Good afternoon, everyone Thank you for joining Farragut's webinar on the outlook for gastroenterology

and ancillary services My name is Jackie Williams and I'm the director of research

at Farragut Today, we're very pleased to welcome Matt Devine, CEO of Ally Digestive

Robbie Allen, CEO of 1GI Koran Garg, managing director at Hoham Bokeh And Scott Frazier,

founder and managing director at Frazier Healthcare We're also joined by Farragut's very own Holly

Stokes, senior analyst in Farragut's DC office who leads all of our PPM government diligence engagements and serves as our in-house expert on reimbursement and coverage of GI Before

we get started with the program, I just wanted to inform the audience that you can write in questions in the Q&A section and I will read them into the program If I don't get

to them right away, it's likely because I'm planning to address those questions later

in the program, but I will try to fit that in We have a lot to cover today with our

speakers, and so we'll get right to it So everyone is aware of the macro tailwinds for

outpatient healthcare services And with that in mind, let's start with the operating environment

for gastroenterology, including demographic trends and rise in GI related chronic diseases

So Matt, we'll start with you and then move to Robbie to share your experience as an operator and what you're seeing Thank you I think one of the, there's several factors I think

one of the big ones is consumerism out there that's going on today So I think the consumers

are much more involved in picking their location where they're going to be seen So there's

much more of a movement now outside of the hospital more into an outpatient center

And that's being driven by consumers, I think, and it's also being driven by payers So we're

in an environment now where payers are much more tuned to the high costs and they're moving procedures out of the hospital setting and more into an outpatient setting So we're

certainly seeing a lot of that today And I think part of that's like higher deductibles

and things like that that are driving, you know, the consumer to say, Hey, I want to be in an outpatient setting as they get more and more educated going forward I think the

other one big trend for us here in gastroenterology as well is kind of a macro trend is the movement now towards colonoscopy of Asia 45 versus 50 That started in 2021 And that's again,

led to a lot of demand, increased demand for services And I think lastly, I just mentioned

the aging population So, you know, the aging population is driving more and more demand

for our services as well So with that have come, you know, more and more focus on chronic

disease and we're seeing that much more now in gastroenterology In our practice, there's

much more focus on chronic disease management And that leads into our kind of partnerships

I think I think Matt hit on on obviously all the big big ones that we pay attention to I

think there are a couple others in terms of overall morbidity associated with just the American population and obesity and the level of chronicity that kind of adds to existing disease processes certainly is one of the drivers of kind of increased use that we see across the spectrum of things And recently you got to add COVID I mean, everybody seems

to be drinking and sitting and eating badly And that is certainly driven up some numbers

Thanks Robbie Those are very good points to make in terms of the other macro issues

contributing to accessing gastro care And so, Karan, do you have anything to add on

the macro side? Yeah, I think the only thing I would add is there is a shortage of GI physicians in the US So the number of retiring physicians is far outpacing the number of people who are

joining the workforce from a GI perspective So what that really means is practices have

to be more efficient in terms of how they're operating And from my perspective, looking

at M&A world, that means it is going to lead to more integration so that people are able to work more efficiently in larger sort of practices where there is some kind of scale

There is some ability to rely on ancillary services, which I know we will talk about a little bit later But also from the payer perspective, a lot of payers are pushing towards

alternative payment models where fee for services is not the only way to go And the biggest

concern around not being able to develop an efficient AVP model is really around lack of integration, lack of data So which all points to where the fact that as more and

more consolidation happens, more and more integration will be required, not just to make the physicians productive, but also to develop these alternative payment models

As well, and as you alluded to, we'll get to some of those topics later in the conversation

So in addition to these profiles, the shift inside of care for GI care continues to move in a positive direction for the specialty, with over 20% of all single specialty Medicare certified ASCs being GI driven Scott, let's have you lead off on this topic to talk about

Well, I think Matt and Robbie hit on really the macro trends and very succinctly I think

what you're seeing now, and KG touched on this as well, is payers are really initiating site of service initiatives and incentivizing it both to the providers as well as to the patients themselves as it relates to co-pays Secondly, another factor that groups benefited

from private groups benefited from and realized, and we spend a lot of time focusing on behavioral health and the spike in all behavioral health issues Well, you have chronic disease in

IBD and IBS, which are triggered by stress from behavioral health issues So a lot of

groups saw spikes with some of their IBD patient population that drove additional volume But

it's a combination of factors right now One other factor that wasn't mentioned is the fact

that there's more awareness It's been tremendous awareness for the last 20 years driven by Katie

Couric first and then other celebrities that have obviously passed Colaguard now, you

can't watch TV without seeing ads for Colaguard and bring awareness to colorectal cancer It

is an incredibly preventable cancer And you have this effect of increasing awareness,

lowered screening age coupled with a massive patient population that is aging up and going in for their first screening So it's a great time to be an ASC owner, particularly an ASC

owner that does endoscopy procedures And so Robbie and Matt, anything to add from your

operating perspectives here? This is tracking the broader trend in healthcare is if you take it a little bit farther out is side of care, the hospital of the future kind of is marching towards the home and exerably And so as we continue that march, the ASC seems to be a

fairly durable way station on the path And it fits with patients desire for ease of use,

ease of entry, flexibility and availability And those are those are consumer driven trends

You know, I just add that gastroenterology is no different than a lot of other physician services organizations like us, it's gastroenterology But you know, radiology, outpatient radiology

services are all moving outside of the hospital So there's a much more demand and can the

payers are driving a lot of this And I think from an investor standpoint, you know, originally

private equity is very focused on, you know, they originally started out with more hospital based services, anesthesia, pediatrics, things like that, more hospital based And now, you

know, it seems like investment has moved outside the hospital a lot more So you're and you're

seeing more growth in outpatient services, like cardiology, things like that So again,

I think originally investors kind of shot away from it, because you know, some some agree there's investment aspects to outpatient and some of the services So I think, you know,

there's more growth in the outpatient services today than in a hospital based service environment

So for us, you know, there's a tremendous growth opportunity we feel And, you know,

the I think the hospitals have been slow to move in the outpatient setting And I think

a lot of hospitals are getting more progressive now looking outside the hospital and trying to have an outpatient strategy So there's there's quite a quite a demand to kind of

partner up with outpatient providers, I think now on the hospital side So

And I know we'll get to some of that later in the program as well in terms of working with hospital health system partners But Quran addressed this a bit in his first response,

in terms of provider shortages And so, Robbie and Matt, what are you seeing in terms of

how provider concentrations are impacting the gastro sector? And what are you observing in your markets regarding supply and demand of dynamics? I think this is it's not just gastroenterology You know, it's not surprising that gastroenterologists

want to live where often a lot of people want to live There are a couple of trends that

work in favor of being outside of the larger cities today And one of that is just an astronomical

amount of physician mobility right now You're seeing unimaginable previously amounts of

physicians being willing to relocate, particularly out of cities, as these more are less dense markets sort of catch up on the benefits of payer rates and ASCs and the economics of practice in those locations look better And so some of our rural markets are more rural

markets actually are much easier to recruit into than some of our city based markets, which is a little bit counterintuitive relative to some of the last 20 years in the space

So it's a reshuffle It's the same reshuffle I think we're good We're seeing kind of writ

large across the country and all jobs You know, it's healthcare is not impervious to

this Maybe slightly higher rates of burnout, but that is one of the benefits in the rural

markets that we have seen some help with is there's a you can sell the less burnout aspect of a quieter area over some of the city markets So that's kind of our our internal experience

Mine's slightly different because we're located in Northeast So we're primarily New Jersey

and New York area So there's a lot of training programs, residency fellowship programs in

the Northeast here So we're in a quite a good area for recruiting physicians And for us,

we obviously understand the shortages and when the aging demographics of the gastroenterology business, if you will So our challenge really is to build relationships with fellowship

programs throughout this area So we're really focused on, you know, kind of fellowship programs

in the Northeast and trying to provide kind of the different what we try to talk about as the differentiation of our model versus a hospital based model And the opportunity

that is outside of the hospital for physicians and trying to explain our model So we've been

very progressive, I think, and going and meeting with fellowship programs, presenting the fellowship programs We understand that, you know, that it's imperative that we continue to develop

relationships with fellowship programs all throughout this area So that's really where

we're focused today I think we've been fairly successful in recruiting physicians, gastroenterologists

in particular But concentration, for me, you know, we believe that, you know, we're

trying to be very focused on our geography so that we can add more value to our physicians

So if I don't go out and kind of progressively try to concentrate, it really isn't good for my physicians along the line So to me, it's imperative that we go out and really create

density in our markets so that we can add more and more value to our hospital partners, to our patients So I mean, I think that has been great for hospital partnerships and that

we're providing a lot of services that a small group couldn't provide to them today So,

you know, we really developed a lot of close relationships with our hospitals in providing services that they formerly didn't get from a small group So I think it's good for patients

All right Thank you for those regionally specific responses So, Karan, what are you

observing as you engage with GI platforms? Yeah, I guess, you know, this market, at least the GI

you know, as of right now, I would say, I guess in baseball language, probably in the second innings or so, given their less than 10 private equity-backed platforms of size and scale, which means there's still a lot of consolidation that can happen But based on

my experience in sort of interacting with these platforms over the last several years, the amount of variation in pair rates from state to state bases is just massive, right? So the same procedure costs something totally different in New York versus in Arizona And if you sort of really

talk to do, you know, looking at some servers, et cetera, on the pair side, what really matters to the pair is the sort of access to care and the rates are depending on, you know, county by county, is it put by zip code basis? It really depends on sort of the provider size, how much market penetration the provider has in a specific geography, then also what all specialties is the provider specifically offering And more and more, what we are seeing is

they are really focused on pairs, they're really focused on dealing with providers that could provide broad-based density in a particular geography, as opposed to concentrated, you know, availability in a particular MSA or a particular city, for example So for them, almost adding more providers in

a particular city is less important than saying, hey, can you provide more access by providing satellite operations in rural cities, like just like Robbie mentioned, I think that's high value at for them So that's, I think that's what I'm seeing from a variation perspective across,

you know, how various GI platforms, depending some are national, some are regional, some are multi-regional, all of them have strategies around how to increase pair rates because that is a pretty big lever as it comes to consolidation And it kind of filters through

everything else they're doing on the ancillary side, potential income repair, compensation to the physicians, and eventually sort of EBITDA and equity value generation

Thanks, Karan Those are all excellent points that investors definitely need to keep in mind

So we're at the topic of ancillary services GI is one of the most attractive specialties

for ancillary services And Matt, on our prep call, you brought up the role of ancillaries when

it comes to income repair Can you elaborate on that? So, you know, I think gastroenterology is a

little bit unique in that we've been able to develop a lot of ancillaries So if you're a

hospital-based service provider, it's difficult Like in anesthesia, for instance, it's hard to

develop ancillaries And so income repair is more difficult in that environment Radiology is the

same way Very difficult to develop ancillaries Why it's important to have ancillaries and develop

ancillaries is so that you can provide income repair Essentially, income repair is, you know,

in these transactions, everybody, typically the physicians have a scrape, if you will, of their kind of baseline income And so that scrape reduces their income going forward So it's,

the success of the deal is somewhat dependent upon, have you been able to repair income for the physicians going forward? So in gastroenterology, you know, we've got a significant number of ancillaries You know, I'll let Scott or Robbie go into what those ancillaries are But the idea is

we need to create income repair And we basically evaluate, you know, the success of the transaction,

some degree, have we been able to income repair our physicians? So I think it's really unique

in gastroenterology, the number of ancillaries that are out there And again, it's, when you're

in an outpatient environment, you can repair income easier than when you're in a hospital-based service environment where to develop other ancillaries is quite difficult So I think we're

very fortunate in gastroenterology that we have these opportunities to partner with the physicians going forward So I'll let others speak to the ancillaries, but there's a significant number of them

Yeah, so with that, let's go to Robbie and talk to us about ones that are, you know, especially productive for 1GI And

let me make sure I'm not on mute The ones that really popped to mind that are obvious pathology,

the ownership of the economics of your ASC ownership, whether you're JVD and things like an AMSURGE or USPI type transaction But the ASCs, the anesthesia and the ancillaries that drive off

of those ASCs, pathology, infusion, chronic care, management And then as you move kind of further

out into infusion, research, which is another common element of most large-scale platforms

And then you get into kind of a little bit more of the exotic microbiome work and some of the more concierge medicine aspects There's also secondary weight loss, diet provision,

you know, you kind of descend down the order of profitability and difficulty in implementing sometimes So, but all of those exist Radiology and CLIA lab have been a little bit more resistive

and are probably a little bit more likely to show up in the next round of consolidation as we kind of move into the next innings of this So, don't see a lot of that out there

Thanks, Bobby And so Scott, what are you advising your investor clients related to future drivers

of ancillary business and GI? Yeah, thanks for asking the question You know, I think one of the

things that I'm most bullish about for GI ancillaries is what's happening in pharma development

And as we all know that from operators that work in GI is pharma has done a wonderful job, really masterful in terms of creating awareness for a disease like reflux or GERD and then what it can relate to and doing that with the providers, doing that with the payers and doing it with the patients We now have about 30 different drugs in development that are going to address fatty

liver disease or NASH And gastroenterologists are trained in hepatology and it's something that,

you know, they have the ability now by working up a patient that is at risk with a simple scan in office to then put this patient assessing, you know, their degree of severity or risk of fatty liver disease and then putting them into a screening protocol and under a set surveillance And with

these drugs now coming through phase three of development, we're going to start to really see this in about a 12 to 18 month period as the first drugs are expected to be cleared by the FDA

So that's a very, and you're talking about 80 plus million patients in the US So it's a huge patient

population, literally and figuratively, and it fits squarely into gastroenterology It ties to

nutrition as well I know Robbie and Matt will touched on, you know, that's kind of more concierge,

but, you know, diet management and weight loss is really the best way to treat, you know, fatty liver disease and its initial stages before it becomes, you know, necrosis liver and scarring liver Another newer ancillary, and I'm considering it an ancillary because of what it does to enhance

GI groups And we're now seeing the first cleared artificial intelligence in, as it relates to

colonoscopy, there's a technology that is available that has been widely adopted by a number of MSO groups And what it does, the technology what it does is enhances the colonoscopy

Colonoscopy is the gold standard, but it is not a perfect diagnostic procedure There is what's

called the misrate Using artificial intelligence and a set algorithm with image recognition and

bit pit pattern, this technology is able to flag abnormalities to think of it almost as a rear view camera in your in your car, it alerts you, it puts a box around a suspected adenoma or pre cancerous lesion What this is doing is really substantial We've seen adoption now by

three of the major MSOs Robbie and Matt have their their groups are not quite there yet

With this technology, I know there's interest, but the widespread adoption, it has been, has really enhanced pathology revenue At the same time, it's provided better patient care

So it's, you know, there's there's a subscription cost to this AI technology, but what it does is it provides a better diagnostic yield coupled with more pathology revenue and a shorter surveillance with colonoscopy So it's, it's, I'm considering it an ancillary, because it's, you know, there has

to be an investment by a group to adopt it And you're somewhat challenging the gastroenterologists

that they as good as they are aren't as good as, you know, AI plus that physician And you're seeing

this in other sub specialties, radiology pathology But it really is the future of image recognition

in medicine Yeah, and we'll get back to a couple of the other technologies that you AI and some

others, but on the flip side of the ancillary revenue on our diligence as we've dug into Colaguard and helped investors understand the diagnostic tools coming into the market and the GI space So, Karan, what has Hohen advise clients on how to view Colaguard and other

diagnostics innovations? Yeah, I mean, I think broadly speaking, Colaguard is not a negative for GI physicians or the GI groups or platforms that are consolidating the market I think overall

it's a positive because it's creating market awareness and you know, on a direct to consumer basis with patients who are availing these services And that's part of the reason why,

you know, today, I think, I think 30, 35% of the pairs have approved and pay for Colaguard treatment, which, you know, last I checked was like $600 per test or something like that effect And it really

in their mind is that's on top of a colonoscopy that will then be performed if there was a positive test coming out of Colaguard It really is a function of the fact that they think earlier

detection is going to lead to lower downstream cost from a peer perspective With that said,

the technology is not, I mean, they've spent a ton of money in the direct to consumer marketing

I think the last number I checked was, you know, pharma companies and device companies that spend close to like $4 or $5 billion last year on direct to consumer marketing And,

you know, this science is still not positive I think I believe 15 to 20% falls positive

positive rates for Colaguard, as opposed to a blood stool test, which is like closer to 5%

But I kind of draw a similar comparison to what I saw in our sort of, you know, orthodontic industry with clear liners coming on board It just opened up a market, which was not a

which was not available previously because the awareness was not there in the consumer base of the patient base And that's a good analogy in terms of complementary and then driving

interest and awareness And so Scott, you talked at length about AI, but you've also kind of brought

up liquid biopsy So without getting into either of those innovations, can you talk about,

you know, where we are in the trajectory? Is this a near term, medium term, long term impact on practices? Yeah, I as it relates to Colaguard stool tests or liquid biopsy, which is a blood draw to detect colorectal cancer as well as other forms of cancer I think it's important to

understand, you know, from an investment community that colonoscopy still needs to be performed on any positive tests coming out of those So it is very, very beneficial to providers and investors

in the gastroenterology space with these diagnostic tests The other factor I think it's important

to mention, aside from the lower screening age is we're only screening about two thirds of the US population that should be screened is screened So there's a massive patient population that is

underserved or not being screened And your most at risk patient population is African Americans

and African American males There's a huge stigma that exists, a social stigma about having a

colonoscopy done So, you know, how do you address the most at risk patient population? You need,

you know, another diagnostic test So liquid biopsy, there's been a lot of developments and

you're going to start to see this technology entering the market probably in about 18 months

And, you know, it's an area that exact sciences has invested very heavily and really as the next generation of Colaguard And I think, you know, they've done a masterful job with Colaguard

and building awareness for colorectal cancer screening And I think you'll start to see that

with liquid biopsy And, you know, it will be interesting to see how the payer community responds

to this because, you know, it is a simple blood draw And if they charge $600, $700 for the clinical

lab workup, that may limit your adoption with it But net net, all of these tests will hopefully

start to dig into the at risk patient population that one third of Americans that should be screened that aren't screened And, you know, if it is a positive result, it will result in a

gastroenterology colonoscopy referral So it's a good thing for GI It's not a threat

We're glad that the work characterizing it is, you know, complimentary and then something that practices will need to keep in mind as these innovations come to market

to go back to ASCs from a policy perspective, what are we observing regarding the ASC covered procedures list and the impact on GI? Yeah, so we've seen CMS embark on a years long effort to move procedures to lower acuity and more cost efficient settings

Annually they will review and update the inpatient only list and ASC covered procedure list to allow more procedures to triple out into the outpatient and ASC settings

As you mentioned, they account for about 22% of all single specialty Medicare certified ASCs

And we expect this trend for more procedures moving to the outpatient setting to continue

And as it matures and the rate of procedures moving from inpatient to outpatient begins to slow, what we'll likely see is a greater shuffle of outpatient services between HOPDs, ASCs and offices

For instance, 2019 and 2020 Medicare data suggests that colonoscopies are still only performed in an ASC environment around 50% of the time with the remaining in the HOPD or inpatient despite the significant ASC cost efficiency

So we're gonna expect to see even as it starts to slow outpatient a further trickle into the ASC

And while the reimbursement under the ASC fee schedule is stable to positive, we're seeing disruptions under the physician fee schedule due to macro policy priorities

Can you touch on the ASC fee schedule and summarize the 2023 PFS proposed rule and the impact on the GI code set? That's right

For the past five years, it's increased by around two to 3% per year and CMS is telegraphing that for 2023 that trend will continue with a proposal of 27% increase

And that's because until 2024, CMS has tied a policy from 2019 to 2023 that the ASC update is tied to the hospital market basket update, which is really helping with this site neutrality trend

Outside of the favorable trends that you see in the ASC, we are seeing macro pressures on the horizon

It includes a potential 4% pay go cut in 2023 due to budgetary costs from the American Rescue Plan and COVID relief

And you're gonna see even more acute pressure on the physician fee schedule

And that is gonna impact every single specialty, including gastroenterology

Thankfully for gastroenterology, other macro pressures that most specialties are having to contend with such as clinical labor updates are really having a pretty flat impact on the space

And we are starting to see some other positive trends that are more gastro specific

For instance, we talked about this a bit, but CMS is pushing for this age 45 for their screenings

They are also moving forward so that follow-up colonoscopies after non-invasive stool-based collateral cancer screenings are going to be at zero cost share for patients

So that should help increase patient utilization and limit some barriers to access

We are also keeping a very close eye on early signals that in 2024, our CMS could reweight RVUs via the Medicare Economic Index, which effectively would make reimbursement in the office space for gastroenterology more favorable, but could put a bit of pressure on professional reimbursement in the facility setting

All of that to say a lot of moving pieces, but for 2023, we're looking for ASC rates to be favorable and PFS rates to contend with the combined 4% cut to the conversion factor, 2% sequester

And, you know, we're, it's kind of a deja vu all over again with the PFS

So what are we advising clients regarding congressional intervention before implementation of the 2023 PFS in January, along with interest on mitigating some of these other macro policies that you outlined

But we are more optimistic on potential relief to the cut to the conversion factor and the pay go cut

Specifically, we believe end of year legislation would likely see Congress again, potentially step in and provide a partial relief to the conversion factor, potentially spreading it in 2023 and 2024, and then potentially forgiving or kicking the pay go cut to another year

But we're gonna need to see stakeholders really ramp up efforts this fall and we don't expect Congress to provide any relief before CMS finalizes these cuts in the November rule

Yeah, so just to be clear with our audience, you are going to see likely adoption of the proposed rule in November when they release the final rule, you're going to see activity attraction related to congressional intervention again in December as Congress wraps up cats and dogs related to legislative agendas and priorities

Finally, what's the outlook for reimbursement for ancillaries, including infusion? What's the current status of drug pricing before proposals? And what's the potential impact on GI? Yeah, so when you think about infusion, there are two important pieces to consider

The first is how CMS is currently reimbursing physician administer drugs, and that's at the average sales price plus 6%, but it's closer now to 4% now

And so in the current environment, when you see changes in Medicare reimbursement for infusion, it has more to do with market pressure and the way manufacturers are pricing the drug than any concrete actions being taken by CMS

In the gastro space, the first thing that comes to mind is remicade, which has seen continued rate pressure since 2018 due to the entry of biosimilars

We are starting to see early signs that the degree of pressure on remicade could begin to weaken and slow down as it reaches similar pricing levels to its competitors

That's not to say it's going to all of a sudden shoot back up, but you might start to see a slowdown in that decline

Other key infusion drugs in the gastro space are generally more stable, but in a diligence, we always would look at pipelines, patent expirations

Generally, we're looking at a number of key gastro drugs to come off patent and pipelines projected around 2025, 2026

You might start to see some pressure, but typically biosimilar entry tends to have a less dramatic effect on the reference than in the generic market, around 15 to 30%

And that's because of slow utilization uptick and the way that the CMS prices those relative to their reference

The second key consideration for infusion is drug pricing reform that you mentioned

We've been tracking it for over a year and in its most recent iteration, it really is drastically different, but it's now strictly ACA subsidies and some very modest drug pricing reform proposals in an effort to get match and support and meet that 51 vote threshold

There's still a number of hurdles before it could guarantee any sort of Senate passage

The first is going to be the Senate parliamentarian needs to review that it can even survive the bird rule and be subject to that 51 vote instead of 60 vote threshold

And the second is a number of COVID cases are really delaying any action in the Senate right now

But even if it passed as is, we don't expect it to be a major material headwind to the gastroenterology space

And that's because generally the infusion space isn't impacted by party provisions

Key gastro drugs tend not to be increasing at a rate higher than inflation

And then you get to the Medicare negotiation provision and that is usually the most controversial in there

But really in order to be impacted by that, you'd need to be one of the only drugs without a competitor and you'd need to be in the top sort of 20 drugs that are of highest Medicare spend

And so in a diligence, we would of course look at your specific assets, makeup and if there's any risk, but generally gastroenterology just isn't the primary target for this

Yeah, so lots of noise always with drug pricing and drugs, but really because infusion offerings in the GI space are really attached to biosymbolers on much more favorable dynamic versus generics

So, you know, Matt and Robbie, you talked about commercial payers kind of driving the move continued shift inside of care for GI

So let's talk about commercial payer reimbursement as Kron mentioned at the beginning of this, lots of differentiation variation in terms of what commercial payers are paying for certain procedures

So what can you share about commercial payer reimbursement in the markets that you operated? Let's start with Robbie

If you're in the old South Alabama, Mississippi, places like that, it's a little more like dealing with the mafia with Blue Cross in those markets

So what we are seeing though is the advantages of consolidation and scale

It gives you a significant moment of inertia against some of the other commercial payers

And if you're willing to talk to partner to investigate and to kind of move away from the adversarial side of it, which really almost never works

What we're seeing at scale is we're able to move those rates in a positive direction generally

Unfortunately, probably not quite as fast as we'd like to see with the current inflationary environment, but it definitely is demonstrating the value of the commercial payer reimbursement

And then secondarily, the value of what we can deliver to their patient populations

There's increasing discussions around how do we share elements of these contracts? I prefer shared risk

But the willingness to approach shared risk in most of the markets that we're in currently means that you have a different avenue to open discussions with payers and you have a lot more room to explore different arrangements

You can't really come back 15 years ago when I was in practice management services

And really now it's incumbent upon us to really build relationships with the payers, understand what they're trying to achieve, and build programs around them

So, you know, it's from a payer situation over those 15 years, the payers have a lot more leverage, I'd say, today, because things like balance billing legislation, you know, going down, their ability to go down to, like, let's say, a market standard, those type of things have kind of taken some tools out of our toolkit as a practice management company

So what we really have tried to do is build more programs with the payers

And so it's much more, it's not just a discussion around rate anymore

It's more of discussion around partnership, keywords, how do we manage patients better? How do we share, and up sides, how do we share and keep patients out of the hospital? You know, how do we help them achieve their goals? And then how do we get rewarded for it? So the relationship has really changed

It's interesting, and it's probably in the long run, it's really good for all of us

But again, to me, it's our relationship with the payers much more expanded now than it ever was before

And I think our conversations are more productive in the sense that it's really more focused on patients now than just on rate

You know what I mean? And so it's like, how do we keep patients out of the hospital? How do we manage patients better? And then, you know, we kind of talk about rates, but it's all in the scheme of how do we deliver value to our payers? How do we deliver value really to all our constituents out there? So it's challenging

I'm not saying it's not, but, and certainly as Robbie alluded to, you know, I think that we're not getting from an adequacy standpoint

You know, no one's given us rates or keeping us constant with inflation right now

So, you know, the rate increases are below inflationary rates out there today

But again, the goal here is to participate more with payers, develop more programs that we can bring to a payer, like wellness programs and things like that, where we can kind of say, hey, we can provide your patients with the access to all these different programs

And if I have a lot of geographic reach, you know, it's great for the payer because he can go to their constituents and say, hey, we can cover you across all these different areas in the state of New Jersey rather than just one

So we'll have a pro they can have a program all across the state that manages wellness, diet, bariatric surgery, the whole bit

and I think we'll continue to be successful as we continue to expand

You have platforms as well as scale large groups that are regionally based that have been really successful with shared risk models, with payers as it relates to chronic disease with IBD

And secondly, with direct access programs for self-insured and large self-insured employers for screening, for screening colonoscopy

And then you also have platforms that have negotiated colonoscopy bundles

So, these are alternative payment models that are, there's been regional success with platforms in negotiating this

But I think, and both Robbie and Matt know this very well, it starts with dialogue and collaboration and data with your payer and it's a process

And I think a lot of this has to do with providers also becoming more sophisticated about understanding what payers need

You need to get to the table with solutions and how are you going to provide that work out of CSE solutions, wellness solutions, other solutions that they are feeling in their particular markets

And so everyone's kind of rising to that level, higher level of sophistication

And so these conversations are becoming more productive as the two sides understand each other better

As Robbie said, who knows what value-based care means anymore? But I feel like this conversation, I have to very, very briefly let's have Robbie and Matt talk about value-based care in quotes, what that means for GI and how can GI practices maximize what is the current environment for value-based care in healthcare

So let's start with Robbie and then go to Matt and then we'll quickly go to the other topics

Yeah, I mean, you could do another webinar on both elements of that question,

but the reality is the elements of value that the top GI groups are starting to bring to the table is expanding that quality dashboard from beyond ADRs or adnema detection rates and things like that to include more whole person metrics that take into account social determinants, socioeconomic demographic issues that are specific to your markets and treating a whole person

And so with that, you start to integrate whole person outcomes which are really the prime drivers of cost, these chronic out of control issues

And that requires a little bit of scale and density in a market in order to be meaningful as you approach from the provider side

But your insurers, your partners in the commercial world have that data as well

And so in a partnership, you're sharing collaborative data there and that's really the frontier, I think, of what I think of as value-based care as it shows up

So from our standpoint, we've partnered with Sonor MD and the idea being on IBD cases and things like that, it's like, we'll use extenders, we'll use nurse practitioners

We're kind of trying to manage that patient before they have to go to the hospital

So again, we get paid by kind of tracking, monitoring these patients on a more frequent basis

so that they don't end up in the hospital, we're paid, if you will, the shared savings program

We report on these patients and how we've been able to better manage them, keep them out of the hospital

So, but I think at the end of the day, people kind of sometimes look at practice management and kind of with different viewpoints

And I think that what we're doing today, Robbie and other companies like Robbie's and ours are really, at the end of the day, we're bringing to the market solutions that couldn't be bought to the market if you were just a small GI practice

And I think it's often not talked about, but I think that the private equity has bought to bear a real focus on some of these programs that couldn't be developed if you didn't have size and scale

And so I think it's been good again for patient care and good for our hospital partners as well

So, Kron, what do investors need to keep in mind for GI opportunities in PE back platforms as PE back platforms continue their buying sprees and continue to grow in their regional, national, multi-regional markets, and as the space, you know, faces for their consolidation? Yeah, I guess when I'm high level, the space is, it's a great space to be, as I mentioned earlier, it's in the beginning innings of consolidation

It's a massive market, right? 8,000 physicians out there working across 2,500 different practices

All the macros that you can be talked about today in terms of side of care, moving from hospitals to our patient, all the ancillaries that we have as revenue streams for the business model

So all that proves to be a big, a big positive for any investor looking to invest

I think at the end of the day, it's on a platform by platform basis in my mind across, and this is not just GI, but just generally across physician practice management, you know, key to success

Unlike retail healthcare or multi-site healthcare, whether you take dental or vet or some of the other areas, you know, you can put various shingles in various different states and it still works

Here, I think market density is important to create networks, to be able to sort of lean on the fact that you have hospital relationships, to be able to build those ancillaries, to be able to build those ASCs, to be able to recruit doctors into your network

So some broad-brace density in a given geography is important to create leverage, which really lends itself to creating income repair for the physicians

And there have been some true examples of platforms who have delivered and are delivering true income repair post-affiliation with MSO

And that in my mind is sort of validation of the value proposition that these platforms are bringing to bear

The other thing I would say is, you know, as with any consolidation opportunity, there's a tendency to get aggressive and then sort of lose discipline around what you're really buying and why you're buying it

So there's a secret sauce across every platform which works for them because that's how they've molded their culture, molded their infrastructure, all those things, but sticking to that discipline and not just, I guess, paying any multiple that you see out there because you're just trying to grab market share or do a land grab is going to be important to long-term for the sustainability of growth

And then last is just underwriting criteria that people kind of focus on here when they are doing M&A acquisitions and thinking about what the opportunity to grow this particular acquisition would be in the future and how to underwrite the right valuations for it

And then eventually, I think each MSO is dependent on sort of the infrastructure and the management team

Just the other execution heavy businesses, there's a lot to do from a cultural perspective, integration perspective, making sure that your physicians are aligned, making sure they have autonomy at the same time

There are certain decisions being made at the right board level which determine the sustainable future for the platform

So those are five or six things I would say that if you're keeping an eye on as you're looking through the platform, we'll determine

And at the end of the day, I think it's organic growth alongside what you're able to do with your acquisitions, post-affiliation, which drives value

And so Scott, very briefly, as we are running up against time here, what do GI MSOs have on the horizon related to growth and contracting in the asplaries and just in general, the drivers? Well, related to growth, my firm jointly publishes a report called The Business of Gastroenterology with Spherics Global Insights

And this is sold to all the big pharma and big med tech companies, but we measure across a panel the intentions of gastroenterologists to join MSOs

And we've seen a real growth over quarter over quarter with now, we saw an 80% jump, looking at when we first started doing this in the beginning of COVID to now, with gastroenterologists and their intentions to join MSOs

You have big strategics now that are making investments in primary care

If you look at a lot of press, obviously, about the Amazon One Medical that has the primary care side of it, but you also look at what Optum has done with my old company with Physicians Endoscopy now becoming part of the SCA Optum network

And reading the tea leaves, as these national platforms grow, GI is the number one referral out of primary care

So logic would tell you that you're going to have more and more strategics enter this space

If you look at Summit Health with the Werbergs platform, with the Citi MD being urgent care, primary care, and they have about 45 or so GIs that are busier than they've ever been because they've a built-in referral network

So I'm expecting you'll see these national rollups become very attractive to more strategic entities in the future or a combination of them becoming more attractive in the future

Like four or five years ago, there were big five insurance companies trying to merge, and they were all shot down

And the reason they were merging was because they were trying to figure out weaknesses in their each of their sort of platforms and trying to make up for those

And this is another way of consolidating this exact same market, which you're doing on the provider side of the end, is just taking a little bit longer

And you have to do it in smaller bite size but the end result is the same

You've got more members consolidated amongst these bigger groups, which allows payers greater flexibility, access to care, all those kind of things

All right, we are coming up on an hour, but I do think that we have to touch on valuations, Karan

So what are we expecting with the second half of 2022 related to GI M&A and valuations here? Yeah, I think just like the last half of 21, I think this second half of 22 is also going to be a pretty busy year

Not albeit sort of all the changes that have been going on in the market, both the public equity markets also sort of what's happening on the lending market and the debt market side, which will probably have some impact on valuations

However, for premium companies and with the premium management team, then great sort of growth forecasts, I think this is a bump, especially given all the dry powder the private equity has and the long term view that they take, I think it's a good space to be in

Unfortunately, they haven't been that many data points on the gastro or the GI side simply because they haven't been that many second exits, if you will

A lot of them have been first time institutional capital going into private equity funds, going into GI platforms, including Matt and Robbie's platform here today

So I think the future is bright and we're seeing valuation most both sort of hold up relative to what we saw last year

As you know, we do these on a regular basis, so please look out for our next webinar where we'll be featuring additional executives from platform backed assets as well as our banking partners and consulting partners

Thank you very much for joining today's webinar and we look forward to seeing you again soon