The failure of physician practice acquirer, American Physician Partners (“APP”), once a significant leader in contracting with hospitals to staff emergency medicine, hospitalists, and critical care services highlights a very important lesson on physician practice and even physician-owned facility valuation. It also provides new opportunities, maybe for you.
APP, a company owned by investment giant Brown Brothers Harriman & Co. in concert with physicians and management, was, until very recently, a highflyer, the 6th largest in its segment, providing services at more than 150 hospitals through more than 2,500 providers. Revenues bolted upward from $249 million in 2018 to $633 million in 2021.
But then, according to reports, a $520 million debt refinancing collapsed when investors became concerned over the effects of the federal No Surprises Act.
Although then current creditors provided a lifeline, the increasing cost of that debt, no doubt fueled by the rocket-like rise in interest rates, led the company to seek a merger partner, which it thought it had in SCP Health. But “thought it had” and “had” aren’t the same – the deal fell through.
As a result, the company, once worth what must have been billions, is worth, well, practically nothing: last week it announced that it is shutting down.
Physicians, both in regard to their practices and in regard to their facilities, often have outsized notions of business valuation. The fact that someone offered 6x EBITDA three years ago is meaningless. So, too, is the opening bid at some imaginary, and near fraudulent, number from a PE firm working from the usual playbook of lie high and close low or not close at all.
Yet the current market creates opportunities as well.
Although other large “staffing” companies are circling APP’s facilities like turkey vultures, APP’s failure , as well as that of others, such as Envision Healthcare’s which is still in bankruptcy, opens up opportunity for both regional and small single specialty groups, and for the formation of new physician groups to emerge from the ashes.
There are many ways for physician leaders of local groups, whether or not there is an actual group as opposed to the remnants of a failed giant, to form, and finance, what the former giant was unable to pull off. In fact, in many ways, the failure was “giant induced” – your odds of success may be far greater, courtesy of the formerly smartest people in the room.