BPOC was early to identify healthcare staffing as a long-term trend worth backing

PE Hub’s new series on private equity firms investing in healthcare continues today with insights from Greg Moerschel, managing partner at BPOC. Moerschel joined BPOC in 1997. He outlined the firm’s approach to healthcare investing.

Investment strategy

“Our investment strategy focuses on founder-owned companies in the lower-middle market, so that, in and of itself, segments the market for us, relative to our peers,” Moerschel said. “Generally, we are the first institutional capital, willing to take on some of the founder challenges and opportunities that are associated with those types of companies.

“We are not afraid to be slightly off-cycle with our investment strategy,” he explained. “We write white papers that anticipate the next sector opportunity or change in market sentiment.”

The firm’s prescient approach to healthcare staffing is a good example. “We wrote a white paper eight years ago theorizing that we would be in a very challenging clinical staffing environment. That sector was historically viewed as somewhat cyclical to the economy, but we had a different view. We thought it would be a 20-year investment opportunity because of shrinking supply (retirements and aging of providers) and growing demand. We try to get ahead of trends.”

What makes healthcare so attractive

“Our definition of healthcare is broad – providers, outsource services, products, and pharma services. We do not invest in high science or drug development. The market is vast, which is part of the appeal. Unending opportunities.”

Moerschel noted that the industry is so large, there is much money to be made.

“The healthcare revenue cycle consumes 10 percent of total healthcare spending – so $300 billion of $3 trillion adjudicating claims and chasing revenue.”

Investment trends

“An example is the specialty physician consolidation trend – we went the other way with this one and avoided many of those opportunities, because that is where most of the froth was and still is. Fifty dermatology consolidations are happening right now. The idea of being the 51st is not of interest to us, so we instead prioritized primary care, since that is the entry point to the healthcare system, and we view that as a more compelling opportunity in terms of physician consolidation.”

“Value-based care is the new buzzword, but it captures several different concepts and is not new. To us, it means shifting financial risk in some form to those who have the ability to control costs and influence outcomes. To really move the dial and aggregate healthcare expenditures, value-based care needs to spread geographically across the country and beyond populations (like Medicare Advantage) where it is often applied today. This will be a generational transition, full of fits and starts.”

Differentiating from the competition

“The opportunity is always to look ahead and not be afraid to be a little contrarian in your views of the market. That produces compelling risk-reward trade-offs even in a competitive, frothy acquisition environment.”

Inflation impact

“Healthcare inflation resides in the commercially insured market where rising costs continue to be shifted from employers and plan sponsors to employees in the form of higher deductibles and co-pays. Rising costs are also evident within vulnerable populations that do not enjoy proper access to preventative care or that are otherwise left behind when trying to access the healthcare system at the most appropriate and cost-effective points. As a result, we apply three predicates to any sector or investment opportunity: reduce costs; improve access and improve quality. Demographic trends are well-established, as is the desire for the consumer to seek the highest quality care. The challenge for investors is to find opportunities that capitalize on those trends but are still consistent, expanding access and containing costs in the long term.”

Firm facts

Founded in 1996, BPOC is a Chicago-based private equity firm that invests exclusively in healthcare companies. The firm is focused on mid-market buy-out transactions, recapitalizations and growth platforms.

Recent investments

BPOC made several investments at the end of last year. In December, the firm invested in: Alliance Physical Therapy Partners; Basys; Bond Orthodontic Partners and Network Partners. And in November, the firm invested in Medical Solutions. BPOC invested in ClareMedica Health Partners in 2019. (See the sidebar, below, for more details.)

Recent exits

“Exits are as short as 16 to 18 months,” Moerschel said. “Our average exit time is four to five years, but principally, we are investing in companies as if we will own them forever.”

BPOC exited Absolute Dental in 2020 after investing in 2016. It is a dental service organization in the state of Nevada that employs 45 general dentists and 17 specialists who provide services to patients in 23 facilities throughout the state. BPOC exited EMSI in 2020 after investing in 2015. EMSI is an outsourced service provider of medical information, risk adjustment and comprehensive investigative services to insurance companies, health insurers, and employers.

BPOC’s healthcare portfolio highlights:

(Dates refer to initial investments.)

Alliance Physical Therapy Partners: Alliance is a national physical therapy operator with 14 outpatient physical therapy brands comprising over 90 locations, having grown its presence through a combination of acquisitions and de novo locations. In addition to outpatient PT, Alliance offers virtual physical therapy and a workplace therapy solution. (December 2021)

Basys: A provider of healthcare and retirement benefit administration software focused on the Taft-Hartley market. The company’s software addresses the end-to-end needs of self-administered multi-employer benefit funds and third-party administrators. (December 2021)

Bond Orthodontic Partners: The company offers an orthodontist-led, doctor-centered orthodontic support organization designed to improve established, well-led practices. (December 2021)

ClareMedica Health Partners: The company is a value-based healthcare business that provides and coordinates care principally for Medicare Advantage (MA), traditional fee-for-service (FFS) Medicare, and Medicaid beneficiaries in Florida. (2019)

Health Management Associates: HMA is provider of consulting and advisory services to the healthcare industry, with an emphasis on Medicaid, Medicare, and other publicly funded healthcare programs. (January 2018))

Home Care Delivered: HCD is a direct-to-patient provider of reimbursed medical supplies serving the diabetes, incontinence, urology, ostomy and wound care categories. (April 2021)

Medical Solutions: It is one of the largest providers of travel nurse staffing services in the United States. The Company contracts with hospitals to staff nurses on a temporary basis. (November 2021)

Medicus Healthcare Solutions: MHS is one of the largest providers of locum tenens staffing services in the United States. The company contracts with hospitals and physician groups to staff doctors on a temporary basis. (October 2018)

Midwest Products and Engineering: MPE is a contract designer and manufacturer of mobile carts, housings and subassemblies for surgical, imaging, and other complex medical systems. (September 2019)

Network Partners: The company is a provider of professional services, advancing the life sciences industry through tangible outcomes. Serving some of the largest medical device and pharmaceutical companies in the world, Network Partners provides deep subject matter knowledge, processes and strong technical and scientific capabilities in regulatory affairs, quality assurance, packaging engineering, labeling and project management. (December 2021)

Southeast Primary Care Partners: SPCP is a management services organization focused on supporting independent primary care practices across the Southeast. (December 2020)