In this episode we are joined by Holden Godat, Compensation Arrangements Director, VMG Health to hear about Corporate Practice of Medicine and the role it plays in PE MSOs and MSO structure. Join us as we explore the evolution of the PE market in the physician practice space. This episode is sponsored by VMG Health.
Summary
The Corporate Practice of Medicine and Its Role in Healthcare PE MSOs and MSO Structure
Private equity (PE) has been active in healthcare for years, especially in physician practices. In a recent episode of a healthcare podcast, Holden Godat, the director of compensation arrangements at VMG Health, a healthcare consulting and private equity firm, talked about Corporate Practice of Medicine (CPOM) and the role it plays in PE MSOs and MSO structure, as well as the evolution of the PE market in the physician practice space.
The Rise of PE in Healthcare
The healthcare PE market has been healthy and continues to grow, with over $60 billion in dry powder currently available. According to Godat, 2021 was the hottest year in healthcare PE transactions, although the market slowed down a bit due to an increase in inflation and interest rates.
What is an MSO?
MSO stands for Management Services Organization, which is a vehicle for private equity firms to extract value and generate their return on investment. The entity aligns with a physician group to provide non-clinical support while still allowing autonomy. The physicians also gain a multiple on their earnings, which removes risks associated with shrinking reimbursement rates. Ancillary service lines can be added to create additional income streams.
The Role of CPOM in MSO Structure
Corporate Practice of Medicine (CPOM) is a doctrine that protects medical judgment from non-physician control, and state regulations vary as to what is defined as clinical services. Private equity firms must structure MSOs in order to absorb available earnings through management fees, which can then be assessed for fair market value.
The Future of Healthcare PE
The healthcare transaction market has slowed down due to rising inflation and interest rates. However, deals in the private equity healthcare market have rebounded quickly, and transactions are set to be very strong moving forward. Transactions will likely involve lower multiples and smaller "bolt-ons" rather than large platform transactions. There has already been an increase in deal flow over the past few weeks.
This episode was sponsored by VMG Health, a healthcare consulting and private equity firm.
Note: This is an AI generated transcript, not edited by a staff writer and is solely intended for educational purposes. If you have any questions/concerns, reach out to podcasts@beckershealthcare.com
This episode aired on 03/21/2023 and can be listened here.
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