagnosis. Frankly, Mark, I was nauseous when I read that. I mean, honest to God, I was sick to my...
0:24:00.8 ME: Absolutely.
0:24:01.8 DK: I was sick to my stomach.
0:24:02.6 ME: No, also I think statistical bear out that healthcare debt is the number one cause of personal bankruptcy in the United States now, it's healthcare debt.
0:24:11.1 DK: And that's right. And that is why for the first time in a long time, I'm actuallysomewhat optimistic that we're gonna get legislative attention on this. The constituents, our patients, the constituents are crying out. And what's happened to us is we've allowed ourselves to effectively become agents of payers as a... We are injected into the payment mix when we should be focusing on the care of the patient. And this is something, again, from the larger consolidation, the more business services you can centralize or you can allow physicians to practice at the top of their
license, then the better off that everyone's going to be, because frankly, that just enhances access. It's estimated that roughly 40%45% of a physician's time is spent on administrative duties.
0:25:01.6 ME: Fantastic oversight of kind of where we are with respect to our relationship and independent practice, and in hospitals. And you're very right. And I echo your sentiments, that they're critical parts of our system. We rely on them heavily, and we need to figure out sort of how best to sort of divide and conquer and provide together both independent practice and hospitals and academic systems, how do we together provide the right care to the right patient at the right time for the right price? And that's ultimately where we need to get to. And unfortunately, a lot of the
movements, the advocacy that goes on and the lobbying pulls us away from that perfect formula of right care for the right patient at the right place for the right cost. And I think that's what we all want. We wanna take great care of our patient...
0:25:44.7 DK: And at the right time, frankly.
0:25:46.6 ME: Yeah, absolutely at the right time. We want it not to be a financial burden on them.
Everybody wants to be compensated appropriately for the care that they provide. And it's through the work that you've done and that we all continue to do together that we're gonna continue to strive to get there. So, DK I could talk to you for two hours, but we're encroaching on here in half an hour, and I think this is probably getting towards the limit of most listeners' attention span. So I'm gonna
bring this to a close, but again, I wanna say I really appreciate, we've touched on some issues of private equity, where that's going and the issues of the delivery of independent care visavis hospitals and economic centers and kind of where that's all going. I think we've hit some really interesting topics. I wanna thank you again for taking the time to join us, and I really appreciate...
0:26:27.3 DK: I need to make one final point, Mark, before we sign off. Okay? And that is a plea and an urge for everyone that's listening to this podcast, for whatever it is that your background is, whether you're academic or hospitalbased,
independent practice or group private equity or not, get involved. Okay? The legislators...
0:26:47.1 ME: Absolutely.
0:26:48.0 DK: The legislators are desperate to hear from you. They know, they don't see our voices, they don't hear our voices, they don't see our faces anywhere near often enough. Get involved.
0:27:00.0 ME: Yeah.
0:27:01.3 DK: Okay.
0:27:01.6 ME: I completely agree with that. Yeah.
0:27:01.9 DK: Participate in the PACs, participate in the meetings, go to Washington, meet with your local representatives. Invite your congresspeople to your practices. Even if you're a small group, you are important to them. You leverage a lot of their  constituents. Because I've said this, and I've said this for 15 years, if you are not at the table, you are 100% on the menu.
0:27:24.7 ME: No doubt about it, that it's a great point. And I think it's a great way to finish. I'm currently the chair of the state advocacy committee for the AUA. And so we do a lot of work around it in all of the states. And nothing could be absolutely truer than the need for every urologist to get involved to the extent they feel they're able to. And if the federal game is not your gig, and you're more of a kind of a local, you wanna concentrate on your local areas, at the very least, find out who your local delegate and your local senator are.  And then from there, you can start to meet the leaders of the committees of jurisdiction. And those are the key people in your state houses who are making healthcare policy. Usually it's a... There may be a healthcare committee in the house. It may be a finance committee in the Senate. Find out the committees of jurisdiction who make decisions that affect your life on a daytoday basis in your state house. Find out who the leaders of those committees are and make relationships with 'em. But it starts with your local delegate. Get to know your local delegate, your local senator. Go to the next fundraiser, and we can end on that. And so, DK, again, thank you so much for joining us. We really appreciate your time, and I think it's been a great discussion.
0:28:48.0 Speaker 1: This podcast is brought to you by Myriad Genetics. If you'd like to learn more about our genetic testing solutions to personalize prostate cancer treatment, visit myriad.com. If you like what you're hearing, make sure to share, subscribe, or leave us a review. Until next time