We’ve seen it happen all over the country and you’ve probably seen it in your backyard--clinics are merging and consolidating, absorbing the market share. But with the fall of IntegraMed in the spring of 2020 and dozens of clinics left in the lurch, mergers and consolidations started to appear more risky.
On this episode of Inside Reproductive Health, Griffin talks to Mark Segal, CEO of Shady Grove Fertility and CEO of the newly-formed US Fertility, a fertility group made up of Shady Grove Fertility, IVF Florida, RSC of the Bay Area, and FCI in Chicago. Despite forming in a pandemic and after the IntegraMed news, US Fertility’s partnerships thrive--and are geared to keep growing, especially in the next 18 months. So what does that mean for the hundreds of smaller clinics that continue to remain in the field?
*An important note here: US Fertility does not consider themselves a network, rather a partnership amongst clinics.
You can find Mark Segal on LinkedIn and learn more about US Fertility by visiting USFertility.com.
To learn more about our Goal and Competitive Diagnostic, visit us at FertilityBridge.com.
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Welcome to Inside Reproductive Health, the shoptalk of the fertility field. Here, you'll hear authentic and unscripted conversations about practice management, patient relations, and business development from the most forward-thinking experts in our field.
Wall Street and Silicon Valley both want your patients, but there is a plan if you're willing to take action. Visit fertilitybridge.com to learn about the first piece of building a Fertility Marketing System--The Goal and Competitive Diagnostic. Now, here's the founder of Fertility Bridge and the host of Inside Reproductive Health, Griffin Jones.
JONES 2:41
Mr. Segal, Mark, welcome to Inside Reproductive Health. I remember one time I called you Dr. Segal. I don't know if you remember this. It was before I knew very well. But I was giving a talk and you asked a question and I pointed at you and said Dr. Segal and you laughed and I didn't know why. And so that introduction made me think of it. I have on Mark Segal with me, who is the CEO of Shady Grove Fertility for many years and now, of US Fertility network. I think for some people, Mark, they probably think you still are at Shady Grove. Shady Grove is affiliated with US Fertility, but for some people, I think this will be news to them, even though it's been the last several months or years. So that's kind of transitioned. And as far as I understand from your LinkedIn profile, they are two separate things now. So can you give some background of your experience with Shady Grove and then how that turned into your role at US Fertility?
SEGAL 3:39
So first of all, that you did remind me about the doctor part--that was kind of amusing, and I think it would have made my mother proud. I'll say that when I think of it in terms of years, and I've been close to 25 years in the specialty. Most of that been with Shady Grove Fertility--the CEO of Shady Grove Fertility, and saw that grow from, I guess it was 20 people at the time, employees at the time, to almost 1000. It is remarkable what's kind of occurred over those years and certainly, I mean incredibly grateful to this specialty for everything that it's given me and awarded me. In the creation of US Fertility, actually I think came about--well, it really came about as a result of the bankruptcy of IntegraMed, but in many ways it started much sooner than that. The four groups that represent US Fertility which is of course, Shady Grove Fertility, IVF Florida, RSC Bay Area in San Francisco and then FCI in Chicago. Many of us have known each other for many, many years and friends as well before we even became, you know, partners in utility and had spoken about the idea of doing something together. And I think it was just fortuitous that it was in some respects, you know, it was terrible that it occurred, but you know, when the collapse of Integramed, it created the opportunity for us to come together and form US Fertility. So today, I think we're excited about what that possibility represents and in the future of the organization, which again, represents approximately about 10% of the total ART volume in the United States. So it's a sizable group.
JONES 5:50
Creating a new network with these four groups in the wake of Integramed, as you look to grow and to expand and perhaps even with the teams that you currently have, how do you transition into this is really something new and this is a different venture versus it's the same thing that failed with a different label on it?
SEGAL 6:17
It's a great question and something that I think I get asked about a lot. First of all, I think having a front row seat with Integramed for those years gave me a good insight in terms of what I think works and what I think that didn't work. And there were clearly a lot of things that did work. I mean, you can't dismiss Integramed completely and say, you know, it was a failure, with a lot of things that did work. But unfortunately, there were a lot of things that didn't, and ultimately led to the demise. The one thing I think that stands apart is the fact that Integramed was different from the early years. In the early years, there was much more physician involvement. And then in the, say, last decade, the physician involvement kind of went away, and it became pretty business and nothing else. And that was obviously problematic. So it also created--there was this environment of what I would call lack of transparency, and clearly a lack of inclusiveness, you know, an us versus them culture. So when I look at kind of the failures of Integramed, I was quick to identify with say, we're gonna form something new, it had to be a true partnership, not a network, and you actually won't, you won't hear me, certainly not intentionally refer to this as a network. We see ourselves as one true partnership. And by that it is physician-led decision. There's some physician involvement at every level, including on the board. This was significant physician representation there. And that I think already has changed the whole trajectory and culture of the organization.
JONES 8:09
So, how do you keep that--and I think of, you know, like, you mentioned that happened with Integramed over time, that it became more about business, less about physician input. I don't suspect that they set out to do that. So what are the telltale signs that you look for that happened there perhaps or that could happen that you're going to make sure that you retain this physician focus partnership over time?
SEGAL 8:35
Well, I think it's, again, I think it's a hallmark of the group, recognizing that we need to maintain, you know, physically, again, we talked about it being physician-led today, it's for majority physician, those are important drivers in terms of I think, you know, where we see the future of the organization, in terms of how we maintain that. The governance structure model is one we're physician ownership and participation is mandated. So, we already set that out in writing, just from an organizational perspective and structure that can't be changed. And I think that the beauty about the game having the physician input and involvement is, obviously, reproductive endocrinologists--incredibly smart, bright people. They have excelled for the most part in all walks of life. And so their participation and input is always been I thought, you know, one of the greatest values of a partnership like this, and again, not to draw comparisons to Integramed, because that's a chapter that I'd like to close the books on at this point. But, you know, ignoring that component was just such a failure. I look at it as I'm not going to agree with everything that or know that physicians may have a say about a particular issue. I think that is a positive, I don't think it's a negative, you know, having the right dialogue, the right discussion around a particular issue, and coming ultimately to the right conclusion based on appropriate data, I think that drives really good decisions at the end of that.
JONES 10:19
One thing that I see you won't use the term network to describe your partnership. But one thing that I see networks struggle with is that it's not immediately obvious where the network's role ends and in the end, the group's autonomy begins. So you have four really distinguished groups in very different parts of the country. You formed this partnership together. Where does US Fertility start and end? And then where does FCI and Shady Grove and your South Florida and Bay Area partners start and end?
SEGAL 10:55
Yeah. So look, again, the questions. Each of these practices are, in some respects, certainly unique. They have very strong brands, and they're in their respective markets. And I think physicians within those groups are very proud of their brands. When we talk about us as a partnership, that's because we are vested in each other's success, right? Physicians are not only owners in their individual medical practice, but they're also owners within US Fertility which is the management services organization at the end of the day. So we look at it in terms of how do we drive best practices? Each of these groups have something to offer. And again, sharing of great ideas, great data, that transparency aspect, sometimes it makes people uncomfortable, right? Because we put everything up there, whether it's clinical pregnancy rates and outcomes, whether it's patient satisfaction data, whether it may be financial data, it's not intended to embarrass anyone, but it's intended to drive, again, good practice, what is someone doing, that others can learn from?
JONES 12:07
Why did you decide to go this route? Because I imagine that the discussion may have come up of okay, we have the opportunity to partner with these great other groups, and they're great, and they're in established markets. But we're also great, but you know, if you're thinking of yourself, and the people that you started wit, from Shady Grove, I just think--maybe I lack imagination--but I think, okay, I'm gonna have this challenge where the partnership meets the groups, or I could just grow my existing group. And it's Shady Grove Dallas, and then Shady Grove LA, and I imagine that you weighed the pros and cons of all of this, why did you end up choosing the route you did?
SEGAL 12:43
Well, I wouldn't say that. It's not a challenge to bring four independent practices together and then create one larger platform. Of course, that's part of the initial challenge and putting a group like us together. But when I look at it from a Shady Grove Fertility perspective, one comes back to these are physicians that I've known for many, many years, am very comfortable with them and in many cases, many of them are my friends, right? Have socialized with them, etc. And known for many years. So one on that level, already, I'm comfortable with it. On a second, there is the recognition that these are great markets that they're in. And ultimately, I think Shady Grove Fertility would have wanted to be in those markets. Now competing with your friends, not entirely exactly what I'm looking for. So you know, let's do something together. To me, it was almost just a natural fit. It didn't need a whole lot of thought around it. But it was just how do we come together and recognize that we are aligned in the thinking?
JONES 13:46
So what do you suppose the current market appetite is for further consolidation and acquisition? Are we gonna see this start to slow down? Or have we only seen the tip of the iceberg?
SEGAL 13:58
Well, I'll shift from you know, where you are today. And obviously, we think about as an important partnership that we plan to continue to grow and add other great practices to our platform. But let me kind of shift a little bit and look at that question in terms of a more broader context, in terms of, you know, what is the appetite for-- I think your question was in terms of consolidation, where does that kind of go? I think even with the introduction of private equity in the last five to 10 years, the US is still a very much a fragmented market. If you think about it, there are some large groups, networks, platforms that are currently out there right now that are formed. I mean, obviously US Fertility is one of them, but think of, like, CCRM, Ovation, Boston IVF, and Prelude--these groups are becoming larger and gaining more relevance. And I would say that the separation between those type of groups as consolidators and the other medical practices that either wish to be non-affiliated or remain independent. I think that separation has continued to accelerate. The one thing that I was finding an amazing statistic, when I kind of think about some of this is, once again, we're kind of--in response to your question--you think about it this way, this is a very, very small specialty as well now, right? Certainly compared to other specialties, and so there's roughly let's call it 450 or so practices plus in the United States today.
JONES 15:54
Are you including those in health systems in universities?
SEGAL 15:57
I am, yes. In terms of just SART you know, look at the SART groups, yes. So out of that, out of that group, out of the 450, about 16 of those groups represent somewhere around 75 to 80,000, IVF cycles out of what's in this ballpark out of 300,000. So 16 groups represent 25% of the IVF volume done in the United States today. That's the consolidation that's occurring. But if--think about all the others, all the other small programs, you know, the two, three, even three physician type practices that exist out there. And that's where I see still a significant amount of consolidation occurring with the opportunity for consolidation. And not everyone's gonna want to join a larger group and be part of a larger group. That's clear. But there is still you know--it is still a very fragmented market, even though people think about it isn’t. Private equity has been in this space now for years.
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JONES 18:47
So you've laid out, there's a whole landscape of folks that may be ripe for consolidation in that end but in our 16 groups that do approximately 70,000 cycles, there might be five groups that own many of those. Do we think of those five that we're going to see more like SAB-Miller-Coors? So we used to have Anheuser Busch and we had Miller and we had Coors, but then Anheuser Busch merges with InBev. Coors merges with Miller, they merged with South African Brewing. And so do we think that there's going to be more of these? Do we think these five groups or five or six, let's say, are going to go down to two or three in the next couple years?
SEGAL 19:40
So first of all, the discussion regarding alcohol has already made me feel like I need a cocktail right now! But set that aside. It's hard to tell exactly where this will go. It is, of course, very possible that you'll see some of these larger groups it doesn't--your question can they merge within themselves or creating larger groups? You know, if you think about it from the perspective of acquiring or merging in groups--and obviously, this is what what I do, right--the amount of time and effort it takes to acquire merge and a two physician practice is probably the same amount of time it would take for you to acquire or merge in a 10 or 12 physician practice. So at the end of the day, groups like myself and others are going to look and say, there's a scale opportunity, yes, that exists by going off to the fragmented, smaller groups. But there's also a bigger play by trying to figure out how to merge some of the others. Now, the game, each of these models are very different. And that's more that's more difficult in terms of actual practicalities of how that would work. But if possible, certainly.
JONES 21:01
I have my own strong perspective on at least one or two of the factors that are driving this, but certainly not all of them. What's driving all of this, from your estimation?
SEGAL 21:13
I would say that physicians, like every other every other group, humanities is prone to kind of the FOMO syndrome, right? This fear of missing out or being left out. I think there's an element of that, let's just say, recognizing there's something bigger than myself here, and I want to be part of it. That's what I would say just on the surface. But I think largely, it's driven by--and I would, and I would probably back it into kind of three categories. The one is the need for liquidity. And then think about it in terms of, you know, senior physicians or founding physicians that are looking to retire, exit. They've spent their entire professional careers building really great businesses and practices. And now they want to exit and how do they extract some value for that. And the options that most of these physician practices have is to either sell to an existing partner, which may or may not have, or to bring on a new physician with a hope that they'll eventually buy their practice. But those options have become very limited, certainly, in terms of liquidity. So that's the first piece. The second piece is I think there is a need for capital, right? And it's capital for purposes of growth and development and expansion. So that's the other category. And then the third is I'd say, it's the non capital need. It's the access to resources in the form of maybe ART, IT platforms, other resources, talents, talent management, or acquisition, that they're helping drive innovation or things like that. So depending on where a particular group is, or physician founder may be, they may be looking at those types of opportunities. And so when I speak to too many physicians about these types of needs, those are typically what I encounter.
JONES 23:38
It seems to me that the second driver that you brought up of the need for capital for growth, may influence the first driver for other groups of FOMO. And I know that I've become a broken record--I first wrote about this three years ago, I say it almost every other podcast--but I believe part of what's driving this is that the current Fertility Center model for most groups, is not an entrepreneurial venture. It is inherited from the general practitioner model of the mid 20th century or perhaps earlier. And now you have groups that are growth-oriented and are seeking capital to further their growth, that are merging with other groups from across the country. And so then you have the remainder of those, the people having to decide do I want to compete with this one? Do I want to compete with it, too? That's probably different from the FOMO, which is can I get some of this? And I think that when people are put in that position, most people seem to be on the side of, I would rather join them then try to compete against them. That could be a combination of the third driver that you said, which is the non-capital needs. It's like I'm not gonna be able to compete with them. So I need this support as well. And I also don't want to miss out on this while it's happening. Is that a fair--?
SEGAL 25:03
Yeah, I think it is, I would say that there's a list of physicians that I gravitate towards or find an affiliation with is typically those physicians that are more entrepreneurial in nature. They are interested in building something bigger than themselves. They are looking for the platform for growth--how do I get to do what I think I'm good at, which is, you know, seeing patients and being a really good doctor. But also, I want to be building something that I can be really proud of. And so when you can put those two things together for them, and give them the tools and the platform in which to grow, you've achieved exactly what they're hoping to do, right? Which is you found the right partner. And it takes time, because not everyone is in that mindset, I think you're exactly right.
JONES 25:58
Is it the tools? Or is it doing the growth for them? Because I think there are some firms like mine, maybe groups like other consultants, or there are a few others. There are different solutions for being able to grow and maintain equity. But if I sell equity then someone else is also responsible for that growth. So is it helping them grow in many cases? Or is it Hey, I'll do my part, and you keep the machine moving?
SEGAL 26:28
I think, again, I think that's a partnership. I think you got to be able to do both. The way I like to speak about, especially when I'm talking to maybe a new physician coming out of fellowship is I would say to them, you know, we provide you with the tools, both based on experience in terms of what has worked, what hasn't. So these have been pressure tested, and we provide you with the tools in which to help us succeed. But if we just provide you the tools, and you're expecting us to ask whoever it is. management team or the existing practice you will work, that doesn't work. You've got to bring something to the table and drive that innovation, too. You've got to be vested in the success. The worst thing for me is the physician that takes the attitude of what have you done for me lately, kind of thing. You know, we're in this important shift together, I want what's best for you, and hopefully you want what's best for me, and we work together to drive a great outcome.
JONES 27:37
How is all of this impacting practice valuation?
SEGAL 27:41
Well, let me say, if I look at it over a 25 year period, and again, I'm trying not to age or date myself here. But I would say that in the game in 25 years, I've been involved in both healthcare and also in fertility. Valuations for practices in general, I think have increased significantly. And this I would say, is being driven in part by cost of participation of private equity, but also today, valuations have become quite frothy, you know? And that's largely, I think, driven a bit by the low cost of capital or low interest rate environment we find ourselves in. So yes, valuations have increased, but I will say that valuation between practices really differ significantly, right? A larger practice or platform is typically going to have a higher valuation multiple than a small practice. That's just the reality. And it comes back to this idea, again, of what helps move the income needle? How creative does a particular acquisition become relative to the larger platform? And I know I am going to pay more for a larger group and I'm going to pay less for a smaller group. In terms of valuation multiple, the same thing applies at the private equity level, when they're looking at acquisition of particular platforms. The size does influence the practice valuation. I'd also say that there's a difference between size and platform. And so that's not always fully understood. Just because you are large--your large medical practice of attending group doesn't mean your platform. By platform I mean, you have all the services needed. All the resources needed to scale. Because at the end of the day, there has to be--if you're talking about a platform play, you're talking about the ability to scale whether you're going from 90 physicians that we have today within the US to 300 physicians. You're willing to do that has to be relatively straightforward and easy to do, right? Otherwise, it's not a platform.
JONES 30:30
So how should practices be calculating for this? Because I think, probably, most people are mostly thinking about EBITDA, how should they be calculating how their platforms prospects for scalability come into play? Versus just this is where we're at with EBITDA? How should practices be evaluating?
SEGAL 30:52
You're a business guy, so you're speaking my language already, when you speak about EBITDA. But most physicians don't think about it.
JONES 31:03
But I think they are now, Mark. I don't know if they were 10 years ago, but I bet you every single one of them knows what EBITDA is now, today, isn't that right?
SEGAL 31:10
It's good. But most of them think about it in terms of valuation multiples--what's the multiples, right? And you and I know that really, a multiple is just more of a function of the practice even at the end of the day, right? The Enterprise of its enterprise value. And, you know, what are you paying is a multiple of that enterprise. So in terms of how I'm thinking about this, the larger the group, I think some of them are looking at and recognizing--if they've done some homework on this or explored this--they're recognizing that being together with a larger group, That they're going to get more. They will value the business, they will value their enterprise at a higher value, higher valuation multiple than they would if they were just by themselves. The ability to extract value and get a look at what is the value, why they get extracting value, it's a reward for the effort that they've put in over the years. That's what they're getting paid for. You've built an amazing business, you have an amazing practice, great reputation, you should be rewarded for that. But the recognition here what's occurring now, because I think these physicians are becoming more sophisticated in their thinking. To your point, they now understand what EBITDA is from this point. Now it's time to recognize that a consolidated EBITDA will improve my overall valuation at the end of the day, over what I can do by myself. And that's where, again, an alignment between kind of private equity and when which positions are thinking about valuation.
JONES 33:00
What about what multiples should practices be expecting to see, based on different ranges of EBITDA?
SEGAL 33:08
You know, that's a question I get asked a lot. And it's just not a question I'm even comfortable answering. I think the reality, again, it's a function of the valuation. The multiple is a function of that even a number and to what extent that even the number is growing, right? And so when you look at growth, if you grow--if your practice that has reached a mature state, you're basically either flat or you haven't grown, maybe, the valuation multiples gonna be significantly smaller than it would be on a practice that may be growing at a significant clip per year, because they've demonstrated. But it can scale and grow, or provide value to patients that the competitors are not in that situation, yet valuations are gonna be possibly in the double digits, but vast majority based on the size, again, are going to be, somewhere in the single digit range, maybe on the highest single digits, but it's going to be in the single digit range. It's such a difficult question to answer because without fully appreciating the individual practice and what it is.
JONES 34:17
Well then maybe we can give some other advice for individual practices, which is--let's use this example. I'm Dr. Jones. I am one of two partners in a five doctor group. I'm the second partner in. There used to be two, one retired, I bought them out. And so now it's myself and my other partner. We have three associate docs with us. We're a five doctor group. I'm not ready and neither is my partner, to necessarily have this conversation tomorrow. But we know we're probably headed in this direction in the next two years, let's say. What can we do in the next year or two to improve our multiple?
SEGAL 34:54
I wish everyone asked me that question, that would be great. But I think these conversations--I think this is to a point--they take time. It's what I like to refer to as, kind of, the dating cycle. So it takes time to date. And in some cases, look, groups are exactly what they want. That's a very comfortable relationship that can be very comfortable with the offering. And they want to do this quickly. And it happens really quickly. In some cases, it takes longer. Now to come on to your question about what can I do? Well, again, demonstrate that you are able to grow at a rate beyond what the rest of the market is doing. And if you're doing that, if you're demonstrating that not just on a once off, but on a consistent basis, then valuation multiples become much more important for you and become justified, because that's what it is. It's discounting that future cash flow that we anticipate, and extended, that it represents is growing at a double digit growth rate. There's an expectation there that they would get, you know, a much higher valuation model. So it is about growth. But not everyone has that growth, you know? Look, for many of these groups, right? We don't have--again, the field is made of 450--plus, for many of them, this is a lifestyle business, right? And what do I mean by lifestyle business? It pays the bills. That generates an income for me and it pays the bills. And many doctors are very comfortable with that, and exit and saying, you know, look, I put money in, maybe I'll get a little bit of money out. But at the end of the day, what it did was it created an income stream for me. And that's it.
JONES 36:46
I think that's where the two different competing tendencies come into play, maybe that's my MO, I've already put in the work, I'm just ready to cash out now. Why invest further more into growth? And then I think other people are leaving massive amounts of money on the table, because they're not investing in growth in the last year or two. Often, when I find people in this position, I'm having a conversation with them. They're like, yeah, I'm probably gonna sell in a year or two, and I'm thinking let's grow, and if not in terms of new patients, at least let's improve your conversion rate, because you're already--let's say you're getting 500 patients in the door a year, but you're only converting maybe 200 of them, that can definitely be improved. And that's in real estate, you call that the cap rate, I think, but you're just improving. You're improving EBITDA by virtue of being more profitable. And so I think that's one thing that I see sometimes is, sometimes people are just like, you know what? It's all right, I'm already gonna get a ton of money, and why bother at this point? And then I think, but yeah, but if you can invest, I don't know 10s of 1000s of dollars, for example, to make hundreds of 1000s or millions, this is the time to do it.
SEGAL 38:08
Yeah, I think, again, it very much depends on the individual and depends on the appetite for risk, and where they are in their careers. So I’ll give you the two extremes. One extreme is a graduating fellow very entrepreneurial, would like to start his own practice, maybe together with someone that they've met in fellowship. They are often burdened by student debt, student loans, those type of situations. And now I've got to build out a practice, whereby they've got to take out personal loans, guarantees, various other things to build on what is often a very expensive endeavor to build that as soon as you send a laboratory or biology lab or anything, this is not inexpensive. So that's the one extreme right, and it's whether or not I can, do I want to take that risk at this age, having just come out of, you know, just essentially graduated or finished fellowship. And the other extreme is, you've got someone that's near the tail end of their career, and looking and going ‘Well, I've been in this lab space for the last 20 plus years, it's really outdated. It's no longer meeting the need, but to upgrade it, or to increase it so that it can accommodate future growth and the size of, you know, the number of cycles that we would need to do over the next 10 years. Well, that's going to cost me $3-5 million in order to build out the facility I need. And I don't want to go and borrow $3-5 million from a bank and take on debt at this stage in my career. So those are the two bookends of that, right? And again, it comes back to the need for capital and where people fit in wanting to enter and this is where I think groups like myself, private equity, are able to add value and participate because we provide with they're there to kind of help meet a need that these individuals have.
JONES 40:17
And that second scenario described, it definitely wouldn't take on debt if my intention was selling in a year or two, especially if it was a lot and depending on how someone was leveraged at that point. But in terms of current cash flow, and using some of what now might be gross profit, or even net profit to invest in the business can often be worth it, especially if it's something that in and of itself is going to return within the next three to six months. If you do an IVF conversion program, for example, depending on when you start, but it's not going to take you longer than six months, and so three to six months to install, that maybe your profit goes down for a little bit while you make that investment, but it immediately gets returned. And then you're also getting the value of the growth that you've put on the practice. That's what to me, that level of investment makes more sense at that stage then taking on debt.
SEGAL 41:12
Yeah, I think it comes back to your you know--and I think you worded it instead of correctly early on, which is, you know, what is it that I need to do to kind of grow my practice in order so I can maximize the valuation, or potentially exit that type of thing. And I would say this is actually all businesses in general, this is not specific to physicians or even healthcare. But you know, when when you've got a founder, an entrepreneur, that has started a business or maybe a family-owned business, if they start or have start having a conversation, if they're thinking about I want to sell my business in a year's time, or even two years time, it's probably too late to start thinking what I need to do to maximize value, the conversation or the thought process about maximizing value has to come much earlier. Because it's part of a strategy, it's part of a mindset, you know, of this is what I'm after, this is where I think I can build, this is what I can do really to maximize value. It's a five-year process. Now, again, here's the calculus, do I spend? Do I spend the next five years building hopefully, doubling the size, tripling the size of the business that I have today? And will valuation remain where they are today? That's the question. Because no one knows what tomorrow brings. No one knows what valuation, what interest rates, valuation, and how much private equity will want to participate five years from now. And so I think the calculus you have to make in all of us is I'm either in it for the long term, if I'm only focused on I want to figure out what the exit and how to maximize value so I can exit at some point. I actually think that's the wrong conversation we're having with yourself, right? If I'm that entrepreneur, I think you've got to be driven by What are you trying? What problem? Are you trying to solve? What motivates you? What gets you to get up out of bed every morning? I want to do the kinds of things that you do, and you've got to love it, you've got to have a passion for it. I mean, I know that I wouldn't have been doing this for 25 years, if I didn't feel excited and passionate about it. I think that the same thing applies whether you're a fertility doctor, whether you're running, you know, a retail shop or something, whatever it may be, I think you've got to have that passion, you've got about one bolt something here more than just, I'm looking to figure out how is it because then it's really just an investment, it's not really, you know, building something that is meaningful to you.
JONES 43:54
In some of those investments can be returned more quickly. But I see your point. And now I'm thinking of something like brand, there are some groups where it's like that's a brand and you might have a group that does the exact same amount of volume, has the same EBITDA as the same number of docs, number of labs, and yet, maybe they're an established group, and then you have another one that it's like, that's clearly a brand. Does brand help with multiple and if so, how?
SEGAL 44:27
I would say, look, I would say that certain brands clearly are dominant, right? If they are a consumer brand, if it is a patient brand that is well recognized, those not only drive the kind of conversions, you're talking about the pipeline of patients, etc, I think ultimately lead to you know, the kind of valuation issues that are important in this context. But yeah, look I'll tell you, you know, as the US Fertility, right? It's a new brand, just only a few months old now, it is supported by four individual groups that have tremendous brand equity. Now ask you the question, if I can turn around a little bit in terms of the interviewer here, asking the interviewee is, you know, when I think about that, in terms of a brand idea, I've got four different brands and five with US Fertility, right? And, and ultimately, there may be others that come into that into that mix. How do you reconcile the fact that a group may exist within a particular market and have huge brand loyalty and recognition, versus saying, let's consolidate all that brand equity under one name that doesn't yet exist? I get that brand, you know, changing a brand is something that is done by people buying organizations, often, changing the name and brand is something that happens often. But it is certainly a challenge from where I look at it.
JONES 46:09
It’s a huge challenge. That's why I asked the question about why go that road, as opposed to, you know, the Shady Grove of--just like expand Shady Grove, for instance. You mentioned well, because we have these, we're friends with these folks, we went in on this together, that makes sense. And we're both giving each other a little bit of free consulting here. My view on this brand issue for networks-- I know you're not the only one thinking about it is how long do you want to play this game for? So meaning that you're always just going to continue to have this challenge? You do have a challenge right now of we've got really established brands and do we threaten that by becoming uniform? Do you want to do it now or later? And I think that there just is a fundamental, you will never get the scale of brand that we see in other segments without having a unified brand.
SEGAL 47:03
In other words, to send an agreement about it, but of course, it's a balance, right? That's got to get maintained. And so look, you know, the inside joke here within Shady Grove Fertility is, you know, that's probably gonna be the worst name possible. But yet, you know, it's grown into the largest brand--
JONES
It works somehow.
SEGAL
Right. So yes, what's in a name? I don't know. But, but something?
JONES 47:29
What does Nike mean, though? What does Google mean? Nothing. Brands are established.
SEGAL 47:36
Look, I would agree 100% with you. I mean, ultimately, you know, I think you need to figure out how to consolidate a brand. So you can maximize the efficiency and resources.
JONES 47:54
It's not Chicago Coffee brought to you by Starbucks. It's not Kansas City Coffee brought to you by Starbucks, or Joe's Coffee brought to you by Starbucks. And I think that's ultimately, I think that that's a big inhibitor to scale. I see why people don't want to do it. But in my estimation, I think that's what ultimately wins. And some groups are better positioned.
SEGAL 48:22
And I think you're preaching to the choir on this one, I think I'm an absolute believer that that there needs to be at some point, a consultant, brand, certainly within maybe a utility context again, but you know, out of the orders of priority, that's probably not at the top of the list, in terms of driving where the focus is today. But something that clearly we need to--you and I need to have a conversation about that offline.
JONES 48:55
I think that sounds good. I want to ask you about what this means for younger docs, Mark, because I think you know, and I'm a person that I do not put myself on the top of the entrepreneur scale. I'm somewhere above on the right curve of the bell curve, but I'm slow. You know, I'm figuring out all this, but I'll tell you what, after having put a lot of sweat equity that was uncomfortable, I really like owning this thing outright. I like every part of it. I like what I'm making, I like what--it gives me control. I like how it allows me to structure things. And a lot of people had that opportunity because they started their groups either in the mid 90s to the mid-2000s. Now they're cashing out but what about these docs coming out now that there isn't gonna be 20 years before they can buy in two groups like yours? What does this mean for younger docs?
SEGAL 49:52
Yeah, so I think, you know, each of these groups, as he put it, I think are different, right? They are certainly different in the management philosophy, I think they had different physician alignment, how they work with doctors, all that each one of them, I think are different. What I think again, has led to, I'd say the success of Shady Grove Fertility and I think the success of the other three groups that are part of US Fertility is that it is a physician ownership model, right? I when I speak to graduating fellows, and they're going through the interview circuit, and I'm talking to them about a potential opportunity. The first thing I say to them as well, or at least during the first interview is the conversation I'm having with you right now, I'm already considering whether or not you are my next partner. They take a step back, the client can't quite understand exactly what that means. But what I'm getting at here is, when I'm thinking about interviewing you, I'm thinking about you as a future partner, not as a future physician or employed physician, but as a future partner in the group.
JONES 51:08
What if they're not cut out to be a partner?
SEGAL 51:11
That's why I think there's some that for some that it's not the right fit, right? The type of physicians that I'm going to, hopefully drawn to me and to my ones are those that want to be partners. They are like you--they want to build something. They want to have vested ownership. They want to feel excited about it, and they bought it and then number that to say, look, it's not what I'm interested in right now is just a job. I'm interested in the paycheck, and hustling going home when I'm finished seeing patients, that's all they want. And for many, there are plenty of groups that's the right fit for them. It's just not the right fit for us because that's not who I'm looking for. That's not who I think we want to be part of--we're looking for real leaders who want to have vested ownership, vested interests in something, right? It's very interesting, and I don’t know if I've ever discussed with you before, but it's a very interesting dynamic that exists right now, especially related to graduating fellows. And in the way I think about it, there's somewhere around this quarter 40 to 45 graduating fellows each year, and this is throughout the entire United States, right?
JONES 52:30
Yep. And maybe another 10 in Canada, if that.
SEGAL 52:34
Just taking US, for example. And out of that, let's say it's 45, out of that, somewhere around 15 or so, will decide to stay within academic medicine, they won't want to go outside of academics, and that's fine, right? But that leaves you with, let's call it 30, of which 10 are probably in the category we just spoke about, which are you know, I'm not a five, I'm really not interested in doing anything beyond the paycheck. I'm a good doctor. But that's not what I'm--so to me, that eliminates 10. And now I'm left with,let's say 20, at most, at most through the United States, of which there probably 40 to 50 practices, looking to recruit doctors in any one year, that disparity that exists between the supply and demand of new graduating fellows is so vast that it's creating, I think, a problem for our specialty, to be perfectly honest. I mean, it's great. If you're coming out of fellowship, yeah, you know, you've been courted and wined and dined. And by many groups, and you get to pick what you'd like what you don't like, but it's very problematic in terms of being able to find the right partners. Because again, if you're two physician practice, maybe a single doctor trying to find the ability for you to potentially hire someone out of fellowship is almost impossible, almost impossible.
JONES 54:16
I tell people that all the darn time. I have somebody reaching out, and they're in a small market, single physician group wanted to ask me about this. And I said, Okay, well, this is what we could do. And I will think about it as, you take all the darn time you want. You're not in a good position. You might be able to find someone by stroke of luck. If you do, they will have all of the leverage because you're not getting somebody else in that market in for that size group in the next view. So even if you have somebody I think it's causing people to really stretch I think this is also one of the drivers for why we're seeing consolidation too. There's lots of people in these groups and he says markets, they just can't get a younger doc to take over.
SEGAL 55:07
That's exactly that's exactly right. That's exactly what's happening? And, I think, again, US Fertility, we will hire within the next 18 months, we'll hire somewhere around 10 to 14 of the graduating fellows over the next 18 months. 10 to 14, yeah, less than us it was down to a population size of 20. Think about that for a sec. Yeah, man, it's crazy.
JONES 55:36
I would say that if there's 150 fellows at a time, there are at least a third of them listen to the show. And so you got 30% of those folks in America. So you’ve given us a lot of really great insights about what's happening with consolidation acquisition, how do you want to conclude about the impact that private equity is having on physicians and patients in the field now and in the future?
SEGAL 56:04
Yeah, I'd say private equity is--no question private equity is here to stay. It's not going anywhere. And it will always be this need for capital and liquidity. And also, I believe that these innovative--and physicians want to be something part of something larger than themselves. And so finding the right fit is, of course, paramount. I would say that I've seen in my career, again, private equity, make very poor decisions, and very poor business decisions, and in some cases, you know, destroy practices and the culture that they may have created. But I've also been very fortunate to be part of a group that will be part of groups that I think have driven real value and innovation that's benefited both just both physicians and patients. I believe the group that we affiliated with today is really cool--Amulet Capital, is exactly that. I've been very, very impressed. And as I said, I've been involved with many different private equity groups over the years. I think there's this misconception about their private equity, you know, what the does is drive down drive costs, and it's, and therefore, that impacts quality of medicine, I think that's actually a false narrative. I think it's a false assumption.
JONES 57:36
I think it's false that it drives them up, or because they're taking profits or driving them down for efficiency. Which one of those do you think is a fallacy?
SEGAL 57:45
I think it's a false narrative that driving down costs, driving down costs drives down quality of medicine, where I think private equity, and again, maybe larger groups succeed is in the ability to drive costs through efficiency. And to me driving down costs, which hopefully at the end of the day implies driving down price to patients, or driving access through increased payer contracts, etc, leads to better access to patients. And in fact, if you look at the larger groups, look at the pregnancy rate outcomes, it completely validates the point that the larger groups are driving innovation, driving pregnancy rates, doing different things that I think others are taking note of and trying to learn from the other day. Yes, you should do your homework. You should pick your right partner, because not everyone's the same. Not every private equity is the same. But I am a believer that we're here to stay. And I believe I'm a firm believer that they will continue to add value and make change in a positive way, not a negative way.
JONES 59:01
Mark Segal of US Fertility, thank you very much for coming on Inside Reproductive Health.
SEGAL 59:05
Thank you. Nice to be here. Glad to be part of your 100th episode.
JONES 59:11
Episode 100! Glad you could be part of the mile marker.
SEGAL 59:14
Yeah, thanks for inviting me.
***
You’ve been listening to the Inside Reproductive Health Podcast with Griffin Jones. If you're ready to take action to make sure that your practice drives beyond the revolutionary changes that are happening in our field and in society, visit fertiltybridge.com to begin the first piece of the Fertility Marketing System, the Goal and Competitive Diagnostic. Thank you for listening to Inside Reproductive Health.