More than 20% of American adults suffer from chronic pain, and research from the National Institutes of Health shows that only about 1 in 10 people experience a full recovery within a year. Numbers like these indicate a strong need for improved pain management services – and after years of wariness, many in the private equity community are now showing interest.
“It’s a smaller niche market that was, to some extent, overlooked by private equity given its perceived risk in the context of the opioid crisis,” says Eric Major, a Managing Director at Provident Healthcare Partners. But now, he says interest is “starting to heat up.”
One possible reason is a growing emphasis on non-pharmacologic solutions to address pain. Eric Yetter, a Managing Director of the Healthcare team at FOCUS Investment Banking, says practices that are attractive to investors are “doing work that is actually a solution to the opioid crisis.”
Ezra Simons, a Partner at Physician Growth Partners, describes the recent activity in pain management as a “sort of renaissance” and that he sees immense growth potential. “I think there is more room in pain management for additional private equity-backed platforms” compared to other specialties.
What is pain management?
Pain management physicians treat a variety of conditions such as chronic back and neck pain, arthritis, headaches, and cancer-related and post-surgical pain.
Interventional pain management incorporates minimally invasive therapies such as steroid injections, nerve blocks, electric stimulation, and intrathecal pain pumps.
Examples of non-interventional pain management include acupuncture, chiropractic care, physical and occupational therapy, and using cold or heat to relieve pain. Medications would also fall into this category.
Addressing the elephant in the room: Unease over opioids.
“Pain management disproportionately gets a lot of attention from an opioid epidemic perspective,” Simons acknowledges. “I think it’s had a bad reputation because there have been some misses in the space.”
Yetter says he believes modern interventional pain management clinics have been “judged a bit unfairly” by the investor community. He explains, in his experience, that “most of the doctors who do this work believe strongly that getting an injection or getting a neurostimulator is an alternative to medication, particularly opioid medication, and it can reduce people’s dependence on opioids.”
“There are probably more deals in pain that don’t close than do. Private equity firms are so risk-averse, especially with compliance,” Major says, “and this sector deals with a risky patient base.”
It can take weeks or months to gradually wean patients off opioids, relapse rates for substance use disorders are high, and the CDC stresses that patient buy-in is a critical component. That’s why “investors want to see groups that are successful in weaning those patients off high-dose opioids,” says Major.
Data collection is especially crucial in this sector. “There is a pretty high bar that private equity firms have for investments in interventional pain,” says Brendan Schroeder, an Associate at Provident Healthcare Partners, “but it allows groups that have been thoughtful about tracking that data over time to stand out from the rest of the pack in a meaningful way.”
Why analysts view pain management as a solid investment: Higher quality practices and growth opportunities.
Between 2017 and 2022, Congress significantly decreased reimbursements for hundreds of routine laboratory tests. Major’s stance is that independent pain management practices still operating today are more likely to be solid investments because those rate cuts “weeded out a lot of the bad actors and lower quality groups.”
Toxicology testing is a common practice at pain clinics, but as Major recalls, “There were groups that were relying on their labs to feed practices that were otherwise losing money. When the lab cuts came, they weren’t prepared to withstand that.”
Schroeder says it’s positive that independent groups have become less reliant on lab testing for earnings. “It’s created more of a sustainable business model, one that provides more comfort for private equity investors.”
“I think the focus on compliance and on groups that do really good work, versus just being very profitable, has become a center stage element,” Simons adds. He says the pain management transactions his firm has recently completed have all involved “very compliant groups. We’re able to prove that their utilization data, prescription data, and functionality within payers are all right where they should be.”
Analysts also point to substantial growth potential, in part because pain management therapies can typically be performed in outpatient settings. “There are opportunities to expand ancillary services,” Yetter says.
“We’ve talked to pain management groups that have strong operations and use surgery centers effectively to see a lot of patients. That can be replicated and be very profitable.”
Merger and acquisition deal activity has picked up since 2021.
The experts interviewed for this article describe the pain management sector as a highly fragmented market comprising small private practices. “Below 5% consolidated is what we estimate based on our research,” Yetter explains.
Levin Associates’ proprietary database, which tracks healthcare mergers and acquisitions in real-time, shows 45 pain management deals announced in the United States since 2013. More than half of those deals occurred within the last three years, with 19 deals announced in 2022 and 2023 alone.
In no particular order, some of the private equity-backed pain management organizations currently in operation include:
- Capitol Pain Institute (Iron Path Capital)
- National Spine & Pain Centers (Avista Capital Partners)
- PartnerCare (Shore Capital Partners)
- Tricity Pain Associates (Spindletop Capital Management)
- Centrata Pain Partners (Trinity Hunt Partners)
- Pain Specialists of America (CommonView Capital)
- Clearway Pain Solutions (NexPhase Capital)
“There are not very many platforms compared to other specialties,” Yetter notes, adding that most of the existing PE-backed platforms in pain management are also “relatively small.”
One primary reason, Yetter says, is that many independent practices have fewer than five physicians. “You’ve got to do a lot of smaller transactions to get to scale, versus being able to take fewer, larger bites.”
Average deal sizes may range from 5x-11x EBITDA depending on the size of the practice.
Where is the pain management sector going? Analysts share their predictions.
Simons is “bullish” on the future of the pain management sector, noting that clinics “have a robust array of physician-owned ancillaries and they can do a lot of their work outside of hospitals. I see things continuing to grow in that direction.”
Simons also predicts collaboration with orthopedic practices could rise since pain and musculoskeletal concerns often go hand-in-hand. “We’re starting to see a number of orthopedic groups pay attention to the pain management vertical, which I think is broadly driving a lot more interest in the space.”
Major agrees and says the shift to value-based care systems could accelerate that integration. “At a minimum, I would think pain groups and orthopedic groups will have to collaborate to really pursue value-based care,” Major says. “I think the realistic play with pain is that it has to be part of a broader orthopedic platform, where you can provide the full continuum of care for any musculoskeletal condition.”
Yetter also predicts increased PE investment in pain management but thinks the growth will be modest. “I think it’ll continue to be a minor consolidation area within healthcare services, like urology and women’s health,” Yetter says. “Those areas have seen meaningful investment but never accelerated to the same extent that sectors like dermatology and ophthalmology did.”
Erin Laviola is a writer for Levin Associates.
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