GHA: Congratulations on your recent formation of USOA Strategic Capital. What were the main drivers for your entry into orthopedics and how did this deal come about?

Castleford Capital: Orthopedics is a specialty that is going through a number of changes, leading physicians to seek resources to help them navigate the evolving environment and grow. The advent of value based care, the need for scale, movement of procedures to the ASC, increasingly complicated payor negotiations, and competitive hiring are just some of the factors facing orthopedic practitioners today.

US Orthopedic Alliance provides services that enable orthopedic practices to meet the challenges of today and address the future. Combining the operational offerings of US Orthopedic Alliance with healthcare investment expertise from Castleford Capital brings a full suite of services to orthopedic practices to help them navigate challenges and achieve their goals.

GHA: Did the COVID-19 pandemic affect your deal process with USOA, and will it have an impact on how you value practices this year?

Castleford Capital: COVID-19 did not have an impact on the formation of USOA Strategic Capital, as the underlying rationale for investment is robust. However, when we think about the investments to be made and the managing those investments, COVID is definitely a factor.

Through the end of 2020, practice volumes returned to 90%+ of pre-pandemic levels after hitting rock bottom in March. The practice procedures to deal with COVID took some time and careful thought to implement, and it also took time for patients to develop confidence that their provider was managing the COVID risk.

With the recent surge and shutdowns in certain geographies, practice volumes are bound to be impacted in the short-term. However long-term demand will return. Promise of the COVID vaccines’ effectiveness will add to the confidence.

From a valuation standpoint, given the competitiveness in the sector, we don’t see COVID impacting valuation multiples.

GHA: What would you describe as USOA Strategic Capital’s main differentiators when speaking with potential practice partners?

Castleford Capital: The response from orthopedic practices to US Orthopedic Alliance Strategic Capital has been overwhelmingly receptive and positive. The combination of an operating services platform with capital specifically focused in orthopedics is a compelling offering. We seek to support individual practices with their goals, rather than trying to sell them into another consolidating platform. While we are not everything for everyone in orthopedics, our focus on backing independent orthopedic practices and their physician leaders is a strategy that resonates with growth oriented teams.

GHA: What are some factors you take into account when examining partnerships with orthopedic practices?

Castleford Capital: First and foremost is that we back growth-oriented physicians and their management teams that are committed to delivering high quality orthopedic services to their communities. The vision of the practice, the leadership qualities within the practice, competitiveness within their locale, and willingness of the physicians to buy into a growth strategy all rank high on the list of qualities we seek.

GHA: Given recent CMS policies and the coming end of the inpatient-only list, how critical are ASCs to USOA Strategic Capital’s strategy?

Castleford Capital: The changes in CMS policies continue the trend towards moving certain orthopedic procedures into the ASC. While the change is important, physicians must also want to operate in the ASC as opposed to other venues. Creating an attractive environment to practice and having patient care metrics that surpass other venues are key factors for physician usage of an ASC.

GHA: How do you see the move to value-based care playing out this year in orthopedics, and has that been affected by the pandemic?

Castleford Capital: Value based care usage metrics continue their upward trend as far as adoption and contracting. Specialties often have more challenges moving from fee for service to value based care than generalists, like family medicine and pediatrics, as they are only looking at an episode of care.

ASCs are also critical in the move to value based care. The environment is specific to the specialty and controlled to maximize adherence to value based care factors.

GHA: How have you found the shift to value-based care in orthopedics in the context of payor relations?

Castleford Capital: Payors see the options for care in a geographic region and make decisions based on the quality of the service and the overall cost versus the competition. CMS and other payors are developing new reimbursement models. As practices scale, they have the ability to add the back office functions that support the information needed to make value based care work. These abilities include the management of analytics, care coordination, patient engagement, cost controls, and standardized and repeatable operating procedures.

GHA: Do you expect continued consolidation in orthopedics this year and ahead?

Castleford Capital: Consolidation will continue as leading platforms look to broaden their capabilities and geographies. Achieving scale is important to maximize the benefits of value based care.