This is Scott Becker with a special episode of the Becker's Healthcare and the Becker Private Equity Podcast. We're thrilled today to be joined by two brilliant leaders. We're joined today by two leaders from the Marwood Group, and the Marwood Group's got a fascinating history, and they'll tell us about that as well. We're joined by Joseph Mercer and Dr. David Klein. Joe, Dr. Klein, can I ask you to take a moment to introduce yourself? Joe, you've been with the Marwood Group for 11, 12 years now. Tell us about the Marwood Group and where you guys focus and specialize and how it came to be. You've grown this tremendous presence in the sort of private equity world, the healthcare private equity world. Tell us a little bit about yourself in the Marwood Group and then Dr. Klein will ask you to also tell us about yourself and your career, which has been nothing short of brilliant. Joe? Thanks, Scott. Thank you for having us. Yeah, Joe Mercer. I'm a managing director in Marwood's DC office. As you said, I've been here 11 years. I started in healthcare policy working at the Centers for Medicare and Medicaid Services, where I did Affordable Care Act implementation, including a few years helping to set up the ACA exchanges. Got to Marwood to work on healthcare service and managed care as a publishing analyst in our more research-focused practice. But as anyone who has worked in and around Marwood knows, you'll get swept up into the private equity diligence space very quickly, which is what happened. And now I remain our lead publishing analyst on all federal regulatory legislative issues. But I spent a lot of time in those same areas in the private equity side as well. Marwood itself, been around for just over 25 years, started as a little bit of like, let's make a better connection for healthcare policy between DC and Wall Street. So you don't have another bipartisan budget act of 1997 situation where, you know, by-side analysts are learning on earnings calls that their companies are getting smashed to pieces. And instead, maybe let's let them know in advance. Obviously, that's a market that's grown quite a bit across D.C. and a lot of different folks. The sell side's gotten better. But as we launched doing that, we had a lot of interest in, hey, can you give us more deal support? Can you work more directly with companies? And so started a private equity diligence practice that was originally very focused on federal regulatory work, but has expanded to state, commercial payers, strategy, compliance work. We have a nation growing very quickly, performance improvement practice, but just taking off of that base and going a lot of different directions, working with more corporates now, things like that. But that's the thumbnail sketch of how we got here with Marwood. No, simply remarkable. And Marwood's built sort of the premier practice in this private equity diligence space. Could you give us a sense of what that looks like and how that evolved? It's sort of the typical project. It became a thing where for many types of deals, and I see it most particularly in healthcare, you almost need a Marwood report to do the deal. Talk about how that all developed and where those reports really focus. Sure. I can give a few thoughts, and I'd love to hear David because David's been on the other side of it as a client, so I'd love to hear some of his thoughts as well here. I mean, look, what we set out to do is work with the private equity sponsor to say, here are our key issues. And most times we'll have an initial introductory call, which you start to poke around on an asset. And we'll say, here's what we know about it. Here's what we know so far. Here's what we'd want to diligence. Here's where we want to go deeper. What are your key questions? And also, hey, by the way, here's what you don't know you don't know. Let's get into that. And so the engagement themselves, typically in the, you know, three to four week range, though, you know, I would say that's maybe crept down a little bit in the last few years as people have been, you know, deal structures have changed a little bit with, you know, multiple work streams with, you know, with the project manager on top and just trying to synthesize across the various different, across the various different work streams. Those key questions to have a combined focus on the risk and opportunities for a given business, all within the bounds of healthcare regulatory, but also obviously in the strategy side as well. And I think some of the interesting places where we've grown when it comes to things like the commercial, you know, commercial payer practice and the strategy practice is that the leaders we have on those on those teams are interacting very closely with all the regulatory folks as well. So there's a ongoing dialogue of, you know, we talked to we talked to Humana. Humana said this. Does how does that align with how you guys are reading the policy? How do you think that's going to align or, hey, the people are saying the market's going to grow this amount or our model says this. Are there any regulatory watchouts? Like, hey, we're watching the ACA broker markets scream up, you know, all up into the right. Anything coming down the pike that's going to change that? And obviously our answer to that is yes. So it's a, you know, interactive process across the organization that I think gets a pretty solid set of, you know, could be 25 slides in a PowerPoint presentation at the end, or it could be 350, depending on the scope of work and how much goes into it. Thank you so much. And Dr. Klein, you've had this brilliant career. Could you tell me a little bit about your background, your career, whether you still cheer for the Maple Leafs and what you see in baseball this year with the Blue Jays? But tell us about your career and all that you've done. And then now joining Marwood as a senior advisor, what brought you to Marwood and the excitement with that? I guess I deserved the Maple Leaf poke after I alluded to the state of your golf game before we started the podcast, Scott. So I do sadly continue to cheer for the Maple Leafs. It's something I refer to as a genetic disease here in Canada. So not something I'm proud of. And Blue Jays, who knows? Hope springs eternal. It was a great year last year and we'll see. My career, different than most or different than many that likely are on this podcast. I am a physician by training and practice. continued to work as an academic critical care physician here at the University of Toronto, leading a large inner city type medical surgical cardiac intensive program, care program here at University of Toronto And what that given me in my career is a very real grounding in the patient and what really happening on the ground in the system and to the patient And I worked both in Canada and the U and in a number of other jurisdictions related to that. Got involved in the healthcare business world, first helping start the Canadian healthcare practice at McKinsey here, and then spending a number of years with McKinsey in North America, went to business school in Chicago at the Kellogg School, and then really got involved in healthcare private equity as an operating partner, first with a fund here called Imperial Capital, really well-known healthcare investors and helped them along the way build some of the great roll-ups that they did, including companies like Dental Corp, Vet Strategy, and others, and a number of successful exits with them, and then spent six years with Searchlight in New York, London, and Toronto, building their healthcare practice, and have also continued to be a little bit involved in the policy side with our government here and as advisor to other governments on health systems and where money meets medicine. And then joined the Marwood group just after Labor Day this year. And that came to be because I truly believe that there is a triad or triangle as it relates to healthcare investing with one corner of that triangle being the clinical need and really building a business that does what's right for the patient and for the system. The second point of that triangle being the business and the finance, and you obviously need to get the math right. And then the third piece being the policy side. And, you know, if I were to answer the question you asked Joe more simply coming from the investor side is, you know, if you've ever been to an investment committee with a health care deal and the first three risks aren't regulatory or stroke of the pen in one way or another, then you're probably not looking at the deal the wrong or the right way. And that's the way I was always, always trained. And so, you know, the reason Marwood, I think, has become more and more important is because the policy environment is becoming increasingly more complex and certainly these days increasingly more volatile. And and so if you're if you're not understanding that at the highest levels, then then I think you shouldn't be skiing the double blacks. a hundred percent so you'll go to skiing also a place where i struggle to skiing golf all these things but but dr klein a magnificent career what are the top two or three trends you're thinking about this year when you look at health care investing or the health care policy world the top two to three trends and then joseph i'll ask you the same question the two or three biggest policy trends that you're keeping your eye on yeah look for me i think coming at it from the clinical side and coming out of COVID, we very much learned the vulnerabilities of large institutional care models. And so I think there continues to be a focus and a shift in providing care and integrating care in lower cost settings of care. That's home care, that's hospice care, That's any and all sources of care outside of large institutions and all that it takes to support that. So that's understanding the data. That's the healthcare IT, the remote monitoring, everything that goes with following the patient through their patient journey. I think that that's a really important bucket. I think that we continue to be under significant fiscal restraint in the healthcare system. And so whether it's ways to optimize revenue through things like revenue cycle management or take out cost through technology like AI and improve workflows, that's going to continue to be a focus in an environment where we continue to be under strain. And then, you know, I think there's also an increasing focus in finding models of care where whether they be direct government paid like value based care or employer health models where you have much better alignment between clinical outcomes and the dollars you're spending versus traditional fee for service models. So I think those are all really important areas. And I'm sure Joel will have some important policy comments and other comments along those lines. Thank you so much, Dr. Klein. Joel, your thoughts on a couple of the biggest trends that you're watching from sort of a policy perspective or just a health care private equity investing perspective? Sure, absolutely. I mean, I think one really big one, the one that you can't get away from is how state budgets will be impacted by the One Big Beautiful Bill Act. We both have short term issues, right? States are updating their tax structures to either reflect the One Big Beautiful Bill Act changes, which can reduce revenue. And they're also looking at, hey, you know, Medicaid populations are aging, just like the overall population. So you're seeing increases in spend in personal care services and nursing facilities, you know, and things like that, which are expensive, even in the aggregate, even if, you know, personal care services are not that expensive on a more micro level. And so you're living through this with the eye towards work requirements in 2027 and then actual budget pressure in many states in 2028. And so I think thinking about the initial state reactions to their own budget pressure, like outside of one big beautiful bill act and how that might impact various different services. I think the way we've looked at it is, you know, we spent a lot of time, especially with public investors talking about hospitals, but on the private side, we've seen a lot of attention on some of these areas that could be considered more defensive positions, you know ABA Institutional Developmental Disability Services personal care services But then you have state actions in the last few months that that that really challenged that narrative uh there were some changes in reimbursement that have since been reversed in north carolina just as an example then you also have the overlay of a fraud waste and abuse effort at the federal government uh that has made some challenges for personal care services aba providers in minnesota and could conceivably see some contagion to other state. And so I think that there's like a, hey, these are more protected than other areas in Medicaid, but how protected are they and how might we might want to structure our deals, but also structure operations and compliance both before and after the deal to make sure that this is an investment that is not just dependent on reimbursement rates, but is dependent on being like a very high quality actor in an increasingly complex space. That's the one. The other one is that the Trump administration has done just a tremendous amount in, you know, in Medicare Advantage rulemaking in various different models. And, you know, David mentioned VBC and VBC has been a little bit of a dirty word in, you know, in private equity investing the last few years. When you've seen some of those, you know, some of those scaled players in Florida that have focused very heavily on Medicare Advantage be, you know, see a lot of pressure with regulatory changes. I think the way that we look at this is that you now have in the lead model, which launches in 2027 as a successor to the ACO reach model, you have an opportunity maybe for some new applicants to come up and try to play in a space that is not necessarily the easiest place, but it builds on the type of operational considerations that can be very valuable to MA plans as you're not just able to pull the risk adjustment lever over and over and over again and have a successful business. Some of that blocking and tackling becomes important. And the same applies to continued partnerships with Medicare Advantage plans where you can look at it as we're going to, you know, if you're a player who's always relied very heavily on risk adjustment, you may be more disadvantaged compared to a smaller VBC player or a more nascent player that doesn't have some of that lingering reliance on an outdated, regulatory structure. The other part of that too, I think that you have a model, the access model, which has seen a tremendous amount of attention trying to improve chronic care through outcome measures. We've actually heard a little bit the last few weeks that you see some MA plans starting to say, you know what, we think that these access model measures are a really valuable thing to ask of our provider partners and our VBC partners. And so you can see how these regulatory changes are forcing operational considerations and potentially presenting opportunities in VBC, but also present some risks to more established players. So those are a few things that jump out at me. Thank you very, very much. And Joseph, let me ask you a follow-up question. When you look at what you see your clients or Marwood most focused on this year, what would that be? What's the biggest focus this year? Gosh, it is. I mean, things are all over the place. I mean, I think we continue to see a lot of focus on anything that says, you know, blank services, payer services, pharma services, provider services. There are still, you know, some lingering reluctance to get into the more directly reimbursed spaces. But at least when it comes to at least when it comes to Medicare, I think those have been a focus. we've seen a little bit more just like the like half an eye open in the morning for you know for physician practice management companies to get back in there but a lot of services and then the other place we're seeing a lot of action in the HIT space is around like RCM vendors and a lot of vendors that call themselves RCM that are doing things like helping with the no surprises act IDR process So it's a much more fragmented market, I think, than we saw a few years ago, because in the absence of some of the, you know, everyone wants to do PPM or everyone wants, you know, we still have a lot of people very interested in fusion, for example. But a little more fragmented as people try to find little areas where there's some high quality firms providing real value to providers and payers in an environment where payers are trying to squeeze out whatever they can with difficult medical cost trends and providers are trying to get ahead of whatever the payers are doing. Yeah, if I could put the ball on the tee for Joe again, you know, I think one of the areas across all of this that is extremely busy at Marwood and busy for portfolio companies broadly is compliance, whether that's, you know, Medicaid related to what's gone in Minnesota or other things. I think any organization right now that's operating in the healthcare environment is feeling a tremendous amount of scrutiny around compliance. And I know Joe and his teams are working very, very hard with a broad range of both portfolio company clients and diligence-related requests to ensure that that is all happening at the highest level for folks. Thank you so much. And David, to follow up on that, you see this from a slightly different mindset or position than Joseph as a practicing physician too and an entrepreneurial physician. What are you most focused on and excited about this year? what am I most focused on and excited about uh you know I I think that 2026 most people expect to be a year uh of increased activity again where where deals start getting done again and some of the logjam of 2024 2025 starts to starts to break and so what I'm excited for is to see that hopefully start to happen to see multiples come to a place where deals are more transactable to see financial players in the market lenders and others getting more excited And I think a lot of what unlocks that again on the policy side is is what I called and sort of took out of JP Morgan conference this year decreased volatility around policy. And so, you know, while the first year of the Trump administration. We had wild swings in markets related to some pretty wide policy kind of decisions around things like MFN and other big, beautiful bill and others. We've come to understand those a little bit more and how they will play out in a little bit of a more predictable way. And so, you know, what I'm most excited for is to see the logjam break and hopefully that is the case. Thank you. And hopefully less volatility. And Joseph, let me turn it back to you. More or less volatility in the healthcare world this year. And are there areas you see where there's more money being invested, more excitement than others? Joseph, any thoughts there? Yeah. I mean, I would love to say, oh, we'll have less volatility. I think that David's right, that we're seeing that like the levers, the administration's pulled a bunch of levers, and now there's a level of like, let's see how things play out. But of course, like, again, we've talked about this a few minutes ago, but going into JPM, I was like, yeah, that things will be relatively stable. And then in the week prior, there was a, you know, we all of a sudden Minnesota and fraud and the potential of contagion spread spread across the landscape. It was all I talked about for two days in an unexpected manner. That said, I do think that like, this will be a year of reacting to the many changes from last year. And that is, you know, that that does mean that policy has to interact with operational considerations and strategy and compliance considerations, as David highlighted. I think to that end, where people are trying to spend money is, I think, or where we've seen a lot of interest is in areas where there's been a little bit more stability for longer. One of the examples we see a lot of a lot of calls on these days is businesses that have benefited from the No Surprises Act independent dispute resolution process, whether that be providers that are receiving relatively robust rates because they've been successful in the IDR process to the, you know, to the, you know, RCM vendors that are helping providers of all sizes, not just large, you know, large previously private equity backed ones, but smaller providers as well, helping them try to take advantage of a process that can work for them if they do it the right way. And then payers looking to have, you know, looking to have a better a better mousetrap. And obviously, you've seen some large, large companies, multi-glanzales, things like that, be very successful there and gaining business there. But, you know, maybe the next step in the line. So I think that's a good example of where we've seen a lot of interest is where there has been more stability or where you can bracket the risk a little bit better. And so that's one big example where if you had to say this is a change from a year ago, the interest, that's a marked change as that has seen a little more stability in the regulatory and legislative perspective. Thank you so much. And Dr. Klein and Joseph, I'm going to ask both of you these questions. both of you are professionals, have had these fantastic careers. Dr. Klein as a physician, Joseph by background as a lawyer. Take a moment, each of you, what advice would you give to evolving leaders? And Dr. Klein, I'll start with you, you know, about having great careers, being impactful, keeping it interesting. Any advice that you would give to emerging leaders? And then Joseph, I'll ask you the same question. Yeah, look, I think for me, it's been about playing the long game and always just adding new pieces that continue to make me better at what I do and smarter at what I do. And I continue to do that today. And that would certainly be advice I would give a young leader. One of my common pieces of mentorship advice that I give young leaders is to find ways to put yourself in rooms that you don't belong. And that's also something I've done throughout my career and you know having served coffee at board meetings when I was a McKinsey consultant with some of the biggest leaders in business to you know any other stage of my career that that's really allowed me to to learn things and learn the inner workings of of of business and medicine and other places just by exposing myself to great people and putting myself in rooms and And so, you know, that would probably be it for me. I might steal the Wayne Gretzky line, the, you know, skate to where the puck is going and not where the puck is. But that's probably it for me in sports analogies. No, absolutely love it. And Joseph, your advice for emerging leaders, and how did you transition from law into leadership at Marwood? And tell us a little bit about the arc of your career because it's a magnificent career. Yeah, thanks. Yeah, I mean, I think what brought me from law school to working in federal policy was just seeing, to David's point about going where the puck is going, is the ACA pass as I was finishing up my law school career and say, hey, I need to be involved in that because that seems like the place to go. And, you know, I tell people all the time going over to Marwood is that you work in the government long enough. They want you to do one thing really well. I wanted to do lots of things really well. And I wanted to be pushed and have, you know, and have an opportunity to look at many different, many different topics. I got that and more at Marwood. And so, you know, and one of the huge advantages I've had. And I think one reason that I've been able to be successful is I've looked at the looked at my career as an opportunity to say who around me knows this better. and how can I learn and how can I reflect on what they've done? And that's been a big advantage. Once I started really leaning into that at Marwood and listening to all the people with more knowledge in different areas, I feel like that really allowed things to accelerate. And so that's the number one piece of advice that's connected, right? Number one, be curious. And number two, really take advantage of the people around you that might know one area better. And it's an opportunity for you to sort of piggyback off them. No, just fantastic. I cannot believe how quickly our time went today. Dr. Klein, Joseph Mercer, what a pleasure to visit with you. You could learn more about the Marward Group online. Marward Group's become sort of the preeminent in this regulatory analysis piece that they do for private equity deals. Just a remarkable sort of arc of that business growth and how they become so central to deals and transactions in the private equity space. Congratulations on both of your fantastic success. And I want to thank both of you for joining this special combined episode of the Becker's Healthcare and the Becker Private Equity Podcast. Thank you so much for joining us. Thanks so much, Scott. Thanks, Scott.
