Getting smaller, more focused and paying close attention to changing rules is OrthoCarolina’s strategy to thrive in a healthcare sector increasingly dominated by larger organizations.
Over the past six months, the Charlotte-based independent physicians’ practice has sold its physical therapy and imaging businesses, which together employed more than 300 people.
Meanwhile, the business is doubling down on its business of providing orthopedic care, with plans to complete more procedures at its own ambulatory surgery centers rather than N.C. hospitals. OrthoCarolina was formed by the 2005 merger of Charlotte Orthopaedic Specialists and Miller Orthopaedic Clinic. It now has 1,600 employees, including 133 physicians and 122 physicians’ assistants. They work at 33 clinics and two surgery centers.
“Like every business, we can’t do everything,” says CEO Leo Spector, who juggles his leadership role while also performing surgeries. “We’ve got to focus on our core competency. We don’t want to be GE and have to sell everything off.”
Physical therapy is a natural complement for an orthopedic surgery practice because mangled limbs often need lots of rehab. But OrthoCarolina concluded that it was a low-margin business with rising costs, and reimbursement rates set by government and private payers weren’t increasing fast enough, Spector says. In February, it sold its 24 clinics to Atlanta-based PT Solutions, which is partnering with Charlotte-based Novant Health on the business. Terms weren’t disclosed.
As for imaging, Spector says it’s become a commodity business protected by North Carolina’s certificate-of-need (CON) laws, which blocks newcomers from adding MRI machines without state approval. But lawmakers have repealed certificate-of-need for imaging services at the end of this year, which is expected to spark new entrants more and lower prices. That’s good for consumers, and maybe less good for imaging vendors.
In April, OrthoCarolina sold its imaging business to a joint venture of Novant and Atlanta-based Medquest for undisclosed terms. The deal included 18 imaging sites in the Charlotte and Triad areas.
Meanwhile, the state has also repealed certificate-of-need requirements for ambulatory surgery centers, or ASCs. That’s where OrthoCarolina expects to invest much capital in coming years, complementing its relationships with hospitals. It now owns two surgery centers, has joint ventures or management agreements with six other sites and expects further expansion, though Spector wouldn’t share details.
Fewer than 50% of OrthoCarolina’s surgeries now occur in those ASCs, but that will likely increase to as much as 80% in coming years. Because of population growth, the Charlotte region needs twice as much capacity for surgeries as now exists, OrthoCarolina believes.
More surgeries out of the hospital likely means a tenser relationship with hospitals, who may lose significant revenue. Orthopedic, cancer and cardiac care have traditionally been the key drivers of hospital revenue, and North Carolina’s big hospital systems employ orthopedic physicians who compete against OrthoCarolina, Raleigh-based EmergeOrtho and other private groups.
But cost pressures are accelerating the trend. “Payers won’t pay hospital rates for surgeries done at AN ASC. That’s where the puck is headed,” Spector says. Still, he says his practice is working amicably with Novant Health, Atrium Health and CaroMont Health in the Charlotte area.
Meanwhile, OrthoCarolina is bucking the industry trend of aligning with private-equity investors to finance growth. The physician-owned group doesn’t disclose its finances, but it is a fraction of the size of major insurers and N.C. hospital systems.
OrthoCarolina considered PE funding in the past five years, but concluded it didn’t need the money and didn’t want to risk the upheaval that such a combination could spark. “Our goal in five or 10 years is that we want to be a very strong, physician-led organization,” Spector says. The decision aligns with the group’s longstanding mission of providing value and access, while staying nimble. “There’s that saying, ’What gotcha here won’t get ya there.’ ■
David Mildenberg is editor of Business North Carolina. Reach him at dmildenberg@businessnc.com.