Deal Profile: The Retina Group of Washington

Key Takeaways

  • The ophthalmology subsector of the vision care industry benefits from macro-trends driving accelerated growth, especially in specialty areas such as retina care.
  • The Retina Group of Washington (RGW) is a stellar example of how to thrive in the broader ophthalmology sector and retina care subspecialty.
  • Four factors make RGW a standout example of investment opportunity in ophthalmology, especially for those interested in building a vertically integrated platform.

As the global population ages and obesity rates continue to increase, the demand for ophthalmology services will grow as well. Even during the COVID-19 lock-down that shuttered some medical businesses, ophthalmologists remained able to perform procedures necessary to save vision. Today, as the COVID-19 crisis shows signs of abating in some locations, ophthalmology patient volumes have strongly rebounded.

Participants in the vision industry include independent opticians, optometrists, ophthalmologists, national vision retailers, mass merchandisers, and glasses and contact lens manufacturers and distributers. The ophthalmology subsector represents about one-third of the product and service spending in the broader vision care industry. Macro-trends are driving accelerated growth in ophthalmology, especially in specialty areas such as retina care, which remains a highly fragmented segment, mostly composed of independent practices. 

One premier ophthalmology platform, The Retina Group of Washington (RGW), holds a leading position in retina care in the Washington, D.C., Maryland and Virginia region. Harris Williams recently advised RGW as it partnered with PRISM Vision Group, the largest vertically integrated eye care services organization in the Mid-Atlantic region. The move will combine PRISM’s operational expertise with RGW’s management team and physician partners to advance the combined platform’s vision of building a vertically integrated eye network in the greater Washington, D.C. market while continuing to deliver the highest level of patient care.

Here, Andy Dixon, a managing director in the Harris Williams Healthcare & Life Sciences Group, shares his thoughts on what made RGW an exceptional investment opportunity, as well as his insights for investors interested in the broader ophthalmology and retina care space.

Supply and Demand Imbalance, New Therapeutics and Integration Potential Create Opportunity

Ophthalmology is an approximately $12 billion subsector within the vision care industry that is growing at 4% to 5% annually.1 Retina care is outpacing this growth, pushed by an aging population and the increasing prevalence of chronic disease. As the population ages, more people develop chronic eye diseases, such as age-related macular degeneration (AMD). Diabetic-related retinal disorders are also on the rise, in part due to rising obesity. A full 50% of the U.S. adult population is expected to be obese by 2030, up from 36% currently.2 Just these two diseases—AMD and diabetic retinopathy—are projected to impact 15 million people in 2030, up from 9.8 million in 2010.3 New disease occurrences drive growth in demand for retina care. In addition, many retinal disorders need to be treated on an ongoing basis to prevent loss of eyesight, which creates strong revenue stability for providers from recurring patient visits. 

Growing demand for medical eye care is projected to outpace the entrance of new ophthalmologists into the sector. A stable number of practicing ophthalmologists is expected through 2020, which will not keep pace with underlying growth in demand. gettyimages-1201017313.jpgPlatforms that can do a better job of hiring clinicians, and allowing them to focus on patient care versus running their practices, have some advantages. This is especially true in specialist categories such as retina care. 

Drug administration is also a meaningful and growing revenue stream for retina care businesses. Drug injections are standard treatment protocol for AMD, diabetic eye diseases and other retina vascular disorders. New therapeutics to treat retina-related conditions, such as drugs in development for treatment of dry AMD, will continue to drive demand for retina care services as patients have new options to treat their diseases.   

Finally, there is growing interest among platforms in pursuing vertical integration, but its early in the game, which signals opportunity. Vertically integrated networks that encompass a continuum of care from medical optometry (eye exams, routine care) to general ophthalmology (cataract care, glaucoma, refractive procedures) to subspecialties (retina care, oculoplastics) can experience many advantages, such as a captive referral network. Referrals can flow from optometry care to medical ophthalmology and surgical procedures—and vice versa—which also offers the potential for better continuity of patient care. 

Vertically integrated networks have several scale advantages as well. They can more easily put resources in place to educate consumers on clinical options and on the benefits of product upgrades and ancillary services. Finally, a vertical integration strategy supports the growth of a hub-and-spoke model between practices and ambulatory surgery centers (spokes of optometry and general ophthalmology that refer into a centralized ambulatory surgery center).

Spotlight: Retina Group of Washington

4480-retina-group-of-washington.pngRGW is one of the largest independent ophthalmology platforms in the country, with 17 clinic locations and 35 physicians focused on retina care—about five times larger than any other retina practice in its markets.4 It provides a comprehensive offering of the most technologically advanced and patient-friendly care options to diagnose, prevent and treat retinal and macular diseases. It has a well-established reputation for clinical excellence and patient care.

Four factors, in particular, make RGW a standout example of how to thrive in the retina care and broader ophthalmology sector.

1. Significant scale and market presence in its region 

RGW’s leading position and density in its region provide it with unparalleled reach, provider relationships and operating efficiency. Locations have been deliberately selected to optimize coverage of RGW’s market. Its scale allows RGW to negotiate better terms on capital equipment, supplies and other operating expenses. Greater scale can also yield more bargaining power with payors and suppliers, while a recognized brand can provide recognition and confidence to new patients. The company’s scale and clinical leadership within its markets have allowed it to establish exceptional relationships with other providers, spanning the entire continuum from optometry to general ophthalmology to other retina practices, ideally positioning it to build a vertical care network.

2. A talented management and physician team

RGW is known as an ophthalmic thought leader and leading clinical research organization. Its clinical excellence makes it a premium brand, which helps it sustain a substantial referral network and provides an advantage in physician recruiting. RGWs physicians and management team have led more than 35 years of growth and expansion of the RGW platform, including a robust M&A pipeline. Its ability to track, measure and analyze key performance metrics across the entire business allows for data-driven performance management, continuous improvement and the ability to show efficacy of treatment. 

3. A robust platform for growth 

RGW has invested in the corporate infrastructure, technology and state-of-the-art, patient-friendly clinics that support its growth. Strength in areas such as recruiting, hiring, resource management, lease and supply negotiations, sharing of clinical best practices, compliance, coding, billing, and collections allows the platform to attract and retain practitioners and acquire independent practices. 

RGW is representative of an operation that provides a clinical environment that makes it more attractive for physicians to work for the platform than to practice independently. Because of RGWs scale, referral base and administrative management, physicians can spend more time seeing patients and less time on administration, and they benefit from enhanced payer rates. Most independent practices find joining a larger group to be an attractive proposition when the infrastructure enables providers to focus on clinical work.

4. Potential to anchor integration

RGWs significant market share and strong core brand in the regional market provide a nucleus for end-to-end vertical integration—one that, rather unusually, emanates from the subspecialty rather than general ophthalmology or optometry. Smaller subspecialty providers find a vertical integration strategy difficult to execute, as referral partners that recognize the strategy may choose to divert referrals elsewhere. RGWs clinical and geographic leadership in the subspecialty mitigates this risk.

RGWs potential for vertical integration was one factor that Quad-C, majority owner of PRISM, found attractive. PRISM, among the largest independent ophthalmology and retina administrative services organizations in the mid-Atlantic region, is already successfully executing a vertical integration strategy in its markets having started as a predominantly retina care focused provider. With a well-established leadership position in retina care, PRISM has been able to partner with general ophthalmologists and optometrists in its markets to build a vertically integrated network.

Conclusion

As the COVID-19 crisis gradually stabilizes, ophthalmology will continue to benefit from strong long-term growth drivers. As a sizable and fragmented sector, it can offer significant investor opportunity, especially as demand for services outpaces the supply of physicians. Retina care and other specialty segments can provide interesting and highly attractive entry points to building larger and more diversified practices within ophthalmology. Investors in standout practices can use those investments as anchors to pursue platforms based on specialty consolidation, vertical integration and other strategies that build premium brands and provide scale advantages.


Published July 2020
Sources:
1. IBISWorld
2. Projected U.S. State-Level Prevalence of Adult Obesity and Severe Obesity, The New England Journal of Medicine, Dec 19, 2019
3. Prevent Blindess America
4. Harris Williams proprietary analysis