CRH Medical to consolidate GI anesthesia market

Edward Wright

Edward Wright

With four acquisitions and a joint venture under its belt over the past 10 months, CRH Medical (NYSE MKT:CRHM; TSX:CRH) is in talks to continue consolidating the large and fragmented market of gastrointestinal (GI) anesthesia providers that serve the GI market.

“Our goal is to be the leader in GI-focused anesthesia by leveraging the reputation we’ve established and relationships we’ve built through our CRH O’Regan System for gastroenterologists performing hemorrhoid ligation,” CEO, Edward Wright, says in an interview with

The company created a paradigm shift in the GI sector with the CRH O’Regan System by giving gastroenterologists an opportunity to effectively treat hemorrhoids, which they often diagnose during colonoscopy procedures for colon cancer screening. That opened an untapped revenue stream for gastroenterologists.

Through a physician-to-physician approach, CRH has trained more than 2,000 gastroenterologists in the U.S. to use the CRH O’Regan system, with more than 750 GI practices actively using the medical device. Over 700,000 procedures have been performed with the CRH O’Regan System.

“These physician-to-physician relationships have established CRH as a valuable partner to the GI community and opened the door to our proactive approach in identifying high-value acquisition targets within GI anesthesia,” Mr. Wright points out.

The GI practice, ambulatory service centres (ASC) and the anesthesia group all bill public/private payers separately. However, the Office of the Inspector General of the U.S. has issued an opinion that casts doubt on the legitimacy of anesthesiology providers owned by gastroenterologists.

“This has acted as an incentive for gastroenterologists to consider monetizing their anesthesia service business,” Mr. Wright contends. “And we believe we have a competitive advantage in GI anesthesia acquisitions because of our history with the O’Regan System as a value-added service within the GI community.”

According to Mr. Wright, there are roughly 800-to-1,000 GI-specific ASC in the U.S. that only perform endoscopic procedures. Moreover, the market is dominated by generally smaller anesthesia groups.

“Our target market is both large and fragmented, being dominated by smaller groups servicing one-to-three ASC. Our acquisition model is to consolidate this market taking advantage of our reputation as a trusted quality service provider.”

According to CRH Medical, the GI practice, ASC and the anesthesia group all bill public and private payers separately

According to CRH Medical, the GI practice, ASC and the anesthesia group all bill public and private payers separately

Mr. Wright points out that roughly six million endoscopies are performed each year within the company’s target market. “We currently provide services for approximately 100,000 procedures a year, so there is significant potential for growth ahead.”

Market conditions are also in CRH’s favor as endoscopic procedures continue to shift from hospitals to ASC’s, which are generally more efficient than hospitals. In addition, Mr. Wright says the co-pay and deductible for anesthesia associated with screening colonoscopies was eliminated as part of the Affordable Care Act.

CRH kicked off its move into the anesthesia market in December 2014 with the acquisition of Gastroenterology Anesthesia Associates (GAA), one of the largest providers of anesthesiology services to gastroenterologists in the southeastern U.S., at a cost of $58.6-million, with up to an additional $14.6-million based on future financial performance. GAA generated more than $25-million in revenue and $16-million in EBITDA for the 12 months ended in June 2014.

“The GAA transaction was immediately transformative for CRH,” Mr. Wright contends.

For the second quarter of 2015, CRH generated revenue of $10.9-million, compared with $2-million a year earlier. Anesthesia services accounted for $8.5-million of revenue in the latest quarter. Operating EBITDA in the second quarter this year was $5.8-million, up from $614,000 a year ago.

Last month, CRH acquired a 51% stake in Knoxville Gastroenterology Anesthesia Associates, representing its first joint venture. “We believe there are considerable opportunities for growth in our anesthesia business,” Mr. Wright predicts.