Transitioning Your Practice in Today’s O&P Market

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By Betta Ferrendelli

More than two decades ago, Barry Smith, president and CEO of Lloyds Capital, sold his first O&P facility for $168,000. He sold his second one a short time later for $200,000.

"Those type of transactions would be next to impossible in today's O&P market," says Smith, who completed a deal in August when Össur acquired Dothan Brace Shop, Dothan, Alabama.

California-based Lloyds Capital has been valuing and selling O&P businesses for nearly 30 years, having valued more than 580 practices and sold 158.

"It's a boutique business, very specialized, serving the needs of customers who want to explore exit strategies," says Smith. He averages five or six deals annually, which typically take about six months to complete. Some deals can take as long as two years to finalize, he says.

The primary change over the years has been the desire of buyers to buy big, not small, Smith says. "That means that many of the businesses I see are worth less than the owner thought, and it may be difficult to close a deal. As one buyer said to me recently, ‘Don't bring me anything below $1.5 million. We need something that will move the needle,'" he says. "That response was unheard of years ago when the acquisition business was nascent."

State of the Industry

To call the current state of O&P robust when it comes to buying and selling prosthetics-centered patient care facilities wouldn't be accurate, according to Smith.

This is not an ideal time to sell these smaller practices because they don't have enough value for the buyer, he says. "All large buyers are looking for more than a million in sales and often more than $3 million in sales before they will become engaged."

Smith uses $750,000 in sales as a standard size for a small O&P clinic. "As with any industry, there are pockets of health, but there are a lot of small businesses that are hurting," he says. "The costs of doing business are rising annually [with] medical insurance, wages, rent, etc., and reimbursement is under tremendous pressure as payers seek higher margins for themselves."

Smith says these smaller businesses often break even or lose revenue.

"I get frequent calls from even smaller O&P businesses doing $500,000 or less [in sales]. They are usually one-man operations and there is no value in the business [other than liquidation value] because there is no profit left when all the expenses are paid."

Options to Sell

As little as two years ago, O&P owners wanting to sell usually had three options:

  • Sell to Hanger
  • Hand off the business to children or other family members
  • Retire and close the doors

An exit strategy today comes with additional choices:

  • Sell to a manufacturer, such as Össur or Ottobock
  • Sell to a regional, independent O&P facility
  • Sell to private equity
  • Sell to a regional hospital system

Steps to Sell, Long and Short Term

Hanger, Austin, Texas, acquired Scheck & Siress, Oakbrook Terrace, Illinois, in April. The planning that went into the sale of Scheck & Siress, which was founded in 1953 and has 18 locations in Wisconsin, Illinois, and Indiana, was long in the making.

Michael Oros, CPO/L, FAAOP, was president and CEO of Scheck & Siress until the sale. Now he is a regional vice president for Hanger, and will be promoted to zone vice president in January 2021.

In 2013, Scheck & Siress partners developed a seven-year strategic plan to guide its activities and ensure growth and success of the company in what they knew was a changing healthcare world, Oros says.

In 2018, Oros says Scheck & Siress revisited that document, measured its progress against it, and began crafting a plan for 2025. "At that time we knew that in order to continue to grow in a manner consistent with our philosophy and our plan to be a significant regional provider of O&P services, we needed to make some material investments in infrastructure and personnel," Oros says. "We had a discipline of monthly reporting to our board, so our financials were up to date and clean, and we did not have significant adjustments or restatements that needed to be made.

"Because we had done a variety of acquisitions ourselves, we knew what would be expected, and our normal operating processes allowed us to be ready to enter into a process without too much additional preparation." (Scheck & Siress also completed a transaction with Lloyds Capital who had sold an O&P clinic to them shortly before the Hanger acquisition.)The Scheck & Siress business model appealed to Hanger for several reasons, mainly that "Scheck & Siress is a high-quality, well-run business with a culture of sustained excellence that fully aligns with Hanger's core values of integrity, being patient focused, outcomes, collaboration, and innovation," says Hanger President Sam Liang.

Timing Is Everything

How does a seller know when the time has come to sell the business?

Timing for Oros and Scheck & Siress had more to do with the decision to either further fund investments in infrastructure and personnel on their own, or consider a strategic partnership with an entity that shared a similar vision and was already making those investments.

"We always felt that as owners we had a responsibility to each other, but also to our employees and our patients, referral sources, and care partners to be the best we could be in delivering patient care," Oros says. "We held a management retreat every two years where our leadership team got out of the office and talked about the future of our business and what we needed to do to continue to be a leader in our market."

Nearly five years ago, Oros says Scheck & Siress leadership made it an ongoing discussion point at these retreats to ask themselves "whether we thought we could still be an O&P leader in a rapidly consolidating healthcare industry on our own, or if we should consider partnering with another business that shared our vision and values."

O&P has not been immune from the consolidation activity that continues to occur throughout healthcare.

"Because Scheck & Siress was able to grow a regional presence with a reputation for quality patient care and a respected residency training program, all in a large metropolitan market, there were a number of parties interested in discussing why they may be the best possible partner," Oros says. "When we came to the conclusion that we wanted to explore the possibility of selling, we looked broadly at options which included companies inside and outside of the O&P world. We also considered external investments in addition to an outright sale."

Oros says Hanger's acquisition will allow Scheck & Siress to operate better and more completely. "We will now have better tools because of Hanger's investments in clinical infrastructure—electronic medical records, IT security, research and clinical outcomes, and human resources—to deliver that care," Oros says.

Private Equity, Venture Capitalists, Hospital Systems

In addition to Hanger, Össur, Ottobock, and regional O&P entities, physicians' groups, hospital systems, private equity firms, and venture capitalists are also vying for a piece of the market, Smith says.

"The landscape is littered with the carcasses of non-O&P providers who have purchased ‘small' O&P businesses and then they realize too late that it is a very unique and specialized field," he says.

If those practitioners leave the practice when it sells, then the business may implode, particularly since good help is hard to find, Smith says. "There is a lot of good entrepreneurial talent, but good employees who want to work nine to five usually are not empire builders," says Smith, who adds that most sellers typically do not make good long-term employees for the buyer.

When an entity outside O&P purchases an O&P business, Smith says, it can often run into headwinds. "That can happen to [Hanger, Össur, and Ottobock] too, but they have the resources and the means to fix a problem."

Acquisitions can and do happen, though, with non-O&P providers looking to enter the US market.

Smith says there are a "fair number of outsiders" who are considering getting into O&P. He is presently in negotiations with a "well-known European private equity firm" that plans to enter the O&P field in the US in the fourth quarter of 2020—with an initial capital commitment of $200 million and the capacity to expand.

"They have partnered with an industry veteran who can provide guidance and mitigate risk," Smith says. "They're very interested. They haven't taken the plunge yet, but they're doing their due diligence."

In addition, with hospital systems and payers continuing to consolidate, the healthcare landscape has become increasingly complex, Liang says. "It would benefit O&P providers of scale—such as regional independent O&P businesses or Hanger, which is organized regionally—whose core competencies exist in providing [essential] clinical care, outcomes, and operational excellence to receive the proper payments for the services provided."

The Price Is Right

Some question whether manufacturers' involvement in O&P care will change the complexion of the landscape.

Smith says he doesn't think so. The European model of being a manufacturer and operating O&P facilities has worked well for years, he says.

And it's catching on fast in the US clinical care market, industry experts agree.

"Össur and Ottobock have experienced little pushback by entering the patient care field in the US," Smith says. "Some owners initially resent the intrusion into their space, but those same owners will sell to them if the price is right."

Liang disagrees, however, and says he views manufacturer involvement in prosthetics patient care facilities as a detriment as well as a conflict of interest.

"There's a reason US pharmacies are not owned by pharmaceutical companies and hospitals are not owned by medical device companies," Liang says. "And it is to avoid various conflicts that arise from these types of relationships."

For smaller O&P businesses, there are inherent disadvantages to selling to a company that does not have O&P patient care at its core competency, Liang says. "Being owned by these types of businesses means not receiving the level of investment or access to resources that a larger O&P patient care–focused business can provide, including scale, clinical education and expertise, access to payer contracts, and resources to excel in outcomes and patient experiences."

Options Remain

In the beginning, O&P was dominated by a small number of companies. It was primarily Hanger, then Novacare, then Rehab Designs of America, Smith says. "Now it's Hanger, Össur, Ottobock, with some smaller regional players," he says. "The changes are all about reimbursement, managed care, contracting, Medicare flexing its muscles, audits, clawbacks, and paperwork. It's no longer fun for many owners."

Finally, is there a potential buyer for the smaller O&P clinic? Perhaps, Smith says. "Probably a practitioner or a local competitor who believes he or she can build the business into something larger," he says. "But it takes money, and it is a world of limited capital."

Betta Ferrendelli can be contacted at

Editor's Note: The O&P EDGE reached out to a variety of independent regional O&P facilities who declined to comment for inclusion in this story. Össur and Ottobock also declined to comment.