Cardiac care first hit WindRose Health Investors’ investment radar about five years ago. But it took until March to make its first acquisition in the space. The New York shop finally decided that support services, rather than rolling up medical practices, were the best play in a space where PE continues to invest heavily.
WindRose’s investment thesis is simple: Nearly 20 percent of cardiologists work outside of hospital ownership and need back office support.
Meanwhile, a growing number of cardiologists working for hospitals are unhappy with their arrangement and would welcome more independence.
“Cardiologists are increasingly interested in independent practice,” says WindRose Co-Founder and Managing Partner Oliver Moses. “Living under the hospital system umbrella, and the controls over their practice patterns, frequently wears on them.”
Having ancillary services and back office systems like billing, human resources and medical records in place makes working independently easier. That’s what CardioOne provides, which WindRose acquired in March.
“CardioOne can be of assistance to a young cardiology business. It collects their revenue and provides them an electronic medical record system tailored to how they practice,” Moses says. “It helps them manage their practice and staff.”
The CardioOne acquisition also fits into WindRose’s investment strategy of targeting growing companies in the “big-spend” end of the healthcare pool. Moses estimates that 25 percent of the $4 trillion global market can be easily cut as waste.
“This is an industry that’s getting dragged into the 21st century with the application of better processes and technology,” he says. “And that’s where a lot of our portfolio companies spend their time and energy: driving innovation into this large-end market.”
WindRose has investments in addiction treatment, mental health and healthcare services. It invested $85 million in kidney disease monitoring company Healthmap Solutions in 2019 and was the lead investor in a new $100 million investment last year.
But it didn’t have an investment in cardiology, even though WindRose started looking at the sector about five years ago.
“Cardiology is another big area of spend, and has been on our mind for a while,” Moses says. “But how to get it at was the big question.”
Cardiology is one of the most lucrative medical specialties in the United States. Executive search firm Merrit Hawkins surveyed hospitals and found the average cardiovascular surgeon is driving $3.5 million in annual hospital revenue. Cardiology’s $400 billion market is expected to grow to $750 billion over the next 10 years.
The CardioOne acquisition comes from WindRose’s sixth and most recent fund, a $1.4 billion vehicle that closed last year and was double its $705 million fifth fund.
Many of its same investors recommitted. The fund’s LPs include pension plans, insurance companies and university endowments like the University of Alabama, which committed $15 million.
An aging population increasingly seeking cardiac care coupled with a rapid shift to high-priced outpatient procedures is making cardiovascular healthcare a particularly appealing PE target. Heart disease is the number one cause of death in the U.S. and is one of the largest drivers of healthcare spending.
The Centers for Medicare & Medicaid Services in 2020 helped launch the current PE land rush into cardiac care when it authorized performing a pricy procedure in an office versus an in-patient operation in hospitals. Several other procedures can now be performed in an office as well.
This switch caught PE’s attention the same way as the highly profitable sectors of radiology, dermatology, emergency medicine and gastroenterology. Cardiologist rollups and other PE transactions in the space reached record numbers in the last two years, according to Pitchbook data.
Webster Equity Partners, Lee Equity Partners, Deerfield Management and Ares Management have each acquired cardiologist practices since 2022.
Nonetheless, WindRose didn’t want to join the roll-up trend. It saw too many pitfalls, including the oversized leverage that doctor partners hold in most PE investments. If they decide to quit, many of their patients leave with them. Plus, increased federal government scrutiny and a hodgepodge of state regulations doesn’t help.
In the end, Moses says, WindRose is betting on doctors’ desire to manage their own practices.
“A lot of them don’t want to be owned by a private equity fund, no more than they want to be owned by a hospital system,” Moses says.
Contact Oliver Moses at [email protected]
