Hartford Business Journal

20 HARTFORDBUSINESS.COM | JULY 10, 2023 Dr. Jim Weber is the CEO of Dallas-based GI Alliance, which has minority backing from private equity, and recently acquired Connecticut's largest gastroenterology specialty group. PHOTO | CONTRIBUTED Changing Landscape Private equity firms emerge as larger players in CT's consolidating healthcare market By Harriet Jones Hartford Business Journal Contributor C onnecticut physicians — like doctors across the nation — face an increasingly challenging landscape. "We have arrived at this crossroads where things are not pretty," said Dr. Khuram Ghumman. He is a primary care physician with a small independent practice in East Granby, and also vice pres- ident of the Connecticut State Medical Society. "The insurance challenges, the regulatory requirements," he said, "in a state where the burden is higher for malpractice, a state where 16 years in a row, we have not seen any adjustment to the Medicaid rates." Pressures include the ever-rising costs of every- thing from electronic health record systems, to malpractice insurance, to technology, said Arnold Menchel, an attorney special- izing in health care with law firm Halloran Sage. "The big driver is the ever-in- creasing need for significant amounts of capital," he noted. Physicians have been dealing with these financial and organizational pressures in a number of ways, including through consolidation. Most of the attention has been on small groups teaming up to become larger practices, or groups being bought out by hospitals and other health systems. Another trend growing in popularity — and sometimes flying under the radar — is practices embracing private equity investment. It's happening in Connecticut. A national study by Avalere for the Physicians Advocacy Institute found a 43% increase in the percentage of physicians employed by corporate entities between 2019 and 2021, a trend that's been accelerated by the COVID pandemic. Over the same period, there was an 86% increase in the percentage of corporate-owned practices. "I've always categorized the Connecticut healthcare marketplace as the land of frozen molasses," said Jeff Hogan, president of Farmington-based Upside Health Advisors. But, in the last year or so, Hogan said he's observed a change. "Suddenly, we are seeing all kinds of companies moving into Connecticut, seeing the opportunity to optimize existing provider groups," he said. Recent deals In February, for example, publicly traded Privia Health invested in New Haven-based Community Medical Group, an arrange- ment that encompasses more than 1,000 in-state providers. Then in March, Chicago-based management services company VillageMD, the beneficiary of multiple private equity investment rounds, acquired Starling Physicians, a primary care and multispecialty group with 30 locations in central Connecticut. Private equity interests are also backing some of the various players in the race to build out high-profit surgical centers in Fairfield County and elsewhere in Connecticut. Hogan said Connecticut is seeing a rush of outside investor interest right now, because PE firms see a lot of potential for change. "It's been a very legacy, fee-for-service, unco- ordinated, volume-dependent marketplace," he said. "And that's why it's become such an expensive marketplace. The PE companies, for better or for worse, have furnished the capital for a lot of this innovation that we're starting to see finally come into the marketplace." It also can't hurt that one of the highest-profile healthcare investors in the country is Annie Lamont, co-founder and managing partner of Stamford-based Oak HC/FT, and wife of Connecticut's governor. Oak HC/FT has made many investments in management companies that help inject private equity funding into physician groups, including VillageMD. But private equity has a checkered reputation in the healthcare world. Studies have shown that the involvement of private equity can drive up prices for healthcare services, as firms seek a double-digit return on a short time horizon. Doctors have also reported feeling as if they lost control of clinical decision-making after a PE takeover. Some have pointed to the 2019 closure of private equity-owned Hahnemann Hospital in Philadelphia as the poster child for the ills of PE asset stripping in the healthcare field. "It's often convenient to say PE is bad, but I've seen many instances from very, very smart, strategic, tactical private equity firms who aren't there just to eke out a three-year return," Hogan said. "In fact, they're in it because they're stra- tegic and they see value in the organization." Regional hub Another recent entrant to the Connecticut market believes it has solved this conundrum. Dallas-based GI Alliance is a gastroenterology specialty group that has minority backing from private equity. It currently employs around 800 doctors in 15 states, making it the nation's largest GI physi- cian practice management company. In January, it acquired Connecticut GI, the state's largest physician group in that Jeff Hogan Khuram Ghumman Arnold Menchel

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