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Expert Voices see a new exit strategy

The next frontier of value-based care may be in specialty care, health care dealmakers said at the Axios BFD on Wednesday.

Why it matters: As value-based care frameworks expand out of primary care, myriad sponsor-backed specialty physician businesses may now have a new exit thesis.

What they're saying: "Primary care companies are getting large enough, with enough lives that they'll say, 'Let's start bringing these specialties in-house," said VillageMD CFO Ross Levine, speaking at the BFD's Health Tech Expert Voices roundtable.

  • "We're starting to see value-based care in specialty areas," said Clayton Dubilier & Rice Partner Ravi Sachdev, who sits on Agilon's board.
  • Sachdev and others cited oncology and musculoskeletal care as logical specialty areas for risk-management arrangements.

Between the lines: There's a science to getting it right, says Arsenal Capital Partner John DiGiovanni, drawing a comparison to private equity's PPM rollup thesis.

  • "There's a 'J' curve, and thats why there's some resistance to specialty areas," DiGiovanni said. "The savings are there, once the incentives are right."

Yes, but: Not every specialty is ripe to be tucked into a VBC framework.

  • "Nobody here is talking about doing value-based child psychiatry [for instance]," said Oak Street Health Chief Medical Officer Griffin Myers.
  • "Value capture requires value created, so we need to figure out the loser on that side of the transaction," he said.

State of play: Though market activity for specialty physician groups has slowed as the debt markets have tightened, a handful are looking at their exit options now. These include:

Meanwhile, health care executives aren't sweating the Amazon effect, even after the e-commerce giant's $4 billion bet on primary care player One Medical earlier this year.

  • "Amazon brings capital and tech, but they don’t bring what’s required — physicians or patients," said Ruben King Shaw, chief strategy officer of health system Steward Health Care

The intrigue: Amazon's primary care disruption will create some pricing incongruity, Arsenal's DiGiovanni warns.

  • "We're entering a recession," he said. "It's going to affect the pricing of smaller deals, and you can see some erosion and potential for arbitrage at the lower end."

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