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Special Report: Newcomer Esencia Healthcare has spotted an opportunity for disrupting the allied health services industry in Australia.
Australia’s physiotherapy and health services industry is a $2.8 billion market.
It’s also highly fragmented, with more than 35,000 practitioners across the three major sectors — physiotherapy, osteopathy and chiropractic services.
And that’s where Esencia Healthcare has spotted an opportunity for disruption, by grouping specialists to create a market-leading allied health platform.
Launched in 2019, Esencia now has 26 leading vendors under its banner across Australia, with a total of 54 clinics under fully executed BSA to complete at IPO.
The key feature of the platform is that it aims to provide a combined service offering under the one roof comprising physiotherapy and chiropractic services, along with diagnostic imaging and other allied health services. Aggregating the complementary services helps drive profit growth, while also cutting cost via the streamlining of back office processes.
CEO Dr Martin Timchur said Esencia can also set itself apart from competitors by adhering to an overall “wellness mindset” when treating patients, as opposed to merely pain relief.
“When focusing on goal-orientated care to improve a person’s health, the result is a much longer-term management plan as part of an evidence-based best practice model, which happens to align nicely with improved patient retention, revenue and profitability,” he said.
Esencia’s current portfolio of clinics generated earnings before interest and tax (EBIT) of $10.3m for the 2018 financial year, on revenues of $43m.
Dr Timchur is now focused on expanding the group’s pipeline of leading clinics ahead of an ASX-listing later this year.
Cream of the crop
Since joining the company in August last year, Dr Timchur has put a premium on quality.
Stricter criteria around revenue and core earnings were put in place, which saw the number of vendors on the platform fall back to 26 from around 70.
As a result, the Esencia clinics operate with an average EBIT margin of almost 24 per cent — well above the industry average of around 10 per cent.
And for the model clinics in the group’s stable that offer all three services — physiotherapy, chiropractic and diagnostic imaging — the EBIT margin rose to over 30 per cent.
As a result, Dr Timchur said building out that functionality will be one of the company’s key focus areas over the next 12 months.
“We want to make all 54 sites multidisciplinary. The plan is to scale up the rollout within the first three months of listing to add additional modalities to existing clinics, for example adding a physiotherapist to a chiropractic clinic,” he said.
Capital raised from the ASX-listing will also be allocated towards completing the acquisitions of foundation vendors.
The commercial terms upon joining Esencia include strong vendor incentives, to help attract aspirational partners that want to grow their businesses.
Along with a five-year service and facilities agreement, 30 per cent of the purchase price will be stock which is subject to a clawback provision if EBIT margin targets aren’t met.
For each vendor that joins the platform, no rebranding is required. The clinics will keep their own name and branding but operate under the Esencia banner.
Do what you do best
Aggregated strategies have been trialled in other industries with varying degrees of success.
One frequently-cited problem is the integration challenge; how to successfully streamline operations for multiple businesses which all use different software for accounting and logistics.
However, Dr Timchur says the physiotherapy and health services sector is ideally suited to the model.
“These are relatively simple businesses — they’re primarily a cash operation where the patient walks in, pays their bill and the money’s in the account. And there’s very little bad debt,” he explained.
He added that the senior staff at the company all have industry backgrounds with a sound understanding of patient management systems, while the front-desk logistics software is already quite standardised across the industry.
“We’ve outlined a plan to transition across to a single practice management system in the first 18 months after listing without disrupting the business,” Dr Timchur said.
“Put a committee together to look at software solutions, decide on the best version, purpose build to fill in gaps, then roll it out in pilot sites before shifting to a full transition.”
Ultimately, the benefits of integration are reaped by the individual practitioners, who are given a platform to focus on what they do best.
“The main reason physiotherapists and chiropractors got into this business is because they love to help their patients,” he said.
“But at the same time, it’s frustrating to manage staff, accounts and payroll. This gives them an opportunity to have someone else manage the back office so they can work with patients.”
Despite cutting down the number of clinics on the platform, “we still get approached every day by people who want to bring their business to us, because they believe in our vision and want to be a part of the future of allied health service delivery”, Dr Timchur said.
In addition, around three quarters of Esencia’s clinics are run by the younger, aspirational demographic who want to grow their business. And it’s an area where Dr Timchur thinks Esencia is uniquely placed to add value.
Smaller clinics find it difficult to implement satisfactory clinical training programs in specialty areas of healthcare, which means young clinicians often have to pay privately for short courses.
“As part of Esencia’s foundational acquisitions, we have acquired an online training platform to better service our clinicians desire to upskill,” Dr Timchur said.
“The aim to provide better quality services to the community and become Australia’s number one employer of choice for allied health practitioners.”
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