The Business of Healthcare

You Didn’t Go to Medical School to Be in Business! Let Us Run It Into the Ground.

February 12, 2024

Many, most, or all have heard it.

No, it’s not “because I said so!” Rather, it’s the familiar, “you didn’t go to medical school to be in business.” It’s the recruiting cry of PE and of publicly held purveyors of physician employment.

Many predicted that the financial behemoths run by the smartest guys in the room would swallow up every physician on the planet. There’d be no need for independent practice.

Yet, like the result of the rush into employment by staff model HMOs in the 1980s, the revolving door of reality is whacking many of these deals in the ass.

In an echo of 2023’s business failure of Envision Health leading to its Chapter 11 Bankruptcy and the evaporation of over $5 billion of investor equity, last week, Florida-based Cano Health, a publicly traded physician group and medical center operator owing $1.26 billion to creditors, filed for bankruptcy court protection.

According to filed documents, Cano had 300 employed providers (physicians, nurse practitioners, PAs) across 95 medical centers. It had affiliate relationships with over 600 additional practices.

According to news reports and court filings, Cano got into its financial death spiral as a result of higher interest expenses and unprofitable acquisitions. To quote their CEO, “few, if any, of the anticipated synergies and benefits of these acquisitions ever materialized and they ultimately resulted in unprofitable acquisitions, operational, inefficiencies, and an inflated cost structure.” To quote me, “Oops!”

Cano’s prepackaged reorganization plan calls for approximately $1 billion of secured debt to be converted to new debt and full ownership of the company’s equity.  Goodbye unsecured creditors. Goodbye former shareholders, including, I’d guess, those who sold their practices and took Cano stock in payment.

The outcome of Amazon’s latest push into healthcare (post the 2021 abandonment of its Haven joint venture with J.P. Morgan Chase and Berkshire Hathaway, and the 2022 closing of its Amazon Care medical care service), Amazon Health Services, isn’t as grave as bankruptcy.

However, it’s just as impactful for the few hundred employees to be laid off from its One Medical and pharmacy divisions, as announced earlier this month. One Medical is a membership-based chain of primary care clinics.

The point for you to consider is that although conglomeration will continue, creative destruction à la Joseph Schumpeter will continue, too.

Independent practice and a wide range of physician-led ventures will always have a role, in some cases formed by picking up the opportunities forfeited by prior players.

Just because robot “manned” warehouses and Toon Townish delivery trucks might bring a book or a blender, doesn’t mean that they can deliver a blepharoplasty.

Just because a manager with a “six sigma black belt” can get a widget factor to hum with efficiency, doesn’t mean that he or she can pull off the merger of hundreds of “providers”; just ask the CEO of Cano Health.

What do you want to do? There is opportunity everywhere. Let’s talk.

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