Podcast - Rewriting the Narrative of Private Equity in Healthcare

Morgan Ribeiro: Welcome to Counsel That Cares. This is Morgan Ribeiro, the host of the podcast and a director in the firm's Healthcare Section. Today, I'm joined by several guests, all of whom focus their days in representing clients in healthcare transactions, particularly those deals involving private equity investments. 2024 was certainly a year in which we saw a lot of news headlines about private equity investments in healthcare. And those headlines weren't so much about a blockbuster year for deals getting done — in fact, deal volumes were down — but more about the heightened scrutiny of private equity investments in healthcare at both the federal and state level. We saw several state legislatures that would consider bills and some that even signed bills into law that aim to limit investor-owned healthcare or at least make it more burdensome to do so. We also saw an FTC that was a highly skeptical of consolidation in the healthcare industry and its, quote unquote, "harmful effects." And we saw a situation where the media and the general public amped up its voice on the negative side effects of consolidation and investor-owned healthcare. So to get us started, I want to first introduce our guests. I'm joined on today's episode by two of my Holland & Knight colleagues, Eric Scalzo and David Marks, as well as Eric Mayeda and Sri Mani from Chartis. So welcome, everyone. Sri and Eric, maybe we can give our listeners a little bit of information about yourselves and your practice as well as Chartis. So whichever one you want to go first.

Sri Mani: I'll go first. Sri Mani, thank you for having us join your podcast. I'm a senior partner in our strategic transformation practice. I spend most of my time focused on private equity and their portfolio companies, providing strategic advisory services. I've been in healthcare for 25-plus years. While the vast majority of my time has been in consulting, I've also had a career in investment banking.

Eric Mayeda: Hi, Eric Mayeda. So, like Sri, it's been about a quarter century in healthcare and management consulting, about 20 of those at Chartis. I joined when there were about 15 people at Chartis, and I've been privileged to be a part of the firm's growth to over 1,000 today. And while we've grown exponentially over that time period, I think one thing that excites me about the firm is, you know, our reason for being hasn't wavered. We continue to exist to help our clients improve healthcare. Today, my role as a managing partner with the firm and co-head [of] our Strategic Transformation business unit, which encompasses our strategy and transactions-related practices that serve providers, healthcare investors and healthcare services and technology companies. So it's a pleasure to be here today.

Morgan Ribeiro: Awesome. Thank you. Eric Scalzo from Holland & Knight, would love to hear kind of a brief introduction of your practice and how that relates to today's conversation.

Eric Scalzo: Well, thanks, Morgan. And thanks, Sri and Eric for joining us today. As Morgan said, my name is Eric Scalzo and I co-lead our Healthcare Transactions practice group here at Holland & Knight. My practice is physician practice management transactions, investments, and I focus significantly in the dental space. Prior to joining the firm, I was general counsel to a DSO down in Florida.  And I brought those experiences to the firm here in Nashville as the co-head of the Healthcare Transactions group. I support our healthcare transaction practitioners. We've got folks that have deep experience in all healthcare verticals, from rheumatology to dermatology and plastics, infusion, senior home health — you name it, we have done deals in that space. And it's a pleasure to be here today. Thank you.

Morgan Ribeiro: Great. And last but certainly not least, David Marks, would love to hear a few words from you and background on your practice and focus areas.

David Marks: Thanks, Morgan. I am a healthcare private equity partner at Holland & Knight, and together with Eric and a number of other people on our team, we represent both private equity sponsors and founders across the spectrum of healthcare private equity transactions. Historically, we are the inheritors of a practice that has gone on for decades, even before private equity became involved. Back in the '90s, when the first wave of physician practice management companies were created, the legal infrastructure was actually created and invented in this building. And even before then, with the creation of HCA, with our law firm and the formation and then the subsequent spin outs. The industry saturated throughout these hallways, and the current manifestation of that that we see is very much interested in the traditional physician practice management space, where I do a lot of deals, but increasingly now not only a return to the basics like dental, but a lot of new and exciting areas from AI and healthcare technology to pharma services and a number of other areas. We're proud of the fact that according to League Table rankings, which are not yet official, but currently, as far as I know, we're number one in healthcare private equity transactions, number one in healthcare transactions, and our team is very busy and excited to talk.

Morgan Ribeiro: So I did a very quick overview of, you know, sort of setting the stage for what we saw in 2024 as it relates to scrutiny and private equity investing in healthcare or kind of investor-owned healthcare. But you know, David Marks, maybe I can start with you just around sort of what we saw over the past year and kind of what that means for us, you know, moving forward.

David Marks: Right now, every single law firm out there that does anything in healthcare — or private equity — is publishing a thought piece. And that thought piece is going to be about expected trends and then things we saw in 2024. And what almost every single one of those thought pieces is going to miss is that these short term-trends don't matter. Or they barely matter. Here's why they matter: They do matter for short-term lending trends and how covenant lite or covenant restrictive you're going to be, they sort of matter a little bit in terms of if you're deciding whether to start a sale process this month or six months from now. But other than that, they aren't fundamentally going to affect multiples, they aren't fundamentally going to affect deal timelines, and they should not affect decisions about whether to enter a market. What does matter are larger demographic trends, things that our colleagues here on the podcast with us can speak very well to things that you have to have a broader horizon to understand. Why is it that investors in the first place are interested in healthcare? Why is it that dental and primary care were some of the first areas of investment? What is it about multi-asset retail that drives people there, and what could dissuade people from going there? In addition, what are the effects of this short-term trend of focused thinking, and how does it create opportunities for more strategic investors who say, "Hey, I'm going to zig when everybody else is zagging?" So I think one of the things that we can spend a lot of time talking about today, that I'm excited to talk about, is not just what has happened in terms of the scrutiny of private equity, but also what is the opportunity now that everybody is distracted by that. What areas can private equity and founders look towards to create opportunity long term to take advantage of the powerful headwinds and tailwinds that will drive long-term investments, that will yield the highest returns and that will continue to guide the deal structures that we contemplate.

Morgan Ribeiro: Great. And I think I completely agree with all of that. There's so much opportunity, right, to be had in all of this. There is certainly a lot of need for innovation and change in healthcare. And I think, you know, private equity certainly plays a role in that and the expertise that they can bring and sort of managing some of these, these companies. So I think, you know, it's helpful for us to take a little bit of a look back at 2024 and what we saw, even knowing that things will certainly change in 2025. And I want to turn it over to Eric Scalzo, maybe to just set the stage for us a little bit around what we saw this past year.

Eric Scalzo: Yeah, that's right Morgan, I think in order to skate to where the puck is going to be, you need to know where it's coming from and maybe a little bit about who has the puck, you know, on their stick at this time. You know, it's important to understand kind of the lay of the land today. And to that effect, I'd be remiss if I didn't mention a resource that Holland & Knight has put out. Our Partner John Saran up in Chicago really ran a point on putting together the HK Navigator, which is tracking all of the state legislation that's being passed dealing with healthcare transaction reporting and even review and approval laws. So if folks that are listening want to find that, it's kept up to date, just Google HK Navigator, it'll be the first result. But we are doing that because the lay of the land today is that state legislators have got the bug that they feel like they need to at least have a view or an eye into healthcare transactions that are going on within their state. And I think that that's reflective of one of the trends that folks are going to talk about, which is concern over investments in healthcare, particularly healthcare delivery, for fear of FTC and The Wall Street Journal have kind of focused on things like flip and strip and roll up approach and big scary words that they feel private equity and private equity investors are using to the detriment of healthcare, healthcare providers and the healthcare marketplace. And so we've got this slew of state-level legislation that's being put in place right now to try to keep an eye on those transactions — again, from a reporting perspective, sometimes from a reporting review and approval perspective — and we're watching that closely because we think it is important not just to make sure that our clients comply with those reporting requirements, but also to be thoughtful about how our clients are building their businesses today with an eye towards potentially needing to report something in the states that they're operating in, even if it doesn't show up currently on that track or map because it may in the future.

We also saw a lot in 2024, a lot of focus from the FTC, you know, the end of '23 and so kind of applicable through '24. They had passed the roll up or published the roll-up guidelines. And I think that's December of '23 with a handful of guidelines and things to be thinking about, if you are a company that operates, that grows through the roll-up acquisitions, and things to be thinking about from an anti-competition, antitrust perspective. And that's been kind of mirrored in some of the state laws that we have seen.

So those trends are important again, because if we know where the puck is today, we can look towards where it's going so that we can, anticipate issues that legislators that regulators are going to be looking at so that we can advise our clients today how to position themselves in a way to best succeed for tomorrow. Healthcare industry has historically been one of heavy regulation. And anybody that participates in the space knows that going in. And historically, those that have been able to not only comply, but kind of embrace compliance in whatever form of the legislation and regulations that they're working to comply with, have been the ones that have thrived. And so we are seeing clients, we're advising clients today on how to structure themselves in such a way that this is in their mind's eye and a focus of board meetings and a focus of operators to ensure that if and when they are looked at in the future, we've got answers for the regulators, good answers about why we're doing things correctly.

Morgan Ribeiro: Great. Well, I mean, I think, Eric, you touched on a lot of this just in terms of what happened at a federal and state level. We had an election in 2024, which will certainly change, particularly at the federal level, what we expect to see moving forward in the coming years. Do we want to talk at all about what we anticipate seeing? Do we anticipate seeing more of these state-level legislative considerations? I know just, you know, this past week we've got a lot of interest from media. We've got our colleague, John, who you mentioned, is doing a lot of interviews around what's happening in Massachusetts right now. So these things are certainly not slowing down. You know, is that something that private equity investors need to continue to watch for?

Eric Scalzo: Absolutely. We've seen interest groups kind of spin up in opposition to these and try to guide the legislators to creating laws that are not handicapping or disabling of the industry. In California specifically, one of the recent proposed statutes would have made it illegal to enter into agreements, for healthcare providers to enter into agreements with private equity-owned companies. And the kind of lack of foresight on that, you know, does that mean that they can't enter into a contract with an accounting firm that happens to have a private equity backer? I mean, and the law is written seems to indicate that that would be the case. And so, first of all, going on the offensive and approaching these bills as they are introduced to make sure that they are tailored in such a way that it doesn't have unintended consequences. But secondarily, you know, responding to the theme, and that's part of why we have the Chartis folks here today, is to respond to the theme that private equity investments in healthcare are a bad thing. And again, we saw The Wall Street Journal articles on those. We've seen pieces published by regulators, by the FTC decrying the investment in healthcare by private equity investors. And we think that private equity is kind of an easy target as the big bad operator in the space. And there are some recent headlines that would indicate that perhaps certain operators have taken positions or done things that maybe they, in hindsight, would have done differently. But that doesn't mean that the entire industry is bad. It just means that there are instances where folks maybe would have or should have taken different actions. And I think if you look at the actual statistics — and I'll point it to folks who are a little bit more statistically sound and smarter than I — but if you actually look at the statistics themselves, the statistics don't support the idea that private equity investment in healthcare is bad. Actually, the opposite. You get expanded access to care, expanded investments in equipment and technologies and personnel to deliver the care and expanded access to geographies that otherwise care would not be delivered in. And so I think that's the trend that I'd like to talk about, kind of as David alluded to in the beginning, the longer term trend as opposed to the immediate reactionary trends.

Morgan Ribeiro: I think that's perfect, I mean, I'd love to turn it over to the Chartis team at this point, just to kind of chime in on some of that. And regardless of whoever is sitting at the head of the FTC right now, right, if it's Lina Khan or whoever it is, what do we take away from all of this and where do we kind of move going forward? And to your point, Eric, I mean, there's, there's a lot of positive data out there. So I think maybe just first if Sri or Eric, if you guys want to kind of chime in on what's been discussed so far and your point of view on all of that.

Sri Mani: I think Eric described it well in sort of how the marketplace is moving forward. But one of the things that you have to keep note as we look at '24 and think forward into '25, a lot of the headline news sometimes wraps private equity with it, whether it warrants it or not. All the issues around, or news around, private equity in health care, around payviders, around PBMs. And this is really a chance for private equity to tell a differentiated story about the value they deliver. Eric touched on a few of those points, but there are also other avenues where they're helping to meet demand where it hasn't been delivered in the past. For example, on behavioral health, where we see really challenged markets where there had not been deep access historically, private equity stepping in, building platforms and it's not rollups. They're going greenfield into new markets and delivering care where it hadn't been before. Those can be an IED, eating disorders, SUD, all the various segments of behavioral health. So there's a differentiated story that private equity needs to tell and should tell because it helps position them in the marketplace. Position with payers, providers and, most importantly, with patients from the outcomes they deliver, the value they're delivering, how they're promoting innovation and how they're meeting unmet demand in the marketplace. I think when you tell that broader story to the marketplace, it helps the investments that private equity's been making have really been value added, as Eric noted, and meeting the market where it needs to be in patients where they need care.

Eric Mayeda: Yeah, I think building on what Sri said, I would agree with that. I think it's really overly simplified to kind of paint private capital in this sort of single light of all good or all bad. And I think that the reality of this is that you've got a number of entities that have been founded to try to address some of these systemic problems that we have in healthcare. And by virtue of the capital infusion, by virtue of, kind of private capital's ability to marshal innovation and scale it effectively, have been able to have real impacts. I mean, we've worked with some platforms that are, I think, being really effective at bringing care to rural and underserved areas through innovative technology and novel care delivery models. And Sri gave examples of behavior we're seeing in a number of areas. And these are things that other segments, other parts of healthcare, whether it's not-for-profit health systems, payers, other entities have struggled to do. So I think there's a role for every entity in the healthcare ecosystem, and private capital plays an important part of that. Does that mean that everything that happens with private capital is therefore additive? Not necessarily. But I think it's a much more nuanced story than I think gets picked up often in sort of some of these kind of bigger perception pieces that come out.

Morgan Ribeiro: It's almost the, the exception is becoming the rule, right. Where it's this one example of a negative news story then becomes "that's the whole." And that's just, couldn't be further from the truth. And certainly there's opportunity for improvement there. It's not perfect, but I think there is a role, like we were saying earlier, around, you know, for the payers, the providers, private capital, I mean, everyone kind of plays a role in this larger ecosystem. Sorry, I cut someone off there.

David Marks: Yeah. Morgan, I just wanted to add one thing, which is there's a kernel of truth that some of us hate to have to confront, but let's confront it. The kernel of truth, is that some actors were influenced by the ease with which it was possible to make a lot of money by pursuing artificial EBITDA gains through M&A and achieving a return by arbitrage on multiples. And one major shift, for good or ill, that's happened since interest rates increased and really pushed against a lot of business plans that hadn't contemplated that over the last two years was that there's a recognition now that real EBITDA requires actual investment into the company. Sustainable models, not ones based purely on burnouts, not ones based purely on a promises to a physician that, "Hey, if you join our company, then guess what? In a couple of years you'll get your second bite of the apple. You can cash out real big." It requires demonstrated ability to grow meaningful through EBITDA organically and even through M&A, there's a requirement to show that it's long-term sustainable and create real value accretion, as opposed to engineered value accretion. And that creates both a lot of pressure on some companies that have not done a great job of integrating when they're doing roll ups, have not spent a lot of time building out real facilities. We know that that's a particular area of scrutiny for what used to be trendy a couple of years ago, which is a lot of these PPMs that were in areas where there was a lot of talk about income repair through building out ancillary services, whether that's from gastro to dermatology to urology, etc., where people would be lured in by talk about how they could build out ASCs and ancillary service lines, radiology, etc., but then maybe there wasn't always the same level of investment. And what's now differentiating platforms when they go to exit is not the name of the platform, it's not what sector they're in, it's what is their credible, demonstrated ability to differentiate based on actual investments in ancillary service lines, based on actual retention ability, the excitement of people to participate, associate to partner equity models. And again, just the ability to demonstrate to a future buyer that this is for real, that this is a real business with long-term sustainability that can promote from within, that can grow both organically and via M&A and sustain the EBITDA that otherwise looks good on paper.

Eric Scalzo: And if I can, David, to do so in a compliant way, right. And one of the trends that we've continued to see is the idea that private equity-backed healthcare companies kind of cut corners or do what they may with respect to compliance and the effort of eking out EBITDA — or at least those are some of the allegations. And I think the reality — and again, if we go back to kind of what statistics show, if you were to put any kind of non-private equity-backed, air quotes, "independent physician practice" out there, and you were to do a chart audit and you were to compare that with a private equity -backed, management company-affiliated practice, the focus and dollar spend on compliance for the latter is so much higher. And the chart audits, I think, show that to be true from a pure technical compliance perspective. So again, the idea of bringing yourself to market kind of duct taped together a repeat of what we all saw in the '90s, isn't going to fly anymore from a standpoint of building a long-term, sustainable, investable platform upon which practices, practitioners, leaders in their respective markets want to affiliate and be supported by.

Sri Mani: Clinical outcomes, performance and rev[enue] cycle, access, cost per unit of service, differentiated payment models are trying to bend the cost curve. Eric talked about sort of the integration across platforms doesn't look like an amalgamation of assets, but one that's really positioned in the marketplace to deliver value. And as we think about where '25, how these platforms can begin to tell a different story again in the marketplace, they're not lumped in with all the other headlines that are out there. We think these are some of the metrics just to describe that we are on the right side of healthcare. We're really trying to drive value on the right side of health-care. It's on outcomes, it's on rates, it's on how the business is structured. And that ultimately will drive differentiation. And hopefully for investors looking at these businesses say, these are businesses we can get behind. We don't think there's, you know, operating risk or reputational risk or regulatory risk because they have a great story to tell the marketplace.

Morgan Ribeiro: Are you seeing them proactively tell that story? It seems sort of like they're, at least, particularly in 2024, it's been sort of on the defense or reaction mode. And so I'm curious, are you seeing more private equity-backed healthcare companies, particularly healthcare services companies, kind of go out and tell that story?

Eric Mayeda: Yeah, Morgan, we have seen this. You know, we've worked actually with a couple of platforms just in the last year or so that have explicitly said, look, we want to become much more focused in quantifying and sort of tracking the outcomes and the impact that we're having. We want to be able to do that for a series of stakeholders, whether those stakeholders are payers that they are ultimately negotiating or engaging with, whether it's with regulators that they may need to speak to, whether it's the public or patients or it's other providers that they're looking to recruit and retain. They want to be able to, kind of measure and be able to articulate their value proposition. And I think it goes back to what Sri was saying, where at its core, this has got to be about being able to you know, you have to be able to demonstrate that you're on the right side of healthcare, that you're having an impact around affordability or on quality or on access and experience, really the quadruple aim. And so I think we are seeing, I'd say, sort of more forward-thinking sponsors and their portfolio companies being more proactive on that front. I'll also just say this, I don't want this to come across as like it's a messaging problem because it's not just that. Like if there's no story to be told, it doesn't matter how much you spend on marketing and messaging, right? It's going to fall apart. Right? But for the platforms that really have a true differentiated value proposition in addressing some of these systemic problems in healthcare, then it really is the opportunity for them to be able to measure that and articulate it in a way that perhaps the market hasn't heard before.

Morgan Ribeiro: Excellent. Yeah. And I think just to piggyback on that, I want to shift gears just a little bit. But we've talked about these headlines, right, that The Wall Street Journal, The New York Times, they've kind of run these series around private equity investing in healthcare. We also saw some headlines and one in particular, you know, Modern Healthcare ran a story in September, “why private equity linked sales of physician groups have slowed.” And there was another one, prior to that, it said private equity-backed consolidation divides physicians. So do we think because of this, you know, sort of narrative that's out there that private equity firms have more of an uphill battle and have to convince sellers, given this bad press? And maybe it's not impacting things. Is that true? What is your sort of read on some of those headlines? And are those points accurate? Are you guys finding that deals are slowing down or that private equity firms are unable to sort of convince sellers that they're the right partner because of some of this kind of conversation that's going on out in the marketplace?

David Marks: Well, I'll jump in on this one and say that I think the data set is wrong and there's a few reasons why. One is that we're looking at data sets that are, in the last couple of years, that are influenced by the interest rate changes that affected business plans and caused delays in execution on sort of a desired EBITDA. So when some of these funds are looking at their exits and the sort of return, minimum return that they need, given the cost of that debt capital, it's not that there's bid ask spread in terms of valuation. There's more of a gap really in terms of how much of a depressed ROI are they willing to accept relative to what they were expecting to get a couple of years ago? And some of them just have to make that choice. At the same time, you have a lot of buyers who I think rightfully have been more focused on sustainable EBITDA, so they're less likely to give EBITDA credit for things that maybe they were more willing to give in past years because they were willing to take risk around just the broader market perception.

But the other reason the data is wrong to analyze the way that we've seen it analyzed in the past couple of years is one reason is that there's been a rise in continuation funds. So a lot of really attractive PPM vehicles have actually not changed hands from a GP perspective, even though a lot of LPs are cashing out and even though a lot of LPs are not electing to roll over 100 percent. In fact, most don't elect to roll over 100 percent. So if you're measuring exit to new sponsors, those get ignored, even though those tend to be the assets that the GPs most value. They don't want to get rid of them because they actually believe in their long-term viability. So the framework of thinking of private equity is only about an existing funds exit horizon and the frequency of those exits needs to properly accounted for in that data set. And because the numbers aren't large enough from a sample size perspective, when you're only looking at a year over year perspective, the conclusions are wrong.

The other example of what's going on right now is that if you only look at short co-exit timing, which is again skewed because of short-term interest rate fluctuations — and now it's stable, so I think it's going to be a little different — but if you only look at that, you're missing another part of the picture, which is on the fundraising side. So there's a significant amount of fundraising going on. And if you compare the sort of healthcare-focused private equity firms, especially the middle market and lower middle market, what you see is that they're competing better than almost anybody else against the larger private equity funds that otherwise are dominating the space when it comes to fundraising. And so, yes, you can come to a kind of incorrect assumption around interest in exits if you narrow the denominator too much. But if you look at where's the money going and where's the money going from an LP perspective, I think it's a powerful sign of confidence in this investment space.

Another example I think of how it kind of plays out is what is the pricing on rep and warranty insurance, specifically within healthcare? Because healthcare was the last place that rep and warranty insurance initially was willing to underwrite. But if healthcare premiums for these products have actually declined over time, which they have, if the willingness to provide policy coverage without exclusions has been reduced, which has been the case, that is a powerful indicator, data-driven indicator of confidence in these investments. So again, you can be really skewed by sort of only counting whole integers when it comes to deal count over a small denominator based on number of days or months or years. But if you look at the broader trends and you look at the data underlying it, I would say it's a very strong vote of confidence.

Morgan Ribeiro: Great. Well, and I think, you know, as we sort of wrap up this whole discussion around what the conversation is out there around, I would say even just healthcare more broadly, I don't think we can sort of overlook what happened at the end of the year with the very unfortunate situation with Brian Thompson and the CEO of UnitedHealthcare, who was murdered outside of a hotel building as he was heading into the company's investor conference. And it seems like even since then, the sort of public outcry really specifically amongst consumers around the expense of healthcare and the decisions that are being made in healthcare that ultimately impact consumers and patients. And so, you know, curious to get this group's kind of reaction to that, and how does all this tie back to our discussion around scrutiny of private equity investing in healthcare and, more broadly, investor-owned healthcare, right? Because to go back to the beginning of our conversation, at a federal level, the regulatory scrutiny probably is going to lessen under the new administration, I think we'll continue to see things at a state level. But ultimately, what's happening in the court of public opinion and how does that kind of tie back to some of what even Chartis has said with your work with private equity firms? It's kind of that story in the narrative that we have to tell, the ultimate sort of dynamics that are at play in the marketplace. So any sort of reaction to specifically what's happened with the United situation and sort of since the beginning of December and what we're seeing now.

Eric Scalzo: Yeah. I'll go first on that. I think what is missed, particularly in the reaction and I think somewhat disgusting reaction of the celebration of Brian's murder, is the fact that he is a human being with a family. And he had a job to do and he was doing the job. And I think that the reality is we're living in a time where people read headlines, where people read tweets, where people read or watch TikTok videos and they shape their worldviews based on soundbites. And often times, as we've indicated on this, during this chat here, the soundbites are based on bad data or come to bad conclusions based on the data presented. And unfortunately, we as a society are moving away from diving into actual causes of trends, and at the end of the day, resolving your grievances with violence should never be the answer. And hopefully this podcast can start to have some of the conversation of why the headlines blame private equity for increased costs in healthcare are wrong. Their opinions based on data that, again, if you look at the data in a different way or come at it with a different approach, the headline could be written completely differently and be supported. You can have a debate about the outcome, the cause and the like. But that's what we should be focused on, is having those intellectual discussions about the issues facing the industry and coming to, you know, developed thoughtful solutions as opposed to kneejerk or violent solutions.

Morgan Ribeiro: Couldn't agree more. So I think as we kind of wrap up this conversation, I do want to take a little bit more time just to look at what's ahead, what lies ahead in 2025 and some of the trends, as well as the opportunities that we see for private equity. Happy to start with any of you all, but maybe from the Chartis team, what do you anticipate seeing more or less of in 2025? And the trends as it specific relates to private equity investing in healthcare?

Eric Mayeda: You know, I think what we're talking to our investor clients about is that it's really sort of, you know, much of the theme of this whole conversation we've been having is that the opportunity in investing in healthcare is investing into companies that are focused on solving these core health care problems. Right, and I think we're seeing innovative solutions emerging kind of across the board there. And I think you sort of take these elements of the quadruple aim and separate them out and you say, on access, I think we're seeing innovative companies that are addressing rural access challenges, challenges in providing care to Medicaid and other underserved populations. And I think that there's opportunity there because we've seen just tremendous growth and greenfield potential there. Opportunities around leveraging technology to drive innovation and create efficiency in healthcare that is sorely lacking. Right. Huge opportunities to invest there. You know, on affordability, we're seeing innovative solutions around chronic care management, focus on narrow or broader populations that I think create, that use technology and data to try to pinpoint care. And I think that, you know, there's opportunities to invest behind that, right? So it's like you take each one of these components, there's a thesis to be built and acted upon that has tremendous long-term potential. And David, I couldn't agree more with what you said earlier. This is about creating, identifying sustainable business opportunities. And I think that's why I think we're optimistic in this. And a lot of the investors that we work with are looking forward to 2025 and beyond because they see there being real potential to invest behind these trends that goes beyond whatever near-term regulatory questions that come up. Right. And this is about investing into sustainable businesses that have real potential for growth and impact.

Sri Mani: I think what we're seeing from a tone from investors is "we want to invest behind a problem and figure out what are the solutions to address that problem." And I think all the examples Eric gave, each have discernible and definable problems and either how care is delivered, the cost of care, access to care, the continuum of care. And when you define a problem that you're solving, and if you could tell the marketplace why you're investing behind it, you're able to describe that you're on the right side of healthcare. And then hopefully what we'll be able to see more of in '25 moving forward is metrics in a storyline about how they're effectuating that change by investing behind that problem, whether it's improving access from X to Y or enhancing outcomes along certain services. And hopefully that'll begin to describe and change the narrative that Eric Scalzo is describing around how private equity is viewed, around the investments they make and the services they're offering to companies as they continue to scale these businesses.

Morgan Ribeiro: I saw some head nodding from David Marks, folks listening in can't see. But I know that that certainly hits on a point that he has discussed before just in terms of identifying that problem. So maybe, David, you want to chime in there?

David Marks: Yeah, I think it goes to show it's not about sectors anymore. It's about operational expertise and execution. And that's what folks are looking for. A lot of times when you hear about the larger private equity funds being frustrated that there aren't a lot of platforms available for them to buy at this point, what they really mean is there are not a lot of good platforms out there that in the process of becoming small to middle market, had appropriately scaled. They hadn't done the kind of integration and especially compliance functions and buildouts that Eric Scalzo was talking about. They haven't done the kind of focus on operational expertise that builds and ensures the controls when it comes to quality of care, when it comes to access to care and physician engagement. And that's the kind of thing that Chartis is very good at.

And so what we're seeing now — and I think what the opportunity is  — is concrete and obvious. Number one, it's that at the private equity side, there's a real advantage to be gained from investing in operational expertise. So that's going to come in the form of operating partners who have payer negotiation expertise, who understand where there are opportunities for rates, where there are opportunities as well for compliance improvement when it comes to billing and coding. Number two, we're going to be seeing more and more, I believe, that early and mid-stage portfolio companies are going to outperform when they decide to invest in healthy governance and oversight and a number of actions and concrete plans that can be undertaken to improve their long-term sustainability and their ability to not just to message it, but to actually implement it, to go to a point that Eric had raised before. So that's going to be all kinds of things from associate equity or pathway to partnership type of program so that we get a lot of inquiries about. It's going to be about the kind of billing and coding issues that Eric Scalzo has talked about. It's going to be about increasing access to care while being able to demonstrate to the public, for example, if you're a dermatology group that, hey, there's less time maybe with physicians, but more time with mid-level providers, that increases the group's ability to provide care to address the incident rate of melanoma in a particular set of counties, etc. There's a lot of really interesting data analysis that can be done to demonstrate concrete improvements to your community, to get physician, nurse, NPE, etc. stakeholders excited about the business and wanting to participate because at the end of the day, the best businesses are going to be ones where the people who go and work there aren't just doing it for the money, they do it because they believe in it, and there's a real opportunity to be had for the folks who are going to take a step back and say, what can we do? It's not always that expensive. We all know that people are often motivated highly by non-economic incentives. And this has been studied from business schools to hospital executives across the country. And all that matters now is a renewed focus and invigorated effort around execution so that when we are looking at these companies, we're saying, hey, look, it's obvious the better private equity-backed companies that invested in continuum of care outperform. And at that point, it's not going to be about, are you interested in dermatology versus dental? It's going to be are you the best dermatology group out there? And we all want to be like you.

Morgan Ribeiro: All right, Eric Scalzo, bring us home and any parting words of wisdom reactions to that.

Eric Scalzo: Yeah, I think it goes back to again, if you look at the trajectory, the trend over the last 30 years of investments in physician practice management in particular — that's the sector that David and I focus in heavily — it's the most invested in the healthcare space. From private equity perspective, if you look at that trend, it has been on a trajectory of increasing access to care, taking the administrative burden of the business of healthcare off of the hands and off of the shoulders of the practitioners and empowering them to succeed. And success means access to care, care quality outcomes, patient satisfaction. And we saw, again in the '90s, what duct taping practices did to the PPM industry. A lot of people made a lot of money, and then a lot of people lost a lot of money. And the outcomes probably weren't improved greatly. But over the past 15 years, as we've seen a resurgence in the investment in the PPM model, we have seen a focus on building real businesses that comply with the rules and the regulations that apply to their industries that focus on outcomes, that focus on satisfaction. And we have seen a real increase in the return on investment for folks that do that. And so I think kind of going back to where we started, which is, you know, David projecting that there's going to be a lot of trends for 2025 discussions and thought pieces being put out that kind of missed the mark because they're focused on the narrowness of what happened in '24 and what's going to happen in '25. And they're going to say there's going to be a lot of deal activity and they're going to say that there's going to be add on activity and interest rates are going to drop. And while all of that might be kind of true or directionally true for the next 12 months, if you take a step back and think about the last 30 years and the next 30 years, the trend is there is going to be more investment in the space and those dollars are going to be well spent — in my opinion, and I think the statistics show — to increase access to care, to increase outcomes of care and to increase patient satisfaction. And I'm super excited to be part of an industry that is doing that and look forward to working with anybody who's listening to this to help them continue on that mission.

Morgan Ribeiro: Well, thank you for that. I always like to end on a positive note. I do think there is a lot of excitement around 2025. I think there is obviously, with the change in administration at the federal level as well as changes at the state level post-election, I think there are still a lot of questions as to what we can see on that level. But there is a lot of opportunity in healthcare, I think, given just sort of what's going on in the economy, interest rates going down, all of those factors are going to contribute to a year where we'll see, you know, more activity here. And I think as we head into JPMorgan, we'll know some more after that and sort of what the commentary is at an industry level. But I appreciate everyone's time today, always enjoying connecting with, with the Chartis team and hearing your insights and these discussions. So thanks again.