The Evolving Landscape of Healthcare M&A

Bart Walker is a Partner at McGuireWoods, an international law firm, and a co-leader of the firm’s healthcare and life sciences industry team. In his role, he focuses on healthcare mergers and acquisitions, strategic joint ventures, and regulatory compliance, advising healthcare providers, private equity sponsors, and lenders. Bart’s clients include hospitals, ambulatory surgery centers, dental service organizations, urgent care providers, and large physician group practices. He has been recognized as an emerging leader in mergers and acquisitions by The M&A Advisor.

Here’s a glimpse of what you’ll learn:

• [2:14] How Bart Walker stumbled into law and healthcare transactions
• [7:36] What Bart learned from his early exposure to a law firm merger
• [15:36] The importance of client communication during transactions
• [18:15] Strategies for assembling a team for healthcare deals
• [24:10] Balancing regulatory and compliance challenges in healthcare M&A deals
• [27:27] How the perception of deal risks has evolved over the past decade
• [36:08] AI’s impact on healthcare transactions, patient care, and compliance issues
• [43:40] The shift toward domestic pharmaceutical services and manufacturing
• [47:06] Advice for new investors entering the healthcare space

In this episode…

Healthcare transactions are complex, highly regulated, and often misunderstood. Whether you’re an investor, a healthcare provider, or a legal professional, navigating this space requires deep industry knowledge and a strategic approach. How can you balance business priorities with regulatory compliance?

Healthcare M&A facilitator Bart Walker recommends assembling a team of legal, financial, and operational experts to anticipate and mitigate risks. Stakeholders must conduct rigorous due diligence to uncover potential compliance issues early and address them proactively. Bart also encourages industry professionals to stay informed and adapt to emerging trends like increased state-level transaction reporting and the evolving role of AI in healthcare regulation.

In today’s episode of Transaction Healthcare, Zak Eisenberg meets with Bart Walker, a Partner at McGuireWoods, to discuss the regulatory landscape of healthcare transactions. He explores the impact of AI on healthcare regulation, why client communication is crucial during transactions, and the shift toward domestic pharmaceutical services.

Resources mentioned in this episode:

• Zak Eisenberg on LinkedIn
• Merritt Healthcare Advisors
• Merritt Healthcare Advisors email: contactus@merrittadvisory.com
• Bart Walker on LinkedIn 
• McGuireWoods

Quotable Moments:

• “In any transaction, it’s not just about numbers; it’s about relationships, trust, and long-term fit.”
• “The biggest deal killers aren’t necessarily compliance issues; they’re the unknowns that surface too late.”
• “Healthcare will always be a personal industry. No matter how much technology evolves, the human element remains critical.”
• “AI in healthcare brings both opportunity and complexity. The regulatory landscape will need to catch up quickly.”
• “Investing in healthcare is not like retail or tech; you have to understand the legal nuances or risk serious consequences.”

Action Steps:

1. Prioritize due diligence: Before entering a healthcare transaction, conduct a deep dive into compliance, regulatory risks, and operational challenges to avoid surprises during the deal process.
2. Build the right team: Successful healthcare transactions require collaboration between legal, financial, and operational experts; ensure you have the right advisors from the start.
3. Understand evolving regulations: With more states implementing healthcare transaction reporting laws, staying informed on both federal and state requirements is critical for deal success.
4. Prepare for AI-driven changes: As AI continues to shape healthcare, businesses should proactively assess how regulatory frameworks will impact their operations and compliance strategies.
5. Look beyond financials: A successful deal isn’t just about price; it’s about cultural alignment, leadership, and strategic growth. Buyers and sellers must align on a long-term vision.

Sponsor for this episode…

This episode is brought to you by Merritt Healthcare Advisors.

Merritt Healthcare Advisors is an investment bank with a unique focus on healthcare providers and their businesses.

Merritt leverages the healthcare industry expertise of its owner-operators, clinicians, investors, and advisors to develop surgical facilities that perform safe, efficient, and cost-effective procedures.

To learn more, visit https://merritthealthcare.com/.

Episode Transcript

Intro  0:04

Hello and welcome to Transaction Healthcare. I’m Zak Eisenberg, Vice President at Merritt Healthcare Advisors. Merritt Healthcare Advisors is an investment bank with a unique focus on health care providers and their businesses. Transaction Healthcare is a podcast focused on addressing questions and concerns at the intersection of healthcare, transactions and business.

Zak Eisenberg  0:24  

I’m Zak Eisenberg, a partner at Merritt Healthcare Advisors and your host for transaction healthcare, where we address questions and concerns at the intersection of transactions, healthcare and business. I’m joined today by Bart Walker, co chair of the healthcare and life sciences industry team at McGuire Woods, a large international law firm. Bart focuses almost exclusively on health care mergers and acquisitions, strategic joint ventures and health care regulatory advice. His practice includes advising health care providers as well as equity sponsors and lenders to the health care services sector in connection with representing health care providers. He works with hospitals, ambulatory surgery centers, dental services organizations, urgent care providers, large physician group practices and other ancillary services providers on their most important regulatory and transactional matters. Bart, thanks for joining me today. How are you? Thanks?

Bart Walker  1:18  

Zak, yeah. Appreciate you having me on doing great.

Zak Eisenberg  1:22 

Yeah, it’s good to see you again. I know we got the chance to catch up personally last week as well. So it’s good to see you again, and I’m looking forward to the to today’s conversation. So Bart, I wanted to start really by just letting the audience get to know you and your background. I’d love to just dig into how you got involved in the healthcare space that you got interested in law. How did you end up as an attorney? Let’s just start back back there, starting when a young Bart Walker is deciding what to do, maybe in college. How did you or maybe it was earlier, maybe your love of the law started even before that. How did you decide that you wanted to study law and then walk us through the story of how you ended up in health care and in transactions?

Bart Walker  2:14  

Sure, so it’s a good question, because I kind of just fell into it and the old adage, I’d rather be lucky than good. I kind of was in the right place at the right time, a lot of the ways, and just tried to make the best decision at the time with the information I had. I I didn’t have any nascent love for the law or the practice of law at all. I don’t have any lawyers in the family. It’s not like I come from a long line of lawyers or anything like that. Don’t really have any doctors in the family either, so I don’t really have much of a health care background. So I was undergrad at the University of North Carolina go heels. I was a walk on it, on the baseball team. So when people ask me what position I play, it’s usually their left bench or right water cooler. Got a few at bat, but I was able to get on with the team, and it was a fabulous experience. I just can’t say enough good things about that program and what it taught me as a person and as a student athlete. So I enjoy my time at Chapel Hill a lot, and when I you know graduation rolled around as what I want to do. I don’t really, don’t really want to get a job in the sense there wasn’t any opportunity out there. That was just something I felt like I needed to do. And I was a history major, so I kind of enjoyed reading and researching and analysis, and had grown to be a decent writer. I didn’t really become a good writer. I think I’m probably above average now, till I really started practicing law, and I was forced to really write and draft with precision and simplicity and all that kind of came behind the decision to go to law school. Law School gave me the opportunity to go to the University of Notre Dame, which was a lifelong goal of mine, and grew up being a fighting irish fan. And it was a great opportunity to share in the great community there for three years, and just a really special place. And beyond the football, which is great, although I have the distinction of during my time in law school at Notre Dame, I think we went through three head coaches. It was Bob Davies last season, and then they hired George O’Leary for about two minutes before they realized he had faked his resume. And so he was out within a week. And then they hired Tyron Willingham, and he was around. And then my last year, I think he was gone, and Charlie Weisz was on the way in. So I think, wow, right.

Zak Eisenberg  4:48  

But so, so you’re, you’re used to dealing with organizations at times of great disruption, yeah, exactly.

Bart Walker  4:54 

And hopefully it’s not my fault, but I have a hard time linking that, that. Causally to the coaching carousel at Notre Dame, which had had, you know, maybe three head coaches over the last 30 or 40 years. I went through four and three or so. Yeah, that was a very special place. And I learned at Notre Dame, how does they say you learn how to think like a lawyer? And it’s a very analytical way of thinking about the world, and it’s a very didactic, Socratic method of asking questions and testing assumptions and digging deeper on issues and really learning to debate and dialog. All of those are really useful skills to me in negotiating deals today, law school really prepares you pretty well to be a litigator. They teach you a lot about case law, and they teach you about statutory analysis and arguments and court process and procedure, some con law, constitutional law, some criminal law. So you learn you have kind of broad based legal education. It really doesn’t prepare you for work in the transactional space I did take, you know, mergers and acquisitions, business corporations, federal tax like some of the core principles that undergird a lot of the transactional work I do now, but in terms of actual practice and drafting purchase agreements and negotiating employment agreements and structuring of entities like None of that’s really taught in law school, but I’m McGuire wood lifer, so I was a summer associate with McGuire Woods in 2003 in the Chicago office, and on the theme of change, my first day as a summer associate in Chicago, they announced they were merging with a Chicago firm. It was about 100 and 150 years old, named Ross and Hardee’s. So on the very first day as a summer associate, I went from an office of 20 lawyers to, you know, 150 175 so by the time I returned after I graduated from law school as a first year associate, it was much, much bigger presence in Chicago.

Zak Eisenberg  6:59  

If you could pause, pause there. I wonder how that experience colored the rest of your careers interest, because one of your first experiences as a lawyer was dealing with your own firms, M and A transaction that just occurred. And so yeah, maybe, maybe it didn’t impact you at all, which is fine, then we can move on. But it seems like that, especially at such a critical time for you, when you were first starting out, maybe that colored things for you moving forward, and sparked an interest in the transaction space.

Bart Walker  7:36  

Yeah, it’s an astute observation, because it taught me very quickly that changes reality, and there’s a lot of opportunity and chaos, and anytime you have a merger or any kind of significant change in an organization, it creates winners and losers, and it’s not not in a pejorative way, but it creates opportunities. It creates, you know, some obstacles, some challenges, but also opportunities. And what I learned was you need to constantly be evolving and constantly be pushing the envelope in terms of just improving your skill set and improving your network and your relationships. That’s really what business is built on, is relationships. And I was about a year in, I was practicing in our corporate and public securities group, doing things like public offerings and tender offers and share exchanges and things like that. And it was, it was okay, I would say it was sort of akin, for me personally, as doing long division in a in a closet, a little bit, you know, as a first year associate, you’re kind of just doing, doing the hard work, which is essential, but it’s not the most riveting thing in the world. And so that department at that time, you know, 20 years ago now, was was slow at that moment in time, and I picked up a random health care project, and Scott Becker, who’s been my mentor and a good friend, for years now, that decision really made all the difference. I picked up this random health care project, and I really kind of liked it, and it was interesting. And I had actual client contact. There were real people I was interacting with on the client side. And, you know, about six months into that, two things happened, which really changed the course of my life and my career, which was my wife and I just got married. We found out we’re expecting our first child, and I decided I wanted to change from the corporate securities group over to the health care group. And so I sat down and had coffee with Scott Becker. I said, Look, you know, the firm has an office in Charlotte. There’s not really a health care partner there. You know, I’m a very junior associate, but I’m willing to do whatever it takes to be successful. So I’d like to move back home, and I’d like to join your department. And Scott, to his credit, trusted me with that. And he said, Absolutely, you know, you’re terrific. We want to keep you and see your career grow. And that trust he he put in. Me at that moment in time really changed the trajectory of everything else, because two things, one is it made me feel incredibly supported by the firm and by him personally, but then also it made me feel a sense of responsibility that I needed to take that opportunity to make the most of it. So now here we are. You know, 20 years later, sitting in Charlotte, I’m here in the office, and we’ve got eight full time health care lawyers here in Charlotte. Our health care department is one of the biggest in the country. You know, I’m just a small piece of that, but for me, personally and professionally, it really changed the trajectory of everything I was doing. So I guess the two takeaways, the big kind of themes from that, is is people and trust and responsibility are really something you can build a business on, and that goes for any kind of business. I mean, we’re in the professional services industry, the professional services business, whether you’re a lawyer or a banker or an accountant or any kind of other professional advisor. I think those topics are, those themes are broadly applicable.

Zak Eisenberg  11:00  

Yeah, and Bart, you know, it’s interesting to me, always how personal life changes dictate so much of what happens in someone’s professional life. So makes a lot of sense what was happening to you at the time, but and why you made that decision to move to Charlotte, but at the same time just to give you some credit, I know you’re also the co chair of McGuire Woods health care department. So yeah, no, no one person is an island unto themselves. And maybe this actually goes back to your time in college, being part of, you know, sports team and and recognizing the fact that, you know, even, even being, I think, as you put it, the bench warmer and, and a right, right cooler operator was, was still an important part of that, that teamwork, and it’s one thing that I think lots of people listening to this podcast will maybe not totally understand about transactional attorneys, because for the most part, people only deal with them once in their life, except for deal people like you and I, or maybe some investors. Is that having that team, that team mentality and that cooperative mentality when you’re going into a transaction process with your whole team, not just your lawyers, not just your bankers, not just if you’re sitting on the investor side, not just your investment team, but the whole team working in conjunction, is so critical to moving those deals forward and coming to a resolution, whatever that may be for for whoever the client is at the time. So I know I’ve always appreciated that value, and it’s just, it’s interesting, I think, for folks to hear how your mentality and your philosophy has developed over the years, which, again, like for all of us, is always driven by personal transitions. So yeah, again, with that, yeah, sorry. If

Bart Walker  13:10  

I could just add to that, I think you’re exactly right. In fact, it’s something we insist on, both here internally at the firm and in working with our clients, we insist on a team approach, and it’s something that I look for when we’re interviewing new lawyers coming out of school or lateral partners, is the ability to work as a team. The days of having like a single rain maker are largely over. The way we approach client development and client relationship management and deal execution. It’s all team based. And sometimes we’ll go on a call and the client will say, Well, why do we need our accountants on? Why do we need our financial advisors on? Or why do we need, you know, an extra associate or two? And my point is number one, if I get hit by a bus tomorrow, you’re screwed, like, if you have one guy who knows everything about your business that’s not going to do it on a transaction of any size, you need all these people thinking actively about the issues that you’re trying to solve. And if we only have, if we’re just staying in our lane, and we’re sort of in our silo, there could be something critical from a tax perspective or a financial perspective that we just were blind to. So it’s solving for those blind spots. And the only way you can do that is, is in the team. Yeah,

Zak Eisenberg  14:26  

it’s a, it’s a, it’s a great point. So just getting back to the your your trajectory, and how you ended up in healthcare, which I think will be the meat of this conversation. So you had this opportunity with some members on your team, and you started working in health care. And one, one thing that I was just writing down that you said that you had some real client contact with this health care client, and also on transactions, how important is. It for you, even now and as you start to work on health care, specifically to have that contact. But also, how do you think about health care in comparison to your other experience in terms of its unique challenges and subsets of challenges? So you mentioned a team approach. I I’m familiar with some of the issues that come up, but you know, obviously, from your perspective, there are plethora of other areas that that I think you’re probably thinking about and juggling around in your head as you’re talking with clients or prospective clients.

Bart Walker  15:36  

Yeah, so this, the subject matter or the actual substance of the work I’m doing is actually secondary to the relationships and to the people that I work with, and I alluded to earlier, I sort of fell into health care. It wasn’t like I was seeking that out or had real interest in health care. I was a undergrad. I was pre med to start with, didn’t really love that culture, and sort of everyone scrapping for every half a percentage point on your grade. And it was just I didn’t like that environment. I’m very competitive person by nature, but that just wasn’t a good fit. I was decent at science and math, but not not great. So I kind of fell into the health care world, but I see a lot of similarities in health care services, generally, to my team background. And as you said, health care, by its very nature, is a very personal business. It’s a very personal matter. And as much as we evolve technology and systems and processes, you’re never going to get away from that. There’s always going to be person to person contact. There’s always going to be a very personal endeavor. So I think that attracted me. I’m not naturally a very extroverted person. I tend to be pretty introverted. So I’m I’m better in smaller groups. I’m better in kind of one to one situations, but from a service perspective, I just keep going back to the team and culture. I don’t think I would ever leave for another law firm, because the culture here is such a good fit. It’s an environment where, sure, personal initiatives rewarded, but it has to be done in the context of a team. It’s not going to be where you’re promoting one person because they are singularly great. It is because of their ability to make other people around them better.

Zak Eisenberg  17:34  

Yeah. And so when you’re thinking about and maybe we just dive into the clients you’re dealing with, which are on the health care space, I assume. How do you think about putting the right type of team together based on the client? Is it? Do you have your go to folks? Or do you really customize your approach based on the client situation? Maybe just talk about, you know, I guess the using a sports analogy, you’re putting your roster together for that particular deal or or process, whatever, whatever it might be,

Bart Walker  18:15  

yeah, the first thing is, you have to look at the elements of the problem you’re trying to solve. So going back to your initial question on the types of clients I work with. Everything I do is health care. The vast majority of that is health care services and health care providers. So it’s hospital surgery centers, physician practices, ancillary services, providers, anyone that is treating patients, billing and collecting for reimbursement. That’s the meat and potatoes of my practice. I also have what I’d call a minor in pharma services, which is this whole ecosystem of companies that provide services to Big Pharma, whether it’s contract research organizations, clinical research organizations, cdmos, drug development, manufacturing, supply chain, those kind of things. Increasingly, our practice has become more and more focused on private equity, because there has been such a huge investment by private equity in health care, and a lot of our private equity fund clients are now, I wouldn’t say, shifting away from health care services, but also putting some lines in the in the pond. On the pharma services side, we’re not seeing them invest directly in drug companies themselves, per se, but they are investing in companies that provide services to the drug companies. So it’s a way to get exposure to life sciences in a way that doesn’t have the binary outcome, risk of a new drug approval. For example, there’s a lot of companies out there that are more venture capital phase, companies that are pre revenue, that are really hanging all their hopes and dreams on one drug or one compound or one large molecule, that. Can be a very risky business. It can be very, very rewarding, very profitable. But from a PE buyout shop perspective, which is by and large our client base, beyond the healthcare services providers, it’s, it’s not really the game they’re playing. So that, from a client perspective, that’s, that’s who I serve and who I work with, predominantly in terms of bringing a team together, and you have to look at what their challenges are depending on the type of company. In the healthcare services world, there’s almost always some kind of a Stark law issue or anti Kickback Statute issue. There’s almost always tax issues associated with these transactions and trying to structure it in a way that’s as tax efficient as possible. On the life sciences side, there’s FDA components to that, sometimes legislative affairs or regulatory affairs. So you sort of look at the roster from a skill set perspective first. And fortunately, I work in a place where the table stakes are that you’re a very collegial type person, and again, going back to team, not to beat a beat a dead horse, but I know some places it’s hard to find people to work with you, or it’s hard to find people to staff your deals. Here I don’t really have that problem. It’s more a function of just finding the right fit, and then beyond that, you get into things like personality fit right like some people just naturally click with certain clients over others, or have experience in one particular niche. So you try to sort of triangulate that Venn diagram, and you come up with your your core team, and then you augment that, that core team over time. Yeah,

Zak Eisenberg  21:32  

I think it’s okay, but wait for you to keep bringing up team, because, you know, honestly, when I speak with clients, I do the same thing, mainly because I think transactions in general, if people have heard of it, they’ve usually heard of it in the context of Wall Street and being very cut through it, right? And so anyone who’s in transactions, whether it’s an attorney or accountant or investment bankers or investors, gets kind of lumped in into this one bucket of transaction equals cutthroat, right? And you probably shouldn’t trust them a whole lot, and it’s totally understandable, given that most people that interact with this, again, maybe not your private equity clients, though, maybe some of them are new entrants to healthcare, so that would be new too, but especially if it’s founders or operators, which is how we we know each other. Mainly, it’s usually their first time going through a deal, maybe their second time, and that’s very rare if it is, and so they really only know what they’ve heard or kind of read about. Generally, they probably have never met many transaction focused professionals. So yeah, it’s, I think it’s important to keep hammering that same point. One thing I was just listening to, as you’re talking about some of the concerns of your PE fund clients, and then even of some of the owner operators, is it sounds like a lot of the same types of concerns come up in when in a transaction context, whether you’re going through a capital raise or an M and A transaction or some sort of divestiture, that you’re thinking about similar things from the get go and maybe going down a list in your mental list of items that you need to check. If it’s a healthcare services company, like you said, maybe it’s stark or or some other items. And then for the pharma services side, maybe it’s more FDA related, but maybe we could just spend a little bit of time on that just generally. How do you think about prioritizing those items off the bat, and then secondarily, how do you balance, let’s say, actually confronting those issues versus the other pressures that you might feel in the context of A transaction, like timing or maybe oftentimes, for thinking your clients are thinking about pricing or things that might typically fall out outside of your purview. How do you how do you balance that?

Bart Walker  24:10  

Yeah, yeah, it’s a great question, and there’s a few different ways to think about it for so let’s just take a case study example. Let’s say we’re hired by a client to help sell the business, or we’re on the buy side, and we’re looking at a new opportunity. The first thing we do with our clients is we sit them down and say, Look, we need to take a very hard look at the mirror and see do what we find. We need to make sure before we go out to market that you’ve got your house in order, because we know for sure whoever’s looking at buying this is going to be doing due diligence for potentially several months. They’re going to find out everything. We need to be prepared for that. We need to understand if you do have problems or challenges. For example, do you have billing and coding audits? Do you have rack audits? Do you have government investigation? Regulations. Do you have ongoing litigation? Do you have compliance issues? Do you have real obvious misses in your business and and that’s okay, we can deal with all of that. The things we can’t deal with are the things that we don’t know about. So it just needs to be radical candor on all parts, so that we have total visibility into what’s going on. I think sometimes clients are reluctant to tell their lawyer something, because they’ll find an issue well, I’d rather know about it and then be able to advise them on No, that’s not something we really need to worry about. Or Yes, based on the last dozen transactions we’ve done, this is absolutely going to be a focus, and we need to tell the story of not only what the problem was, but what we did to fix it, and what the total economic exposure of it is. None of those are deal killers, or I’d say, rarely are those deal killer type issues. And the sooner we know about them, the sooner we can address it and then tell the story so that we can assure buyers that this, you know, really isn’t an issue. Sometimes there are big issues, and sometimes there are deal killers, and it puts the process on hold for, I don’t know, six months or a year, depending how long it takes to straighten it out, but most of the time, we can work through it, and it doesn’t become a timing issue. It doesn’t become a pricing issue, but if we don’t know about it, we can’t really do anything.

Zak Eisenberg  26:19  

Yeah, it’s a great point. You know, obviously we think about similar things on Orient, though, from a slightly different lens, I I’m curious also Bart, how you think that those deal killer points, or what is your reading of how those deal killers as you, as you frame them, have changed over the last five to 10 years. How have because I’m sure it’s not the same basket of points that are critical to the other side of the table or to your client if you’re working on the buy side, right? So just thinking with both paths, how is that equation changed for for you and for your clients, really over, yeah, let’s say, you know, the last five to 10 years and and then maybe also after that, a bit different of a discussion. I think, how has that, or how do you think that will be changing over the next, next five years, let’s say, because 10 years is a little hard to talk about. But yeah, the next next five years?

Bart Walker  27:27  

Yeah, I think it also depends on who the potential buyer is in a transaction, different buyers have different sensitivities to health care, regulatory turbulence in a deal. I think if it’s an investor that has really not done a lot of investing in the health care space, they can get spooked pretty easily by a billing and coding on it, whereas somebody that’s seen a million of these understands the context and that it’s really not an existential threat. So you have to consider the audience. You have to consider who the buyer is and how they’ll perceive whatever you’re you know you happen to be dealing with it can winnow out some buyers from the pool, but in my mind, it’s not a bad thing. You find out very early on who has the stomach for things that come up. And keep in mind, if you are selling the company or doing a majority control type deal, these are the people who are going to be your business partners for the next 357, 10 years. So you need a partner who’s going to be able to weather that storm with you. So you find out very quickly what people’s tolerances are in terms of risk in health care, there’s a lot of gray areas where there’s not a clean answer. It’s yeah, maybe this is a little bit off, but here’s why it’s manageable, or here’s what we can do to manage that risk. Other situations are just so clearly over the line that there’s really not much you can do about it. And in those situations, there are some self disclosure and self report mechanisms you can use, at least with respect to the federal government and certain state Medicaid programs, those are the kind of the most heavily policed areas in the direct reimbursement world. So I think what’s changed is there have been more health care investors out there that have seen more deals. So I think they’re overall less spooked by little things, generally speaking. Of course, if you get somebody that’s their first health care deal, they’re not unless they’ve got good advisors that they listen to, they’re really not going to know what they’re looking at. It’s very easy to tell a client, oh, technically, the legal answer is, this is bad. Well, what does that mean? How bad is it? What’s the magnitude of that? You really have to provide some context around that, and that’s the judgment part that I think keeps my job interesting, because there is a lot of creativity around it, and you have to see a lot of deals, and you have to see a lot of health care issues to be able to have that judgment to. Concern between what is a real problem versus what’s a more manageable problem. And you really can’t develop that any other way than just doing a lot of this work and playing in the space every day. Otherwise, it’s very easy to just come in and, okay, here’s the laundry list of issues we found. Well, okay, but what do I do with that? What’s the significance of that. What’s the impact on the business going forward? It’s really hard to look too far ahead. With the current administration, there’s just so many changes at the federal level. On a day to day basis, it’s really hard to keep up. The previous administration was moving very heavily in a direction of tighter anti trust enforcement, some attacks on the enforceability of non competes, especially for physicians. Both of those issues were very top of mind from a structural perspective and from an investor’s perspective. Going forward, it’s unclear what’s going to happen on either of those two fronts, but all indications are that it’s going to be a much looser regulatory environment. There’s at least some level of dismantling of the administrative apparatus where largely in health care, at least a lot of the rules are made by regulation. They’re made by the Centers for Medicare and Medicaid Services. They’re made by FDA. They’re made by Health and Human Services, with delegation of legislative authority from Congress. And so with, with, with that dynamic, coupled with, there was a recent court, Supreme Court decision that overturned the chevron doctrine, which, in a nutshell, it gave broad deference to the administrative agencies and their rule making capabilities. And what this Supreme Court case said was that that that’s going to end. Congress needs to legislate. Congress needs to pass laws and agencies, you can’t just Congress can’t just delegate that authority to the agencies and forget about it, and just leave all this rule making those details need to be sorted out at the congressional level. So looking ahead, I think there will be a heavier focus on what’s happening in Congress, not just at the federal agencies. I think there will be a heavier emphasis on state level legislative activity and regulatory authority. We’ve seen a number of states passing mini HSR or mini anti trust laws that require reporting of health care transactions. So a number of states now, before you do a deal of a certain size, you actually have to report it to the state, and they’ll review it and give you feedback and comments. They might even take steps to try to block the transaction. So that’s a different level

Zak Eisenberg  32:44  

of scrutiny. You see that expanding in the in the future, across more markets or or within those particular markets.

Bart Walker  32:52  

Yeah, that certainly seems to be the trend. And we track this on a day to day, week by week, month by month basis of what’s happening in a bunch of different states. They’re spending legislation in four or five states right now to either ratchet up their existing state health care transaction reporting regimes or to introduce new ones. So it’s, I mean, it’s a real thing,

Zak Eisenberg  33:19  

yeah, Bart. It’s interesting just listening to you speak at thinking about overall thematics. To me, one of the adages about health care really rings true, and what you said, which is that in health care, whether you’re on the investment side or you’re currently operating in the space, it’s important to remember that in one form of or another. And this isn’t just true in the US. Maybe it’s slightly less true in the US than in other countries. You’re in business partnering with the government in health care to a very large extent. And whether you’re in health care services, which is more directly to your point, engage with the government or in pharma services, which ultimately is also still tied to the government, because a lot of those reimbursements that flow into the pharma companies which are paying those services, companies are dependent on regulation to a large extent as well. The government has a lot to say about how health care is operating and how the business of health care is is carried out. I am specifically was curious, and you know, you didn’t bring it up, so hopefully this stops you a little bit, but especially with the advent of AI right now, especially thinking about healthcare, which, as you know, is a very is a an industry with a lot of inertia. So it tends to be very difficult for business models and the way care is actually delivered to change rapidly, which I think. Is in other juxtaposition to where AI is headed. But assuming, from my position, just, you know, reading the tea leaves a little bit, which I know lots of transaction people like to do, it seems like AI is going to to me Come come into friction with health care a little bit, probably from a regulatory perspective, but maybe otherwise, just because of that dichotomy where AI companies and the technology itself wants to move very quickly, but health care as a system does not just maybe, what are your thoughts on this, and how do you see states, and maybe states are already starting to regulate it in this space, and I’m unaware of it. But how do you think about advising clients on you know, the risk here, the opportunities, how to navigate this very, probably very uncertain time, reflecting this, this brand new technology, which, of course, is going to transform, uh, all parts of society. Yeah, it’s

Bart Walker  36:08  

it’s hard to generalize, but at least looking at the large language model, style, general AI capabilities, now, quickly it’s evolving. It’s going to depend on the use case for a lot of it. I see two potential obstacles to use of AI in the healthcare services world. One is one is regulatory, the other is more patient driven. The regulatory obstacle that I see is how these models are using patient information in particularly, in particular, the security of that information, and then what it does with that information. HIPAA can be very restrictive in terms of how patient data is transmitted, stored and shared, and I see some the current regulatory regime with HIPAA, and also state privacy laws really doesn’t allow for free sharing of information. There’s definitely some friction there about what types of information you can share and how and just use a personal example. So we’re a law firm, so client confidentially, confidentiality and attorney client privilege are incredibly important to us. So we here at the firm, are piloting some AI software, but we use it solely internally. None of that data is out on the cloud. And in fact, we are not allowed to feed any client data into that AI software. So we use it in like so for example, one of the use cases we have is we can feed the entire corpus of Stark law regulations into it, which is 1000s of pages. And so we can train the large language model on that, and then ask it questions about about the law. So we can use it as a tool in that regard, but we can’t feed client information into it. Similar in the healthcare context, it could be the situation where you can feed large amounts of data, large amount of research into it, but taking that next step of actually feeding patient information into it and then starting to draw conclusions from that or make recommendations on diagnosis or treatment of diseases. I think that’s going to be very difficult to do, at least now. I think there’s issues with potential reliability of those answers, and that’s kind of the technological regulatory piece of it. The other obstacle I see is more one of patient comfort. I think patients are going to be just inherently skeptical and uneasy about a situation where their doctor punches in some data about them into into an AI system and then gets a recommendation out. I don’t think you can ever really divorce the human element from that. So I think in terms of patient adoption, there’s going to be some friction there as well. Over time, I think that will change. I think the models will get better. I think our use of it, and how do we think about AI and what its role is, will change. But you’re never going to get to a situation where a telemedicine visit is purely AI like I don’t think that’s going to happen anytime soon, but I’m really interested to see how the industry can leverage the technology in ways that solves for both of those two things. I’ve not seen anybody do it yet, but this is evolving so quickly. You know, it’s, it’s tough to tell where it’ll go. Well,

Zak Eisenberg  39:42  

if history is a teacher, the industry will be extremely slow to adopt. Yeah,

Bart Walker  39:49  

I think that’s right. I think that’s right. You can, you really easily see a situation where, you know some, some, somewhat, i. Medical, legal, ethical issues arise around, okay, you put a patient case into an AI model, and there’s a whole menu of potential treatment options. Does it have a bias towards a lower cost treatment model? And is that what’s best for the patient. I don’t know the answer to that, but you could definitely see a situation where an AI model spits out, well, this is the appropriate treatment for a patient. Well, okay, but that may not be the best. Yeah,

Zak Eisenberg  40:33  

so expensive Bart is interesting. You’re skipping ahead, I think, to where this technology will ultimately go, which is potentially as a independent agent or as an operator that is replacing, in some fashion or another, providers. To me, the more interesting and likely path is really augmentation, and honestly, we’re already seeing this with some of the smaller practices that we come across where, you know, physician is looking at some image, let’s say it’s a radiologist or intra operatively, a physician is looking at some sort of CT scan or intraoperative image, And this AI system is recommending that the physician or surgeon or whoever looks at a particular area. So it’s not necessarily recommending anything or saying what it is. It’s basically saying the way these systems are working right now is it has a certain percentage confidence level or reliability, to your point that this particular area might be one of, you know, three things right based on its its experience, but really it is passing that to the provider for them to make a decision of, should I investigate this more? Is this in the best interest of the patient? All the aspects that you you brought up earlier, but yeah, it’s, it’s an interesting area, I think, of of treatment that, of course, will need to be, I think, adjudicated in not only the court of public opinion to your point, from the patient perspective, but also from a regulatory and and congressional standpoint as well, which is, yeah, just just fascinating how quickly this is already starting to impact this space. And if it’s not coming up already with your clients, though, I’m sure it is, to some extent, I’m sure it will be coming up with every client that you come across in the coming years, and, yeah, it’s, it’s, it’s, it’s, it’s interesting to hear about that. So, so those are two major areas. One is the regulatory regime. Obviously, there’s a new administration in place, just thinking forward over the next, over the short term, next four years, that’s, of course, going to have a big impact that we just talked about. Ai, maybe you can talk about the pharma services side, because we didn’t talk much about that. What? What do you see shifting in that landscape? Are there any technology changes there through the, you know, increased prevalence of CROs and cdmos and their management of the pharma research process that you think will have an impact or or is it a similar answer where you know some combination of technological change and an administration is going to impact that area as Well?

Bart Walker  43:40  

Yeah, a little bit of both. We’ve seen a lot of growth with niche players. And when I say niche, I don’t mean to say it’s small. It’s such a big piece of the economy, and it’s such a large industry, that you could have a very small niche in a particular in a particular area and still be a very large addressable market. So we’re seeing clinical research organizations evolve in that direction where you have a very specific goal or specific population that you’re addressing. We’ve also seen a stronger movement to building domestic capacity. I think COVID taught us that the US needs stronger manufacturing supply chain, in particular things like cold storage and sterile fill finish. I think there are a lot of areas where we could improve economically here in the United States that are getting a lot of investment attention. So, you know, because

Zak Eisenberg  44:50  

most of this manufacturing capacity is overseas, right, just to That’s right, the audience, yeah, that’s right. Sorry, yeah,

Bart Walker  44:59  

yeah. In particular, in. China too. A lot of the drug manufacturing happens there. And you you know, there’s a certain amount of risk there, not just political risk, but also just geographically, shipping something across. The notion is not ideal for a lot of these products.

Zak Eisenberg  45:17  

Interesting. So you attribute this more to a COVID realization than, say, a change in administration, because obviously, it’s no secret that the Trump administration is anti China. But, and I wholly agree with this perspective as well, considering it really has been bipartisan, the move to move the move to domicile more and more key manufacturing, not just in health care, but in high tech in general, here in the US for national security purposes, but I think also long term, the world is going to need more of this. It makes sense for the US, not just to have the IP and services around this, but also to be the best place to actually produce much of this. So maybe we double click for a couple minutes. There are, and just from your perspective, when you’re thinking about opportunities in this space, aside from the challenges of operating, which I think is what we’ve been talking about, what are some of the challenges that you see when maybe you’re advising investors about entering this space for the first time, or maybe you work With other, I don’t know entrepreneurs who have been successful in one arena, let’s say retail, but they’re thinking about making an entry into health care. What are the top things that you you advise them on in terms of the challenges of starting something or or investing for the first time in health care. Maybe it’s no different, really, from what we’ve already been talking about. But

Bart Walker  47:06  

curious. Yeah, no, I think there are some key differences. I think the first thing I do is try to level set with them, that health care is a is a different animal. There are lots of business practices that are totally accepted in other areas that just are either flat out illegal in health care or are just not commonly accepted from transaction structures to compensation relationships. The perfect example is paying for referrals or referral bonuses or fees when you’re dealing with physicians or health care providers, you have to be very, very careful about those kind of things. So that’s one thing, is be prepared for a much, much heavier regulatory lift in the health care services sector that can be both an obstacle to overcome, but it can also be a moat to competitors. So if you’re an investor that is able to get comfortable with that regulatory regime and understand it and know how to manage the risk and mitigate the risk that presents themselves, you’re going to be in a better position. You’re going to have a broader pool of potential investment opportunities than somebody that doesn’t take the time to really educate themselves on that. The other thing, when somebody is coming in to invest in health care services for the first time, it’s usually they’re usually coming from an adjacent space, like using the retail example or consumer products example, we have had some fun clients in particular that have a strong background in retail or consumer products. There are certain sectors of health care that lend themselves more specifically to that. So, for example, dermatology, cosmetics, certain types of Opto. Opto deals Dental, to an extent, there are definitely some consumer elements to that in the patient experience. So from an operator and an investor’s perspective, there are some principles you can apply from those those different industries to health care and some of the most successful health care investors come from those backgrounds, because they understand that it’s not that they’re necessarily selling a cure or they’re selling a patient experience. They’re selling a patient on peace of mind. They’re selling them on responsiveness. And so you compete on that basis, rather than on just sort of financial engineering that’ll only get you so far. I think the days in healthcare services of buying a platform, just adding on a bunch of stuff to it and making it bigger, that doesn’t really work anymore. There really has to be some kind of cultural element to it, and some kind of operational integration and leadership in a way that makes it greater than the sum of its parts. So we’re definitely seeing that too, the kind of the old roll up models just You’re really not going to get much juice out of that squeeze. It has to be something else beyond that.

Zak Eisenberg  49:53  

I think that’s really a great advice part, because one thing I think we probably have both noticed. Over the last five years is just the number of firms, not just here in the US, but globally, that are interested in investing in health care. And again, not just us health care, but globally, health care is, of course, a growing industry, not just because the population is growing, but in many countries, the population is growing. It’s growing older, and in many cases, it’s growing sicker, which is unfortunate, but it just means over the next several decades, 30 or 40 years, there’s going to be an increased demand globally for health care services, broadly, and pharma services, visa. Vi, that Well, I think that’s a great place to to stop, Bart, I really appreciate your time today. It was a great conversation as usual. So appreciate you coming on, and I’m sure, I’m sure everyone listening will gain a lot of insight from this conversation. Thanks again. Yeah, really,

Bart Walker  50:55  

really appreciate it. Zak, and just love the folks at Merritt . We’ve worked with you guys for a long time, and we’re always delighted to speak with you and work with you. You guys are a pleasure.

Zak Eisenberg 51:09  

Good deal. Thanks, Bart, and that wraps up another episode of transaction healthcare. Hit the subscribe button to get notified when we release new conversations. And if you are someone interested in learning more about these topics, visit us@Merrittadvisory.com or send us an email at contact us@Merrittadvisory.com.