As the U.S. population continues to age and the insured population expands due in part to the Affordable Care Act, surgery volume is expected to increase, particularly orthopedic and gastrointestinal surgeries.
As these procedures increase, so too will the need for anesthesia services. The U.S. Library of Medication reported that colonoscopy and upper endoscopy anesthesia professional participation nearly doubled over the last eight years to 53% in 2014. Anesthesiologists are required for virtually every surgical procedure located throughout the hospital.
The anesthesiology market is $19 billion, yet the largest practices account for only a small percentage (<5%). Private equity sponsors understand this fragmented market presents opportunities for consolidation, to build platforms and grow through strategic acquisitions.
In fact, here are several key transactions of private equity-backed companies in the sector:
So why is the sector so attractive?
The sector is an attractive investment for private equity due to the combination of a steady growth profile and a stable, mostly in network commercial pay reimbursement profile for anesthesiologists. Most hospitals outsource anesthesia services to reduce their own fixed costs and to more efficiently align such services with surgery demand. If you think about it, an anesthesiologist doesn't have a close relationship with the patient; therefore, patients don't choose their anesthesiologists but rather focus on choosing the right hospital and surgeon. Also, the overall cost of anesthesia is typically low compared to the overall cost of the surgery.
So why would anesthesiologists want to sell into large practices?
The answer is simple: to improve the efficiencies in their practice, to gain scale in resources, and to free them up to focus on what they are good at (providing anesthesia services). Typically, anesthesiologists move from operating room to operating room at one or multiple hospitals, leaving them on their feet all day with very little time to focus on back office administrative tasks. Additionally, with the move toward electronic health records and insurance companies heightened focus on proper billing, coding, and compliance, the back office has become more complex and critical to success. Many anesthesiologists today are more open to partnering with larger firms who have the scale and resources to better navigate and manage this complexity.
Moving forward, the anesthesiology sector is one in which we'll see more consolidation and platform growth.
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