No better time to invest in healthcare than now, says Sterling’s Rick Elfman

“As people get older, they need more healthcare; it’s just a fact of life,” said Rick Elfman, managing director, Sterling Partners. “With the baby boomers starting to get older and needing more care, there is no better time to invest in the sector.”

The Chicago PE firm has been around since 1983 and has always invested in healthcare. Elfman has been with the firm since 1987. PE Hub caught up with him to learn about Sterling’s approach.

“Healthcare is largely recession-proof, which is very topical today, seeing where we are in the economy,” Elfman said.

Sterling has been consolidating physician specialist practices for years. The firm invested initially in Blue Sky Vision in 2017, Platinum Dermatology in 2016 and Results Physiotherapy in 2014.

“We have focused on services, because there is less technology risk,” Elfman explained. “For example with orthopedics, I can’t tell you what a better mousetrap for a knee replacement is.”

For example, when Sterling first invested in Blue Sky Vison, it was an eyecare business that had a vertically integrated optometry, ophthalmology, and retina surgery, so the practice could feed its own referral networks.

Sterling also looks for big, regional players that are ripe to expand. Platinum Dermatology was strong in the Southeast; Blue Sky was big in Michigan; and both had “huge market shares.”

“Platinum started in Dallas and then worked its way to Phoenix, we like to call it our Sun Belt strategy,” Elfman said. “The idea was to find the best doctors and other professionals we could partner with. We never hitched our wagon to anybody that we weren’t proud of working with. Even though we’re a for-profit entity, we try to do stuff that’s mission-driven.”

Multisite healthcare is still very fragmented and gives more flexibility to buy other practices, create de novo’s, expand territory, and “fill in the gaps where you might not have good coverage.”

He outlined the process: “We found pockets of areas with no providers, so we built out a space and picked doctors to share a space until the real office was built, and then we got our own doctors for the new space.”

The skinny

One of the points the firm stressed in the dermatology merger was with human capital. The practice was based in Southern California and has a presence in Las Vegas, Phoenix and Texas, as it expanded its geographical footprint.

“Now, you can go from Southern California, all the way through Texas, and see 61 of our practices, and that provided the ability to recruit doctors, dermatologists coming out of school, because now you can say to them, ‘Hey, we have this platform, it’s not just Dallas, it’s not just southern Cal, it’s not just Vegas, it’s all of these different markets where you want to work,'” he said.

That way, he explained, if you are a doctor and want more of a faster-paced lifestyle, you can settle in Southern California; if you don’t want to deal with income tax, you have Las Vegas or Texas as options.

“We have different options for the different doctors, really providing our human capital with the choice of where they want to settle down, and that should help with retention too,” Elfman continued.

Dermatology services are especially in demand at the moment.

“There aren’t a lot of dermatologists that come out. Literally just hundreds of dermatologists that come out of residency in any given year, and you subtract the retirements, from that, and the net gain is not a lot. And that demand growth is huge,” he noted.

“You think about what’s going on with skin cancers and things like that and there aren’t enough dermatologists to satisfy the demand. People wait months to get in to see their doctor, unless it’s an emergency. Being an employer of choice is a huge advantage. We can offer a doctor coming out of residency the ability to work in four or five sunbelt states with high growth in all those states.”