GRAND RAPIDS — Backed with capital from a Chicago private equity firm, Grand Rapids Ophthalmology PC plans to expand across Michigan and eventually into neighboring states.
Sterling Partners’ investment in Grand Rapids Ophthalmology coincided with the formation of a medical service organization, Great Lakes MSO, that will look to acquire complementary practices in the state and across the Midwest.
“We’re very much growth investors,” said Dan Hosler, a principal at Sterling Partners and senior vice president of strategy at Great Lakes MSO, which will be based in Grand Rapids. “We think there’s an opportunity to continue to grow all of the comprehensive elements of eye care.”
Sterling Partners will focus on growing the clinical expertise of Grand Rapids Ophthalmology with more specialty and subspecialty eye care and expanding its geographic footprint.
Formed in 1982, Grand Rapids Ophthalmology has nine offices in West Michigan and employs 18 optometrists and 11 ophthalmologists. The practice includes optometry, retail optical, oculoplastics, cataract surgery, and retinal subspecialties.
The geographic growth initially will occur through additional locations in Michigan, and then across the Midwest. Hosler said regional expansion will come as the organization pursues an M&A strategy in a “very fragmented” industry. M&A will account for three-quarters of the growth, with the rest coming from the opening of new locations “in geographies where it would kind of make sense to backfill,” he said.
“We definitely have initially a Michigan-centric focus,” Hosler said. “There’s definitely a desire to continue to expand throughout Michigan, but we’ve had other folks reach out to us throughout the Midwest.”
Hosler notes the name of the holding company, Great Lakes MSO, indicates “that we really want to be known as the leading eye care provider throughout the Midwest.”
Sterling Partners, with more than $4 billion in assets under management, invests in middle-market companies involved in the health care industry and business services.
Terms of the investment were not disclosed, although Sterling Partners committed to additional investments beyond the initial amount, according to Grand Rapids Ophthalmology Executive Director Bob Wolford.
Aside from growth capital, the Sterling Partners investment gives Grand Rapids Ophthalmology expertise to better adjust the business to changing reimbursement practices that favor larger organizations and reward care providers for quality and outcomes, Wolford said.
Changes in reimbursement are intended to drive up quality and improve costs. However, those changes require care providers to gather, analyze and report patient data to payers, plus monitor outcomes faster. Providers must “make changes and be more responsive to the patients’ needs and health care systems’ needs,” Wolford said.
“It’s part of the future,” he said. “This allows us to have the expertise to be a significant player and be a contributor to the solution as time plays out.”
The pressures from the changing economics, a tougher reimbursement environment and value-based contracting in health care have been driving consolidation for some time among physician practices, said Rajesh Kothari, managing director of Southfield-based investment banking firm Cascade Partners LLC that advised Grand Rapids Ophthalmology on the deal.
That consolidation trend is now pushing into specialties such as ophthalmology, dermatology and emergency medicine practices, Kothari said.
“It’s harder and harder as a small practice to be able to compete against the insurance companies, compete against the hospital systems and ultimately live with the changing world of Medicare and Medicaid,” he said.
A report Cascade Partners issued last summer noted the aging population is driving up incidence rates of macular degeneration, cataracts and glaucoma. It also cited health care reform as expanding the number of patients with vision benefits. Combined, those two trends are driving opportunity for the entire vision market.
“Eye care is a very fragmented market and there’s no big consolidator,” Kothari said.