Occupational Health Predictions for 2016
As the New Year approaches, The Ambulatory M&A Advisor has been working with CEOs and developers from across different areas of the market to bring its readers various predictions for 2016. Although it commonly gets mixed in with Urgent Care, Occupational Health surely is an independent sector in the healthcare industry and it’s developers have their own predictions for occupational health in 2016.
Matthew DiCanio, Senior Vice President in Strategy and Corporate Development with Concentra predicts that the occupational health market will see continued consolidation.
“The market continues to be very fragmented. There are a few major players, but other than that there are 100 to 200 local, smaller owner companies that will continue to be interested in M&A opportunities that come their way. Concentra went through a transaction in June of this year, and we are very much back in growth mode,” DiCanio says.
“We will be focused on occupational medicine going forward and I think the dynamics, fragmentation of the industry, where owners are in their life cycle of the business will create continued interest and continued consolidation.”
Scott Witter, Director of Business Development at US HealthWorks predicts that the market will remain as more of the same.
“Certainly the landscape of occupational medicine M&A changes somewhat over time. I think you have seen the few groups acquiring over the last five or ten years, and that’s probably created a more concentrated market. It is still quite fragmented, but obviously, the concentration has grown somewhat,” Witter says.
According to Witter, the size of occupational medicine acquisition opportunities has slowly become smaller over time. So, the volume of transactions that will be seen will probably stay consistent, but the actual size if talking about revenue and EBITDA across a single acquisition slowly falls away over time.
Darren Coe, VP of Business Development and Mergers and Acquisitions for NOVA Medical says it is interesting watching the market, especially in healthcare.
“We see a lot of consolidation happening in many different facets of healthcare. Workers comp and occupational medicine is no different. We have seen a lot of consolidation over the years, but I think you are actually going to see it pick up in 2016. You have got some of the big players that are getting more involved again, as well as just some of the other local groups that are starting to grow as well, becoming more and more ripe for acquisitions,” Coe says.
“The last few years have been interesting. Years ago, you used to see a higher multiple of EBITDA or even a multiple of revenue that would be associated with the value of a practice. That multiple has dropped and the value of practices has gone down a bit from it’s hey day of about ten years ago. But, you still see a lot of doctors that are getting frustrated over the direction of healthcare. It is getting more and more difficult to try and run a practice independently.
They are looking for opportunities to find an exit strategy and not have to deal with the headache of all of the changes in healthcare and the frustrations that go along with that. You find that some of these independent physicians are looking for a way out due to retirement or frustration in the market. This will give larger entities like us to step in and be able to provide a solution for them.”
Witter says that some challenges occupational health face come directly from the market.
“Over time, you are seeing a little bit more of a challenge coming from the urgent care space. There has obviously been tremendous growth in urgent care, which is something that you really haven’t seen as much of in occupational medicine. But, because of the growth and more intensive competition, you are seeing urgent cares reach into the occupational medical space more and more. However, I don’t know if there is anybody out there who does urgent care and occupational medicine both really well at the same time. Usually, there are groups specialized in occupational medicine and compliment their service lines with urgent care or vice versa,” Witter says.
According to Witter, the increasing competitive environment for urgent cares is forcing them to expand in to other services lines including occupational medicine is one of the more significant challenges his company will face over the next few years.
Witter goes on to say there are opportunities within the specialization of occupational medicine.
“It has its own significant complexities and nuances. I don’t believe there are urgent care providers that are really immersed in their understanding of occupational medicine. I think the groups that focus on occupational medicine can provide a much higher level of service and understanding; not only for the patients, but also in meeting specialized employer and payor needs. So, there is a meaningful differentiations in expertise, but as urgent care grows into the space, it continues to become more of a competitive threat. There are needs met for employers and patients simply by having a large number of locations in a particular area or just by being in the right geographic locations. Areas where urgent cares have a deeper geographic density may be areas where you could end up losing business to an urgent care operator,” Witter says.
DiCanio feels that the dynamics and the conditions in the market place are pretty ripe for continued consolidation and this is an opportunity for occupational health.
“I think in many cases, it’s a win win scenario for business owners and some of the acquirers and consolidators. I think there is a lot tha the consolidators can bring to the table to lessen the daily administrative burden for owners, to bring synergies to the table, to bring relationships with employers on a national basis. Of course, there is a lot that owners can bring to the table as well. They have a ton of relationships in their local markets. They have great doctors, great employees. I think the combination makes overall business stronger for everybody,” DiCanio says.
Coe says that some of the biggest challenges are just dealing with the regulatory environment of healthcare. Even for larger groups, he says it is difficult for them to be able to adapt to all of the changes.
The other challenge that occupational health is dealing with is just reimbursement he says.
“It is becoming more and more expensive to run a practice because of the need to upgrade to ICD-10, or to adapt to EHRs that meet specific requirements that continue to increase from year to year. Now, they are in a position where you have to keep up with those costs, but reimbursement for the services provided has gone down. So, that is one of the biggest challenges that you have to face; How do you maintain the level of margins that you need to, and still provide good healthcare?” Coe says.
“However, not only are these changes and obstacle that we have to overcome, but they also give us the ability to adapt to the changes, adapt to the needs of the patients as well as meeting the requirements of the regulations that are coming out as well. So, to be someone that can provide a workable solution and be able to maintain a business and still provide good patient care; I think is the key to opportunities.”
If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.