Outsourcing

Healthcare has lagged other major industries in recognizing the cost and performance benefits of purchasing non-core services from vendors with greater scale, technology, and experience. In recent years, the outsourcing trend has gained momentum in both the medical and non-medical aspects of healthcare as institutional healthcare providers have come under increasing pressure to provide a lower-cost, higher-quality service. The growth of our portfolio company, EnduraCare, which provides contract therapy care to hospitals, long-term care facilities, and physician groups, reflects the difficulties experienced by acute care and long-term care institutions in recruiting and retaining skilled therapists as well as in mastering the complexities of reimbursement for these services. Another MedEquity portfolio company, PharmaLogic, operates regional nuclear pharmacies throughout the U.S. that compound and distribute patient-specific intravenous drugs and solutions for use in diagnostic imaging and radiopharmaceutical therapy. PharmaLogic’s rapid expansion is a testament to the current, unmet demand for cost-efficient, specialized outsourced services. We believe that outsourcing will continue to increase as a percentage of total healthcare expenditures and that there will be significant opportunities to consolidate fragmented, though relatively large, sub-sectors affected by this trend.