The Deal Market for Physicians w/ John Tiedmann Jr.

[00:00:00] Erik Sunset:Interest rates are climbing again, state lawmakers are putting private equity under the microscope, and physicians are retiring faster than the country can replace them. So who’s still buying medical practices and what are they paying? Today, John Tiedmann, Managing Director at Physician Growth Partners, on what he calls Private Equity 3.0, he’ll tell you which specialties he expects to fetch the highest prices through twenty twenty-seven and the one fix every practice should make before it sells.

This is The DocBuddy Journal, I’m Erik. Let’s get to it

Erik Sunset: Right. Hello everybody and welcome back. I’m your host, Erik Sunset. This is the DocBuddy Journal, and today we’re joined by John Tiedmann. John is the managing director at Physician Growth Partners. John, appreciate the time. Thanks for joining us today

John Tiedmann Jr.: Hey, Erik, thanks so much for having me

Erik Sunset: It’s our pleasure, and, uh, listeners of the show will remember Thomas Cunningham joined us with Physician Growth Partners not too long [00:01:00] ago. Uh, but as a quick refresher, I think it’d be helpful for the audience to get the primer on PGP before we dive in

John Tiedmann Jr.: Happy to. So, uh, PGP is a, is a healthcare focused investment banking, uh, and advisory firm. Uh, we help, uh, physicians a-and other healthcare organizations explore their opportunities to partner with strategic partners or private equity, you know, sell their practices, um, uh, and, and, you know, navigate and consummate those types of transactions.

John Tiedmann Jr.: So since our founding in twenty eighteen, we’ve helped over ninety, uh, physician practices related ancillaries and facilities, uh, you know, explore and consummate transactions with strategic parties and, and private equity. And so our core competency is M&A in, in kind of the healthcare services domain.

Erik Sunset: Definitely a hot topic. And for the, for the scoop there, we’ll refer you back to the prior episode with Thomas because we want to be forward-looking today, John, or at least a little bit forward-looking, uh, [00:02:00] without any, uh, disclaimers needed, of course.

John Tiedmann Jr.: Угу

Erik Sunset: Um, but year to date, what kind of things are you seeing right now that makes twenty twenty-six different from prior year deal environments?

Erik Sunset: So twenty-five, twenty-four, I mean, if it is different

John Tiedmann Jr.: Yeah, I mean, a, a little bit. Some good and some bad, right? I, I think we had been in a period for a while there in ’23, ’24, for sure. Interest rates were going up. People were trying to, you know, figure out what the new normal was and, and as those rates stabilized, you know, you saw volume open up quite a bit, you know, with respect to physician practice M&A, uh, which had been very hot in 2021 and, and certainly pre-COVID.

John Tiedmann Jr.: Um, and, and, and started to tick back up again, you know, probably ’24 and certainly in ’25 and, and, and into ’26 as we’ve seen. Um, that being said, you know, as of a week or two ago, interest rates have now started to go up again, and so we’ll see what that means for the market. M- We haven’t seen that, you know, put a process on [00:03:00] hold yet, but, you know, something we’re keeping an eye on, just sort of macroeconomic trends and where things are going and how the private equity community is thinking about that.

John Tiedmann Jr.: I think the other, um, you know, sort of flavor of, of the day is, is, is, is regulation, state regulation in particular. Uh, depending on, you know, which state you’re in, um, certain legislation has come about to, uh, not necessarily prohibit yet, but certainly allow the states to take a deeper look at, uh, you know, private equity transactions in the healthcare and certainly in the, in, in the provider space, PPM, physician practice management in particular.

John Tiedmann Jr.: And so that’s something new that we’ve had to keep a close eye on this year that can, you know, have implications on whether or not you can do a transaction and, and, and certainly has implications on things like value, uh, and, and, and, and things of that nature. And so these are kind of existential threats.

John Tiedmann Jr.: That being said, you know, the market for, you know, pick your specialty, [00:04:00] dermatology, ophthalmology, what have you, each of them have s- you know, strong buyers still and interest in, in growing through ac-acquisition. And, and so, you know, really across the specialties, uh, that we operate in, we are, you know, seeing buyer interest and, and continued, um, appetite for acquisition if that’s something you’re considering as an independent group.

Erik Sunset: And it, it’s interesting, isn’t it, John? Because, you know, coming out of COVID, everything was a COVID effect. You know, it’s a COVID rebound. You could be talking about staffing at PPMs and, and, and other healthcare facilities. It could be about deal flow. It’s almost like there’s a rebound to the rebound, and it would be nice to be able to find equilibrium, although, as you pointed out, the only constant is change, whether it’s rates or regulation, uh, or antitrust-type legislation driven by the state level.

Erik Sunset: Do you see… do you foresee us reaching whatever the new equilibrium is, or are we just gonna teeter and totter our way into the future forever?

John Tiedmann Jr.: You know, I, I think we will, and I think the catalyst for that or, or at least the, the, the signal [00:05:00] that we’re there, um, is when you start to see some of the bigger platforms trade, right? So there, there have been in, in ev- any given specialty, derm there’s 30, ophthalmology there’s 25 or 30 big private equity-backed platforms, and several of those groups have, you know, been waiting.

John Tiedmann Jr.: They’re, they’re longer in their hold periods, right? Traditionally, private equity is, is holding for about five years. These days, you know, the, the, the average hold on some of these assets is six, seven-plus years. And so it’s, it’s time for some of those groups to trade and, and, and as that con- starts and continues to happen, I think you’ll see, you know, everyone in the industry, uh, kinda get into lockstep and, and you’ll see a, a little bit of an opening of the floodgates and, and, and a return to, you know, maybe not totally a valuation situation that we saw in 2021 at, at the peak, but certainly from a transaction volume perspective.

John Tiedmann Jr.: I think as the big guys start to trade, they reset their private equity partner, re-up their debt capacity and their ability [00:06:00] to do deals, right? Then that opens up the ability for, you know, sellers to really explore all the options that are out there, where you have some folks that today are simply hamstrung by the fact that they’re in a long hold.

John Tiedmann Jr.: You know, their, their debt capacity is, is, is lower or, or, or, or, or fully utilized, and they’re just waiting for that, you know, that, that event to kind of re-up where they are and where they’re going, right? And, and, and that’s– that’ll th- I think will be the big signal. We’ve started to see some of that, a little bit of, um, you know, sponsor-to-sponsor activity with platforms trading from one to another.

John Tiedmann Jr.: We’re starting to see mergers within the platforms, right? For example, in dermatology, um, you know, DermCare just, uh, just kind of acquired or merged with US Dermatology, right? You’ve seen in eye care, and I think we’ll probably talk about this a little deeper later, but some of the distributors, um, m- you know, the McKessons and the Cencoras of the world taking an interest in some of those drug-heavy specialties like retina or [00:07:00] oncology or urology, right?

John Tiedmann Jr.: And so there are starting to be some exits, and we’re starting to see where everything is kind of gonna go. And as that gets more– that picture becomes more clear and as that, you know, that head space grows in terms of that next capital partner, whoever it’s gonna be, I think, is how we get back to a, you know, a much more steady state, high volume situation.

Erik Sunset: Totally fair. And you just mentioned a little bit of sponsor-to-sponsor trading activity. What are your thoughts on the buyer pool overall? Are, are you seeing new platforms emerge, more add-ons? Is there anybody new coming to the marketplace?

John Tiedmann Jr.: You know, in physician practice management, I think in certain specialties you’re seeing new platforms. For example, rheumatology is an area that, um, you know, has a heavy infusion component, a drug component, a three forty component that, um, folks have kind of clued into and taken an interest in. And so there’s a lot of upside there as a new specialty with new platforms trying to form up now under private equity.

John Tiedmann Jr.: Um, but, [00:08:00] you know, a, a specialty like dermatology or ophthalmology, I, you know, I– those are gonna be strategic buyers for the most part. If they’re, you know, if you are a large, meaning, you know, double-digit docs and, and another, you know, ten or fifteen mid-levels surgery center or two, you know, a sizable platform, you, you probably could capture the attention of private equity, but I suspect most of your options are going to be strategics, you know, platforms already backed by private equity.

John Tiedmann Jr.: So it just depends on the specialty, depends on the geography. Um, you know, I think there are still private equity firms out there looking in certain pockets of PPM for new platforms. Um, but that, you know, w- what we’ve really seen over the last several years is the, the healthcare tourists, the folks who kinda got into physician practice and, and, and maybe didn’t have the, the requisite experience, have kind of weeded themselves out and, and so the private equity firms that remain in the space are the ones who have had a lot of success.

John Tiedmann Jr.: They [00:09:00] understand what it means to partner with a physician, not to be, you know, in the clinic telling the doctor how to practice, but rather sitting, you know, behind the doctor saying, “How can I help?” Is it administrative? Is it, you know, negotiating with payers, revenue cycle? Is it, um, you know, recruiting, right?

John Tiedmann Jr.: You mentioned earlier staff. Staff costs are going through the roof. How do we solve that? Can we bring in a technology solution to help with that? Can we bring in, you know, a team to help you recruit mid-levels or techs or nurses or whoever it might be that, that can, um, uh, you know, bring leverage to you as the physician so that you’re practicing at the top of your license and everybody is, you know, helping you along the way in the organization to maximize total output, right?

John Tiedmann Jr.: And, and, and those are the investors that remain today, and, and they’ve had success in those models with, you know, whether it be, you know, dentistry or, or, or dermatology or, or, you know, urology or GI, right? Um, all of these specialties have had activity and continue to do so. Some of them are, you know, there will be another [00:10:00] platform, some of them, you know, there, there might not, and it’ll be more of that consolidation that I talked about where some of the platforms, the smaller platforms are merging with each other or acquiring each other.

John Tiedmann Jr.: And, you know, in dermatology, we might go from thirty platforms to twenty to fifteen at some point. We’ll see.

Erik Sunset: It’s interesting, and I, I wanna call back to, uh, a comment you made just a, a few moments ago that private equity has its eye on a couple of, like, emerging specialties for, for new platforms or emerging platforms rather for specialties that are perhaps underserved in this space. Uh, what are those?

John Tiedmann Jr.: So I mentioned rheumatology. That’s a big one just given the drug spend, the infusion area. A lot of, a lot of private equity has been chasing infusion broadly for a while. That’s a specialty where those two things sort of fit together, the ancillary and obviously the provider group.

Erik Sunset: Er

John Tiedmann Jr.: that being said, uh, the, the other ancillary, I guess, specialty, if you will, that, that has captured the attention of private equity recently, uh, are, are the surgery center developers and management [00:11:00] companies.

John Tiedmann Jr.: Um, so for a long time it’s been USPI, SCA, AmSurg. Right? AmSurg just got bought by Ascension. Um, and now it’s, it’s, um, you know, a, a, a, a growing group of, you know, the next, uh, surgery center management companies that are private equity backed looking to develop and buy and invest in surgery centers. So if you are a physician group in a surgical specialty who has a surgery center, options are growing, um, in that you could sell your practice and your surgery center to, you know, if you’re in orthopedics, one of the private equity backed platforms.

John Tiedmann Jr.: Or you could say, “You know, I really wanna keep my practice the way that I have it, but I have this surgery center, it’s very profitable.” Maybe we take some chips off the table that way and, and look at selling just the surgery center to one of the groups that I just described. And by the way, USPI, SCA, AmSurg, still very much in the mix.

John Tiedmann Jr.: Um, it’s just this new sort of emerging group coming along [00:12:00] and, and private equity has taken an interest there just given the, the profitability and the growth potential and, and, and, and this kind of notion of the shift to outpatient, right? Which is the idea that across specialties, surgical procedures are coming out of the hospital and into surgery centers and into the outpatient environment, getting the patient home, you know, reducing risk of, of, you know, contracting a, a, an additional infection in the hospital, all these kinds of things.

John Tiedmann Jr.: The convenience of it, the block time, the ability for the doctors to get in, do their thing and get out. They’re not waiting around all day, right? Um, that, that is a, um, a, a, a super interesting pocket for private equity. And I think, you know, to round that out, um, you know, some of the services into some of these settings, right, and some of the training for nurses or techs or CRNAs and, and, and the ability to fill the shortage for folks like that who can add leverage to the system.

John Tiedmann Jr.: [00:13:00] We’re seeing a lot of private equity look at those types of opportunities to say, “Look, this isn’t directly playing to provision of care, but how are we enabling the system at large to meet the needs of the– of growing patient demand, aging population?” All the things that, you know, I’m sure folks hear on this podcast all the time.

John Tiedmann Jr.: Uh, you know, how are we enabling that to happen and finding those people and training those people to do what they need to do? That’s another pocket that we’re seeing a lot of interest.

Erik Sunset: One, one thing I’ll be keeping my eye on very closely, uh, with reference to the big five US, uh, management companies for surgery centers. You named them, AmSurg, uh, USPI, SCA, HCA, and then Surgery Partners. I, I certainly wouldn’t wanna bet against them and the operational efficiency they bring to their facilities.

Erik Sunset: We, we know a lot of those folks very well. There’s probably nobody better in the US market for operational efficiency though than private equity. So we’ll see what that, what that actually means to out-compete, uh, one another, and it’s gonna boil down to how do you treat the physicians. You know, how do you [00:14:00] treat your physician owners?

Erik Sunset: How do you treat your board? Do you support them in all the ways that you mentioned? That staffing piece. The, the cost of staffing is absolutely going through the roof. You know it. Uh, you spoke the truth there. But sort of the sick caveat to that is the cost of staffing is going through the roof if you can find anybody to hire.

John Tiedmann Jr.: Right. Right.

Erik Sunset: We’re

John Tiedmann Jr.: it’s, it’s, it’s, it’s such an interesting problem and, and, and that’s really why, you know, you, you, you talk about, like I talked earlier about the state regulations and this i- this notion that, you know, should private equity or Wall Street or whoever, corporate entities of any sort be involved in the provision of healthcare?

John Tiedmann Jr.: And I think it, it all boils back to the original thesis, which was not for those people to tell the doctors how to practice or provide care. A- and, and while there were bad actors, like there are in everything, and, and folks who thought that that was their place in the world, that really was never the thesis.

John Tiedmann Jr.: The thesis was providing healthcare in this country [00:15:00] is only getting more complicated. Doctors went to school and, and went through all that training to see patients and care for patients, not to deal with the headaches of negotiating with a payer or getting a prior auth or trying to figure out how they’re gonna staff the front desk or recruiting a new doc to, to drive growth in their market or meet patient demand.

John Tiedmann Jr.: Those thing– All of those sort of business concepts are things that private equity can and would love to help with, and that’s what they’re really there for. And, and in today’s market, we call it private equity 3.0. We’re kind of in… There’s been several iterations now and, and as they’ve gone on, you know, the private equity folks have gotten smarter in, in terms of what makes these platforms successful.

John Tiedmann Jr.: What we’ve seen is, is private equity 3.0 is the, is the culmination of several learnings, uh, along the way, right? And, and, and the idea that, uh, the, the successful groups, the groups that have, have, have inevitably earned a… the, the [00:16:00] best returns for investors are also the groups who largely stayed out of the physician’s way, allowed them to be the clinicians that they wanna be, practice the way they wanna practice, but enabled them to be successful on the business side and brought some of the, you know, the business concepts and, and expertise and resources that, you know, a physician group on its own may not have access to, right?

John Tiedmann Jr.: And, and so that’s where we’re seeing, um, you know, the interest right now and, and the way that these things are going and, and how they’re gonna be successful are, are, are kind of concepts along those lines.

Erik Sunset: It makes perfect sense. It’s totally intuitive and, and maybe not intuitive, but highly intelligent. Everything you just named, those are all the core drivers of burnout across all physician specialties, payer relations being sort of at the top of that list. you know, I’m gonna try for a really elegant segue here.

Erik Sunset: I’m not sure we’re gonna get it, but on a related note to burnout, one of the ways that physicians and their [00:17:00] organizations can sort of ease their symptoms of burnouts and hopefully reduce them, not just feel like it’s getting better, but actually is, that’s by using the right technology in their organizations to drive outcomes.

Erik Sunset: So John, when you’re advising groups on sale readiness, much does back office efficiency, so coding, documentation, revenue cycle. Obviously, if you have the right tech in place, that’s gonna improve your valuation. Uh, but what does that do for the actual human stakeholders?

John Tiedmann Jr.: Well, look, the biggest impact that any sort of technology or, or efficiency in the back office can have on the doctor is to free up their time to use it how they want, right? They may choose to see more patients. They may choose to go have dinner with their family, right? A lot of the business of healthcare is done after hours and on weekends, right?

John Tiedmann Jr.: And so giving them that time back to clear their heads, um, and get in the right mindset, I think goes a long way to just the, the, the burnout [00:18:00] concept that you talked about, as well as the, you know, it allows the doctors to think about the growth of the practice, the, the future of the practice, not just the here and now of how am I gonna get paid for everything that, you know, happened today in my clinic, but what am I gonna, you know, how can we meet the needs of our patients?

John Tiedmann Jr.: How can we grow? How can we, um, you know, build something here that outlasts any one of our doctors’ tenure at this practice, right? And, and, and that’s the kinda thing that translates to value in a transaction, right? Because first of all, if you have more time to see patients, just in a very tangible way, your revenue and your profit probably go up, right?

John Tiedmann Jr.: And so that’s, that leads to increased value. But also having a clear plan for growth when a buyer comes to the table and saying, “This is what I would do. This is how I would do it,” is a very different conversation than, “I’ve done what I can do, you know, you guys come in and figure out what we do next,” right?

John Tiedmann Jr.: And, and then the buyer is sitting there saying, “Okay, well, now I’m paying for something that I have to go figure out. It’s a [00:19:00] homework assignment for me.” Right? And then on top of that, if you have invested in efficiency-driving technology or whatever it might be, um, it, it doesn’t always present itself in like a headline valuation number.

John Tiedmann Jr.: But what it does is i- in, in, in looking more professional and being more professional, being able to produce data when it’s, when it’s asked for, and being able to, you know, connect the dots on that data for here’s what drove this and here’s how we got here, and having those insights that, you know, typically require investment in back office infrastructure and technology make you look better throughout the process, right?

John Tiedmann Jr.: And, and, and buyers are looking at that. They’re saying, “Okay, if it takes me two weeks to answer every question that I have because somebody, you know, no one really knows the answer and somebody has to go figure out where they’re gonna find it,” again, the perception of the value of a practice that behaves that way and operates that way is very [00:20:00] different than one that has every answer at the tip of their finger when, when you ask for it, right?

John Tiedmann Jr.: And so the, all of those things lend themselves to value and, and, and, and, and translate well and, and, and resonate in a transaction

Erik Sunset: It’s gonna sound really high-minded, John, and you can stop me at any point, but, you know, for what we just described, you know, all these challenges, these administrative burdens that providers undertake, they’re not practicing at the top of their license if they’re negotiating with a payer. Although they– some of them do enjoy it.

Erik Sunset: I’ve talked to some that, uh, like the battle. Um, but that’s, that’s, um, resulting in a wave of physician retirement that the, the country hasn’t planned for. You know, and I certainly respect everybody’s right to do what’s correct for them individually. But as a, as a healthcare consumer like we all are, whether it’s you right now or a family member, whoever, we’re at the edge of a cataclysm for access to care.

Erik Sunset: There’s just simply not enough physicians. So this is where the high-minded part comes in. A physician practice partnering with private equity, you know. You [00:21:00] read that headline and you go, “Oh, great. Care– cost of care is gonna go up. I, the patient, am not gonna get what I need.” But I disagree. Um, I think you’re prolonging the tenure of that physician in their role.

Erik Sunset: And again, you know, the physicians are people. They’re not a commodity. Um, you know, if we’re able to keep physicians practicing longer than they currently are, and they’re still providing excellent care, and they’d rather not be on a beach in Aruba or whatever, you know, that’s a huge win for the average American. What are your thoughts on that?

John Tiedmann Jr.: No doubt. I mean, look, uh, the, the, the jury is out and there is very little evidence that suggests that private equity being involved in physician practices is in fact driving any increase to cost. Certainly when you compare it to a payer buying a physician practice or a health system buying a physician practice, um, I, you know, I don’t know that I’ve seen any ironclad data that supports that notion.

John Tiedmann Jr.: But if you just look at the laws of supply and demand, what do you think is gonna happen if [00:22:00] the de- the supply of doctors continues to fall and the demand for their services continues to rise? Prices are going to go up either way, but what’s gonna be a, the bigger problem is access, if you can even find the doctor to pay to see you, right?

John Tiedmann Jr.: And so the, the access component requires a certain level of supply. Um, and, and this is in frankly, urban and suburban, you know, and tertiary markets, let alone rural markets, which already have a r- substantial problem with access to care. Um, but yes, I think that When an independent physician group is sitting there saying, “I can either take this money home to my family, or I can invest in XYZ solution to hopefully make us more efficient, or I can, you know, hire a nurse practitioner or a PA or some other ad- you know, APP-type solution to create leverage in the system,” those are hard decisions for an independent practice to [00:23:00] make, but they’re necessary decisions.

John Tiedmann Jr.: And the, and, and, and, and, and in bringing in private equity, allowing physicians to take some chips off the table, not worry so much about, you know, that choice of bringing the money home or not, and, and bringing in a capital partner who can help, not necessarily f- you know, finance through cash flow, but they have access to lines of credit and all these other, you know, ways to finance investment.

John Tiedmann Jr.: Um, not only that, but they have the resources in terms of, you know, maybe board-level representation, people who understand the technological solutions that exist in the world and how they apply to that physician’s practice and their, you know, challenges and can layer those things in. And you look at that across not just one practice, but every practice in the country that might consider a private equity transaction, and someone consciously looking to provide those solutions or implement those solutions [00:24:00] to create that efficiency.

John Tiedmann Jr.: I, you know, I don’t know that there are a lot of other ways as you look 10, 15, 20 years out ac- you know, over this cliff that you described of retiring physicians that… I mean, the physici- the physicians are retiring, but so is the rest of the population, right? And so the demand for those services is growing.

John Tiedmann Jr.: And, and, and, you know, to, to me, a very prudent way to solve that problem is to bring someone in who can invest in those efficiencies. And the idea is, is, is not necessarily to, you know, make doctors work harder or see more patients per hour necessarily. But if you’re going to spend eight hours in the clinic either way, and it, it’s six hours with patients and two hours of administrative time or eight hours with patients Um, you know, I, I know what you went to school to do.

John Tiedmann Jr.: I, you know, I don’t know how much, to your point, some of these people like arguing with the payers, but if it’s eight, if [00:25:00] eight hours is eight hours in a day or 10 hours or, you know, something… I mean, a lot of physicians I know work 12 hours plus. Um, you know, it’s, it’s, it’s how you’re using that time. Uh, and, and, and, and can you, you know, sort of meet the needs of your community, and can private equity help you do that?

John Tiedmann Jr.: Um, ’cause like I said earlier, you know, that it’s not about cracking the whip and, and squeezing out every, you know, more patients per hour necessarily. It’s about, um, you know, creating more slots with the same number of hours in a, you know, across a day by removing things that you shouldn’t be doing as a physician and allowing you to spend the time doing what you, you know, what you’re trained to do

Erik Sunset: That, that’s really well said, and I feel like I need to make one point for clarification. That, that was a rhetorical comment that you see the headlines, you’re, you’re Joe on Main Street America. “Oh, no, my provider got bought by private equity.” That’s generally the reaction. To your point, there really isn’t any data that says private equity, uh, drives the price of healthcare up.

Erik Sunset: It doesn’t. Not that I’ve ever seen.

John Tiedmann Jr.: Mhm

Erik Sunset: with you on [00:26:00] that point. And r- uh, to further your point, you want your provider to have as many efficiency levers possible to pull, and oftentimes they don’t have them unless they partner with somebody who knows more than them on

John Tiedmann Jr.: Угу

Erik Sunset: and business side.

Erik Sunset: So really, really well said. Um, turning, turning our gaze, uh, or focusing our gaze a little bit more on this tech aspect in physician organizations, th- this is actually a really good question. Are sophisticated buyers or even unsophisticated buyers, are they diligencing a practice’s tech stack the same way they’d be looking at its financial statements?

John Tiedmann Jr.: More and more so, yes. Um, I think the, the… I mean, there, there is sort of basic, you know, we are on this EMR and they’re on that EMR, and what’s that gonna look like from a transition standpoint? But more and more we’re seeing, you know… I, I can’t believe we’ve gone this far without saying AI, but AI, um, you know, [00:27:00] solutions being integrated and implemented in practices, even, you know, independent founder-owned practices.

John Tiedmann Jr.: We’re seeing it in things like the call center, right? And how can you be more efficient with, you know, again, this staff problem of turnover and finding people, you know, that, that, that, that can and, and want to work in that environment and being supplemented with AI. Even before AI, a lot of that was going to, you know, sort of offshore solutions because those are just hard roles to keep in place.

John Tiedmann Jr.: And so are you doing those kind of things? Are they working? Are the patients engaging with them? Is a huge question, right? Because you can, you know, fire your call center and replace it with AI tomorrow. There are solutions that will tell you that that’s something you can do. But if the patient dials up the phone and just is pressing, you know, pounding zero trying to get to a representative, a live person, and there’s no one there to answer the [00:28:00] phone, and they’re, you know, they’re older in, in terms of the demographic of your patient base or whatever it might be, and they’re not ready or willing to adopt that solution, then you’ve got a problem, right?

John Tiedmann Jr.: And so , um, so yes is the answer. I mean, there, there is a lot of thought being put into this technology piece. What have you done? What has worked? What has not worked? And then how can we… You know, we’re doing that in the reverse, right? So we’re representing the sellers, and a lot of our questions to the buyers are, “What are you gonna do, um, once you’ve taken over kind of the day-to-day operations of the practice?

John Tiedmann Jr.: What systems are you gonna implement?” Are, you know, obviously converting EMR or whatever that might be is, is, is kind of par for the course but, you know, of the systems you plan to implement, you know, tell us about how you picked that system versus their competitors. Why did you choose to replace this workflow with technology?

John Tiedmann Jr.: You know, help us understand how it’s working. What has the experience been? Are we gonna, are we gonna experience [00:29:00] downtime? Right, when you convert EMRs, there’s often a per- a long period of downtime or s- you know, a slowdown in practice production while people are getting up to speed with the system.

John Tiedmann Jr.: Similar concept. Is that gonna happen when we adopt, you know, pick your technology solution and, and, and, and what’s that gonna mean to all of us as a result, right? So it, it, that, that actually goes both ways

Erik Sunset: Yeah, the, the EHR downtime. Yeah, that’s, uh, you’re bringing back bad memories, John. Uh, the, the clinical conversion that never went really how you wanted it to, and then even, like, generally the ninety-day wind down on AR in one PM system to the next, uh, until you can take it live. That’s, uh, you need help doing that.

Erik Sunset: That’s tough to undertake on your own. Um, and, and to further your point on the AI piece, excuse me, are you seeing, uh, any sort of general categories emerge when you’re asking questions like, “Hey, we’ve, we’ve got this EHR, it’s table stakes now. Everybody’s got their own EHR and PM.” But when you’re, when you’re gonna take possession and begin operating this business, are [00:30:00] you seeing a sort of a broad category of AI that’s being generally talked about?

Erik Sunset: Or is it more of a point solution like, “Well, we need to see what they got, uh, and how it works, and then we can make that recommendation”?

John Tiedmann Jr.: The latter. I don’t think we’re there yet where anybody is like uniformly we’re doing this, this, and this. Um, I, I think we’re still in a, a discovery mode of what works. Different things work in different markets. Different things work in different specialties. Uh, so I think that for, you know, these buyers to be at the point where they’re carte blanche saying this, this, and this are working…

John Tiedmann Jr.: We actually had an experience recently where a buyer came in, said, “We, we just piloted this program. We’re gonna implement it across all of our practices.” My client said, “That’s funny. I piloted that program. We thought it was great. We deployed it, and it doesn’t work. Here’s the reasons why it doesn’t work.”

John Tiedmann Jr.: And the buyer went back, asked those specific questions, tested those specific things that my client [00:31:00] had identified as pain points in the deployment and use of this system, and they scrapped it, right? So it’s, it’s, uh, all these solutions can and will be great eventually, but we’re still very much on the front end where, where I, I don’t think that there’s, there’s too many things in that regard that are yet uniform.

John Tiedmann Jr.: But there are a lot of things that work in certain cases or certain markets or certain specialties and, and slowly we’re moving in that direction.

Erik Sunset: I’d be curious if you have any thoughts on this. AI’s been a hot topic on this show for a couple years now. It’s hard to believe we were talking about LLMs like they were the, uh, you know, the cure-all, you know, back in twenty twenty-four. Uh, but in recent episodes, we’ve had some interesting, um, experts come on. You don’t always need AI. A solution might have AI, but you shouldn’t be gravitating just towards AI. Like, gravitate towards what you’re trying to solve for, not necessarily that a product has AI or not. ‘Cause to your point, you know, some of them work really well, some of them don’t, and some [00:32:00] of them don’t really work at all. And then the twist on that is some of them don’t really work that well at all unless this organizational change is coming down from the top. You can’t have the mid-level trying to sell down for this AI adoption, and then the top levels of your organization are like, “What is the point of this? It’s prohibitively expensive.

Erik Sunset: I don’t think it does it any better than I can do it.” You know, so on and so forth. Are you seeing any, uh, conversations flow towards that? That if we had just done it better, it would’ve worked or the opposite maybe?

John Tiedmann Jr.: Yeah, I mean, I think that’s a, that’s, that’s a natural, especially in the, the older half of the physician population is like, do we, like, do we really need a solution for the sake of a solution, or is there something we could change in our workflow that would fix this problem? That is a, that is a, for sure, a con- a conscious decision and a con- and a conversation that’s happening is, is right now there’s a lot out there.

John Tiedmann Jr.: There’s a lot being pushed on everybody everywhere you go. Pick your conference, there’s [00:33:00] vendors of every sort trying to solve your problems for you. Uh, and, and, and there’s nothing wrong with that. Um, and, and, and I hope that they do, you know, in a lot of ways solve a lot of problems. But there are, you know, the, there…

John Tiedmann Jr.: Once in a while, it’s just, hey, maybe we need to tweak this workflow or how we’re thinking about this, or maybe we have the wrong person in the seat, or maybe the, you know, the training wasn’t right and, and they’re missing something. And, you know, it’s, it’s simple fixes like that, that, that can go a long way

Erik Sunset: Sure. Sure, and thanks for letting me drag you all around on, on the

John Tiedmann Jr.: Sure

Erik Sunset: just, it’s what the people wanna hear about. They wanna hear different perspectives because if you talk just to vendors, you know, it’s gonna do everything for you, whatever you want. It’ll watch your kids, it’ll wash your

John Tiedmann Jr.: Mhm

Erik Sunset: yeah, it’s AI, of course it can do that, but that’s just not always the case. So bringing us back to our central theme, um, that if you’ve got a group, a physician group, a PPM, if a group is two or three years from a potential sale, what’s the one operational fix you tell them to make today?[00:34:00]

John Tiedmann Jr.: operational, um

John Tiedmann Jr.: I would say Ensuring that the quality of your data is as good as it can be. And, and that means two things. You have billing data, and you have financial data. And if I go into your billing data and add up a year’s worth of collections, and it doesn’t match what your financials say, that’s a problem. And that’s a very simplistic example, but, uh, you could imagine, you know, all the iterations of that, that we run into.

Erik Sunset: Yeah

John Tiedmann Jr.: and, and until and unless you can bridge that gap, there’s not, you know, a lot we can do for you, meaning you’re, you’re gonna take a pretty big hit if you try to go to market in that situation. And, and, and, and a lot of times this arises from, you know, you might have an internal billing team who’s inputting this, you know, data into the billing system, and then you maybe have an external accountant who is [00:35:00] compiling your financials for you.

John Tiedmann Jr.: And things are happening, you know, between the billing people and you and the accountant and back. And, um, and just making sure that that data is as clean and as usable as possible will do wonders for, you know, what you’re trying to do in a process. Um, I think that’s, that’s probably my biggest, uh, piece of advice to folks is, is just make sure the house is in order and, and, and clean.

John Tiedmann Jr.: And then once you have that, then you’re looking at things like, you know, how can I optimize, you know, X, Y, and Z, right? Is it, is it, is– Maybe I’m using a third-party billing company, and I should be doing it myself, and I can hire a few people that do it better, and I can collect more on that, right? Or maybe, um, maybe I wanna explore one of these offshore or AI-based call center options or something like that, right?

John Tiedmann Jr.: Those are all cherries on top once you [00:36:00] sort of have the, the blocking and tackling down, which is to make sure that, you know, someone who looks at your financial statements can understand kinda what your business does year to year.

Erik Sunset: On, on such things valuations are made. I mean, I’m sure you come across this from time to time that, “Hey, I’ve got this great practice. I’m ready to sell some or all of it, and I can’t wait to partner with private equity. Here’s all my stuff.” And it’s the, the math isn’t adding up. You know, you can’t square the circle.

Erik Sunset: “Oh, man, but it’s a great practice. See all my, my waiting room’s full. I’ve been doing it for 20 years.” like, “Doc, man, if your financial statements are a mess, nobody’s gonna wanna buy it for what you’re asking for

John Tiedmann Jr.: Right. If they’re written on a napkin, then it’s gonna be tough, a tough putt. And I will say, I will just add for folks who are listening, who are looking at just, you know, something two or three years down the line, outside the operational kinda back office stuff, I mean, the things that people are looking at right now as far as buyers and where they’re ascribing value, obviously you wanna have a tr- you know, a trajectory of growth.

John Tiedmann Jr.: Growth means recruiting [00:37:00] providers, right? Because at some point any provider is full until and unless they can invest in some sort of efficiency mechanism. And so can you recruit providers? And what that leads to is a diversity of revenue where there’s not just one, you know, one physician generating the preponderance of the revenue because that creates risk from the buyer’s standpoint.

John Tiedmann Jr.: We have a lot of clients who say, “What I produce, three million or five million a year,” or whatever it is, and that’s great if you have eight other doctors who also do that. Um, if you’re the only doctor in the practice doing that and everybody else is at five hundred grand or a million, that gets a little scary to buyers.

John Tiedmann Jr.: So diversifying your revenue streams, diversifying across services. For example, if you’re in dermatology, you’re adding the med spa, right? Or things like that where there’s, you know, you’re getting away from insurance and adding in some cash pay. All these kinds of things are, are the things that, that buyers are looking at right now and, and, and, and the, the, the best practices are, you know, quality, cl- clinical [00:38:00] quality number one, diversity of revenue streams, track record of, of growth somehow, some way.

John Tiedmann Jr.: You know, um, demonstrated investment in de novos or new equipment or new service lines, so on and so forth. Um, or even, you know, a surgery center if you’re in a, a specialty where that makes sense. Um, those are all the things that, you know, on the, the more qualitative side that, that, that these buyers are all looking for

Erik Sunset: That’s again, very, very well said from your, from your expert seat there. We’re kinda getting to the tail end of our, our chat today, John, but before you go, um, you gotta get out your crystal ball, you know, look into the future as, as best you can. You know, in terms of multiples, and maybe a quick primer for our audience on, on what exactly we’re referring to if they’re not familiar.

Erik Sunset: But in, in terms of multiples, what do you think the hottest specialties are gonna be, uh, uh, in terms of a multiple between now and the end of 2027?

John Tiedmann Jr.: Um, so just quick primer. Um, your, you know, [00:39:00] practices are valued at a multiple of EBITDA. EBITDA is your cash flow, right? So your cash flow is, is, depending on your specialty, derived by a compensation model on a go-forward basis. All of our clients take all the money home, um, every year, and so their cash flow technically looks like it’s zero on their P&Ls.

John Tiedmann Jr.: We adjust that to a market-based compensation formula, which unlocks a certain level of profitability in the practice. Uh, we then, you know, when it comes to evaluation, uh, we’ll apply a multiple to that EBITDA number to get to an enterprise value. And so depending on your specialty, depending on the size of your practice, depending on your region of the country, uh, depending on how diversified your revenue is and all the things I just talked about, um, and your propensity for growth, um, buyers will ascribe that multiple to the EBITDA to derive your value, right?

John Tiedmann Jr.: And so the val– the, the… on a relative basis, value is measured in [00:40:00] multiples. Uh, and so certain specialties might trade in the mid, you know, mid-single digits. Certain specialties might trade in the high single digits. Larger assets typically trade for higher multiples than smaller assets, right? So things that are already private equity backed probably trade for a higher multiple than something that is, um, you know, founder-owned.

John Tiedmann Jr.: But that’s not a bad thing because when you’re a founder and you sell to a private equity firm or a strategic backed by private equity, you get rollover equity, and you participate in that next transaction at the higher multiple. Um, but to answer your question, Erik, I think, you know, over the next eighteen months, call it You know, I, I think if you are, if you’re a sizable, like in particular rheumatology, if you’re a, a large surgery center like we talked about, some of those that can, can and will generate interest from private equity directly as potential new platforms, um, or in the case of rheumatology or retina, um, [00:41:00] urology, oncology, some of the specialties where the drug distributors would take an interest, I think those are probably gonna garner the highest multiples over the next eighteen months.

John Tiedmann Jr.: Um, I think, you know, some of the specialties that have been the stalwarts, the dermatology, the, um, um, you know, plastic surgery to an extent, um, you know, in… and, and ophthalmology, eye care, um, you know, will be, you know, middle to upper middle of the pack. What I tell clients today is we’re, you know, all-time high valuations were twenty twenty-one.

John Tiedmann Jr.: There was so much dry powder sitting on the sidelines in COVID. People had such a frenzy to put that money to work. Money was as cheap as it will ever be in our lifetimes. It was a perfect storm of to– of peak valuations on average. But what I tell all my clients in any specialty is there are buyers in every specialty, and all of them are focused today on the quality of the asset, which [00:42:00] includes the quality of the clinicians.

John Tiedmann Jr.: It includes the diversification. It includes all the things that I’ve talked about. And for the highest quality assets, the upper quartile assets in every specialty, you can still get to where we were in twenty twenty-one or close. Um, but you gotta be, you know, the top of your game, big practice growing, um, you know, diversified, multiple providers, so on and so forth, and you’ll get there.

John Tiedmann Jr.: Um, and, and, and so it’s, it’s a little bit specialty agnostic in that way, but some of the ones I mentioned I do think will outperform

Erik Sunset: Well said, and boy am I glad I had you give the primer on valuations and multiples and I didn’t take a stab at it W- well, John, before we wrap up here, is there anything that we wanted to let the audience know that we didn’t yet cover?

John Tiedmann Jr.: No, look, I think we hit on a lot of it. I, I think, you know, if you’re someone who’s looking at the macro environment, you know, the, the war, the interest [00:43:00] rates, whatever you might be looking at and worried about, I think it… are, are fair things to look at and be worried about. That being said, in times of crisis, down markets, you look at what happened in 2020 in COVID, the benefit of being in healthcare, and especially in the provision of healthcare, um, is that those assets tend to rebound the quickest, um, and, and get back to sort of peak volumes sooner than other specialties because those services still need to happen.

John Tiedmann Jr.: Um, you know, it’s, it’s, it’s, it’s not as much picking what you’re spending your money on as it is I’m sick and I need to get better, right? And, and, and so, um, as unfortunate as that situation is, if you look at it from the business side or the investing side and the private equity side, um, based on what we’re seeing in the market, we don’t worry as much about those existential threats as, as, as most people or, or, you know, in other industries.

John Tiedmann Jr.: Um, and so I would, [00:44:00] you know, I would, I, I guess I would take solace in that if you’re someone considering selling your practice right now, is that it’s, it’s, um, it’s still a, it’s still a decent market, a, you know, pretty good market for, for, for sellers right now

Erik Sunset: You’re curious about, uh, dipping your toes into those waters, John, where can they find you? Where can they follow you on social? What website can you send them to?

John Tiedmann Jr.: Yeah, uh, physiciangrowthpartners.com. Um, we just launched our new website. There’s plenty of content and, you know, white papers and educational resources and, um, all of our phone numbers and give me a ring and we can chat. But, uh, yeah, physiciangrowthpartners.com is the best place to go.

Erik Sunset: Make sure that link makes it into the show notes. John, thanks for joining us today

John Tiedmann Jr.: Erik, thank you so much. Appreciate it

Erik Sunset: It’s absolutely our pleasure, and on behalf of the entire DocBuddy team, we wanna thank you for listening. Until next time, I’m your host, Erik. We’ll talk soon