A Builder's Approach to Healthcare Investing w/ Ariez Dustoor, Partner, NB Group Investors

Entrepreneurs are addressing problems in US healthcare like access to primary care, but they need mentors and investors to scale up and make a real impact. Private equity has some bad connotations, especially in healthcare delivery. Why is that and what are investors doing to prove their worth?

Ariez Dustoor, Partner at NB Group Investors, joins us to talk about what thoughtful, long-term health care investing actually looks like—from scaling prevention-first primary care to avoiding the pitfalls that have plagued bigger players.

🎙️⚕️ABOUT ARIEZ DUSTOOR
Ariez is an experienced investor, entrepreneur, and advisor. Prior to NB Group, he was a member of the investment team at Audax Group, the Corporate Development team at Yahoo!, a Co-Founder of Scout Finance (sold to a strategic acquirer in 2017), and started his career as a consultant to Fortune 500 companies at McKinsey & Company.

As a Co-Founder at Scout Finance, an enterprise software company focused on the financial industry, Ariez helped lead product development, sales, and fundraising. At Audax Group, a leading middle market private equity fund, Ariez evaluated new investments and worked closely with portfolio companies, including a large business media and data company, and a physical security services provider. At Yahoo!, Ariez was heavily involved in new investments and acquisitions globally in the Mobile and Online services spaces. At McKinsey, Ariez worked with Fortune 500 CEOs in a variety of industries on growth strategy and operational imrovement in the US and abroad.

Ariez is a graduate of the University of Michigan, where he was elected Phi Beta Kappa. He lives in Miami with his wife and two kids.

🎙️⚕️ABOUT HEALTHBIZ PODCAST
HealthBiz is a CareTalk podcast that delivers in-depth interviews on healthcare business, technology, and policy with entrepreneurs and CEOs. Host David E. Williams — president of the healthcare strategy consulting boutique Health Business Group — is also a board member, investor in private healthcare companies, and author of the Health Business Blog. Known for his strategic insights and sharp humor, David offers a refreshing break from the usual healthcare industry BS.

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Transcript

David: 0:00

Entrepreneurs are addressing problems in US healthcare like access to primary care, but they need mentors and investors to scale up and make a real impact. Private equity has some bad connotations, especially in healthcare delivery. Why is that and what are investors doing to prove their worth? Worth. Hi everyone. I'm David Williams, president of strategy consulting firm, health Business Group, and host of the Health Biz Podcast, where I interview top healthcare leaders about their lives and careers. My guest today is Ariez Dustoor partner at NB Group where he's helping build durable healthcare businesses with an active and supportive approach. Do you like this show? If so, please subscribe and leave a review. Aris, welcome to the Health Biz Podcast.

Ariez Dustoor: 0:48

Thanks, David. Great to be on and, uh, appreciate you having me on.

David: 0:52

And we're gonna talk about what's happening in the healthcare investing and entrepreneurial world, uh, these days. But I always like to roll it back to beginning, learn a little about your childhood. What was your childhood like? You know, any childhood influences that have stuck with you in your career?

Ariez Dustoor: 1:05

Yeah. I grew up, uh, so I grew up in the Midwest. I was born in Ohio. Uh, and when our family was, I think, or when I was I think five years old, we moved to West Michigan, to Grand Rapids, Michigan. And so I. Did all my kind of schooling there and then went to university at University of Michigan, um, which is also where I met my business partner. Uh, so kind of have those, those Midwest roots. Uh, I mean lots of, uh, memories and formative, I think influences growing up. I think one that, uh, I was reflecting on this morning in terms of my. Business career. And what I, what I do now is, you know, we always had, we always had tons of books and magazines around, and I remember having Business Week and Fortune and these kind of business magazines just. Laying around, and I, I think at a relatively young age was, was reading all of that and kind of got interested in business and, um, all the different stories there. And so I think, um,

David: 2:05

that that was a major influence. That sounds good. So I saw you went to, uh, Michigan. It's a convenient place to meet your business partner. That sounds good. Uh, I think you studied political science and, and history. What was your, uh, you know, interest in orientation toward that?

Ariez Dustoor: 2:19

Yeah, I'd always, I mean, I'd always had, uh. Middle school, high school, I'd always been interested in more interested in kind of reading, writing. History, things like that than necessarily sciences. You know, I didn't particularly enjoy math or chemistry or biology or anything like that, though I did pretty well in those schools, tho those topics, at least academically. Um, so I was always interested in, in, in those subjects. I did think kind of going into college that I would, I. Pursue some type of after college, either go to law school or pursue some interest around kind of politics and public policy. And so those, those subjects fit well and I, I, I think it's changed today the, the way that people think about their careers and how pre-professional college has gotten. Um, but I certainly always felt like if I wanted to go into business, you know, if you. You went to a good school, you could kind of study whatever you wanted. Um, and if you did well, you'd be able to get a job and kind of pivot into, into business. Um, so sort of pursued that path. Um, other, a lot of other people I know, especially at Michigan, it has an undergrad business program and so they went that direction. Um, but, you know, worked out for me.

David: 3:29

That sounds good. So, uh, give us a little sense of your career arc. I think you started off at McKinsey. And then went on from there into some pe, some tech, some finance. How did it, uh, how, how did it transpire?

Ariez Dustoor: 3:41

Yeah. I've had a number of different kind of, uh, I guess variations in my career. And I think part of that has just been sort of figuring out what do I wanna do and, and what format do I wanna do it? Um, but I started my career doing strategy consulting at McKinsey and Company. Um, I was there for two years. Great experience, awesome experience right out of college. But I knew I sort of didn't wanna do that from as a career path. Um, I had an interest in, in investing. Uh, there was a natural, you know, private equity was a very natural, uh, transition from McKenzie. So I joining. Uh, you know, fairly large middle market generalist, private equity firm in Boston. Um, I wasn't there for super long. I was there for about a year and a half. I think I enjoyed, you know, I enjoyed the, uh, I enjoyed the work. I did not, I did not enjoy and was probably just not a good fit for kind of the big, the, the environment at a big firm like that. Um, it was also, I joined in 2008, which was. Probably the worst time in history be, I was gonna say inauspicious. Yeah. You know, trying to start a career in anything related to finance. Um, so after that, you know, ended up moving out to the Bay Area on the west coast, I was doing m and a and investments at Yahoo, in and around consumer internet for a couple of years, and then had an entrepreneurial itch, wanted to do something more operational, and so ended up leaving Yahoo after a couple of years. Um, moving out of kind of transactions and investments. And, um, prior to starting our firm, I ended up starting a software company, uh, with a, a set of partners. Um, I did that, did that for I think close to, in total, you know, four or five years. Um, we were starting to transition out of that and so I was thinking about what I wanted to do next. I knew I wanted to get back to investing. I did not want to be operating, uh, but had kind of an entrepreneurial itch, wanted to do something on my own. And, um, kind of started having discussions with my, my partner. He was in a similar place and so starting in 2017, we established our firm and really started working together on, on what we do today on a full-time basis.

David: 5:58

Sounds good. So this, this company's called NB Group. Any NB have any particular meeting? Yeah, it's actually the

Ariez Dustoor: 6:04

initials of my partner. So he'd started, it was kind of. Hunting for deals and investments probably, I dunno, nine months before I got fully involved. And we just for ease of getting started and not having to build a new website and all of that, we kind of kept the, just, just kept the name and weren't, I wasn't hung up on it. And you know, it's just sort of stock.

David: 6:29

Yeah. It doesn't sound like it means anything too particular anyway. I don't think you, you feel fairly generic. Yeah. Alien needed from it. Yeah. It could be like. Envy, you know, it could be like some type of a widget or something. We do have to sometimes clarify, you

Ariez Dustoor: 6:41

know, it's, it's Nancy, boy, it's not, you know, MD or something like that. But

David: 6:46

yeah. Yeah, yeah. Okay. Good. All right, so, uh, my first question about that was gonna be about how you ended up there, but it sounds like, you know, so you met your business partner in college. Did you know you were gonna partner on stuff later on? How, how, what did the interaction been like up along to that point? Did you just found yourselves, Hey, all right, we're both at this similar stage. Let's go in and do this together.

Ariez Dustoor: 7:07

We'd never, there was no, I mean, there was no grand plan here. You know, I, we, we weren't sitting around, you know, drinking beers when we were 20 years old talking about starting a business together or something like that. Um, we, we were close friends, uh, and we'd had pretty similar career paths. You know, start post, started careers and consulting. Both worked in private equity and, um, I think in this would've been 2014 ish, we were both living in New York, in New York City, and I think. You know, and, and we're keeping in touch after. Yeah. I ended up moving outta New York, but I, I was visiting on like a monthly basis, um, and, you know, we're keeping in touch and started having these conversations. You know, I was talking about what I wanted to do next, and um, it just sort of evolved organically from that.

David: 7:56

That sounds good. So. Would you, how would you describe what this company is? Is it a private equity firm? Would you describe it as something else? It's a pr, private

Ariez Dustoor: 8:07

investment or a private equity firm. Um, so we're, uh, we, we do private equity style investing. Um, I, there's some, some differences maybe between us and a traditional private equity firm, but fundamentally, we're investing in similar types of businesses. Um, the way that we create value, you know, the way that we take, you know,$1 of investment and turn it into five, the mechanics are, are the same. Um, but we, we have, I think, have an approach that is a little different than, um, some other firms.

David: 8:44

Now your background is partly in investing, but also as an operator, also as a consultant. How has that experience informed your investing approach as opposed to, let's say, if you've just done purely finance?

Ariez Dustoor: 8:56

Yeah, I think there's

David: 8:56

a couple

Ariez Dustoor: 8:58

elements to it. I think one is there's just probably a little more empathy for how hard it is to run and build a business as an operator. So we don't. When we invest in a company, we don't, we don't run the businesses day to day. You know, we rely on a, a CEO, a c co-owner, a management team to do that. But we can be quite involved. But there's always gonna be a difference between the, there's always a distance that we have from the business that the operator or entrepreneur doesn't. And so I think having some, some empathy for how hard it is, is, is, is important. And I think specifically, I think sometimes it helps me think through. Being mindful of trying to be helpful, trying to plug in, trying to push, but also giving the operators space to, you know, to, to run the business and to also to make mistakes. Um, I think that's one piece. I think the second is as we've been, we, especially when we were first started and we're building our firm, you know, we were start. We're starting a business. Um, it's, it's not exactly the same thing. You know, we're starting an investment firm, but fundamentally we're starting from scratch. We don't really, we don't have anything. Um, and we have to go build it. And I think there is an element of, I like to just call it hustle that is, is required or, you know, kind of to use raw language, like get shit done, uh, that I think you need to have as an entrepreneur. And we were able to sort of bring that to, to our firm when we started.

David: 10:30

So what are some of the investments that you've made as nb?

Ariez Dustoor: 10:34

We've made, you know, so as a firm we focus on two core sectors. One is what we call multi-location services. And so these could either either be consumer services or business services, but these are businesses typically where there's some physical footprint. Whether it's a, um, it's a store, it's a clinic, it's a, uh, you know, they have a fleet of vehicles that they're using and, and expansion of the business in large part can be achieved by expanding geographically. Um, and so examples of businesses that fall under that are, you know, we invested in a, a large gym chain. Um, we've, uh, been pursuing a roll up or acquisition strategy around hair waxing studios in the us So both of those would be examples of this kind of multi, uh, location focus. Um, the other sector that we, we focus on and we've really been trying to. Build out our investment program there is healthcare. Um, and so within the healthcare space, I think a very kind of prototypical example of a business invested in is care. Uh, we sort of call it prevention focused primary care, but it's a primary care practice management group based out of Oregon called One Peak Medical. Um, and we, we've been involved with that business for a couple of years and have seen, you know, very strong growth in the business. Um, and so I think we could talk more about what that business does and, and primary care generally, but that, I think that would be a good example.

David: 12:09

Great. Yeah. So let's talk about that. So primary care, it sounds like you're interested in that. In fact, uh, I think everyone's interested in primary care. I, I hosted a, uh, a panel discussion on this topic and the, you know, everyone's, I, I was joking to drive more participation. You know, we should just advertise that, hey, we'll hook you up with a primary care appointment if you, if you come.'cause everyone seems to be looking. So it's both just a common person and then also people in healthcare trying to figure out primary care. So it's a, it's a tough one. And you've seen. Some big, I think it's soon enough, I think it's now gone far enough to say some big failures in that area with large companies. Um, thinking about the large drugstore chains, for example, trying to get into, into primary care, you know, spending billions and then having to, to write it off. And so I'm wondering, obviously you're doing something a little bit differently than that, but um, I'd be interested to hear kind of what the success plan is there. And it sounds like you've been getting some, uh, some strong growth.

Ariez Dustoor: 13:05

Yeah, I mean the, we, we like primary care and I think in particular we like models that are innovative, so they're doing something a little different than the way that primary care has traditionally been practiced. Um, but I would say that make a couple general comments first. I mean, one is, there is a, there's a major shortage of. Primary care capacity in the us. So, you know, simply put, there are not enough. There are not enough providers, there are not enough options for patients when it comes to primary care. Um, and so that creates, that creates some really interesting opportunities. And it's also something that we wanna, we wanna be part of solving. Um, I think a second is that the way the whole system is moving, so both patients and. Patients and providers want to be more prevention focused. So I think there is more recognition than there's ever been that we should not be waiting till people have acute healthcare problems to be seeing a provider, and that we really need to be managing and we need to be managing people's health. And health is not just. Do I have a headache? Do I have a flu? Did I break my ankle? Um, am I, now I'm 50 and now my cholesterol numbers have spiked. It's really, you know, holistically managing how you feel. Um. What your test results are showing, you know, how your body is operating over a long period of time. And so I think primary care, it, it, there's, there's been too much focus in the system on just addressing like acute issues. And I think primary care is really the, the frontline of that. Um, and that's not only is that good for people from a perspective, just you feel better, you live longer, all those things. It's better from a cost perspective. Um, 'cause when we wait for these issues to get outta control, it's much more expensive than addressing it on a more ongoing and proactive basis. So I think those are sort of philosophical or large. Um, I think large changes and, and, uh, trends in the, in the healthcare system that are sort of make primary care a really good place to be as a, as an investor.

David: 15:32

So let's talk about that a little bit. I also see people, especially, um, generational, say younger than 50, embracing the idea of prevention, longevity. You see a lot of these, uh, these kind of approaches. And I would even tie it in. I. I don't know about your specific investment in the, uh, in gym chains, but I'm seeing it also tied in like a broader definition of where prevention occurs. So I was speaking to my trainer at the gym and they actually had someone come in and talk to the trainers about how what you're doing is part of a. Health and the healthcare system. If someone, if you can get, someone can lift something heavy and put it down without injuring themselves, you've actually made a big difference. Um, that's similar to what somebody might want with a good diet. And you know, what they would have to avoid, they could avoid going to the doctor. So I see that. And at the same time, from a business standpoint, um, the way that, you know, was I was referring to some of these large chains that hadn't done well with primary care. I think it's. There's various reasons, but one is just looking at primary care as a business itself. The reimbursement is lower for things like prevention and higher for things like, uh, procedures, which tend to be done by specialists and those that have made money on primary care have been more these larger hospital systems that use that as used primary care as a feeder. Into more expensive and profitable services. So I get the overall idea about why primary care is very helpful for health, which people want, and prevention. How do you make the numbers add up?

Ariez Dustoor: 16:58

Yeah, so I can talk, maybe talk more specifically about what we're doing at one peak, which I think is taking a pretty, pretty unique approach to all of this. So one element that is I, I think is unique. It's um. And it was something that really attracted us to the business model to start is the business mostly. You know, one peak mostly relies on physician extenders. So in this case it's nurse practitioners. So most of our providers are nurse practitioners, not, uh, not MDs. Um, we do have MDs as part of the practice, but the bulk of the providers are, are nurse practitioners. And I think, uh, they really function. Like a full primary. There's no difference in the way that they function between that provider and a provider who's a doctor, they do the same thing. So they write prescriptions, they can make referrals, they're seeing people for the same conditions, all of that. Um, I think that has a number of benefits. But if you go back to what I was talking about with there being a shortage of primary care. Doctor, you know, I'd say primary care professionals in the us but in particular doctors. Well, one way to solve this problem is to expand the scope of who are primary care providers. That doesn't have to be a doctor. Um, and I think that's a, that's a major trend you're seeing across the country and. The, the rules around how nurse practitioners practice is, uh, is part of that. So, so that's one element of, um, I think, uh, approach we're taking. That's, that's unique. Um, I think another is that, you know, we have a, a philosophy that includes, um, it's, it's, it's prevention focused from the start. So we, you know, your first visit at one peak, when you, you first come in as a new patient, it's gonna be significantly longer. Than a traditional visit. Um, we are doing, uh, lab testing on most of our patients, you know, with the core philosophy be being. If we don't, we don't test and measure what you know, what are the symptoms or signs your body showing. And also then seeing how, how is that being managed or changing over time. It's hard to, it's hard to really know if you're doing your job. So that's another kind of core component of what we do. Your question, David, I guess is really around like economically, how does that all add up? Um, I mean, we found that the payers, you know, payers are very supportive of this approach. You know, ultimately it's redu, it, it's resulting in a lower total cost. Um, and, you know, we run our practice efficiently. I think we're, we do a good job and we're doing a better job of using technology. So, I mean, it's. It's been a win-win. I mean, it's not been something that we've had to say, Hey, we need to change our approach, or we need, we need to actually, we need to tie up at the hospital, or we have to do more procedures, or there's something we have to do to make money 'cause we can't make money on primary care.

David: 19:54

Good. All right. Well, it may be, it's a, uh, a regional phenomenon, but I hope it could be more nationwide as well. You know, here in Boston, um, this point about nurse practitioners being a solution, what I heard from that is actually the NPS and the, and the physician assistants PAs, are also leaving primary care and going into specialty, uh, practice as well. So, uh, I think the markets depend, and I, I do agree that you need to look, um, broadly at the, at the workforce. So I'm, I'm happy to hear that it's succeeding. So, you know, you mentioned you'd go across different sectors and you'd been involved in, in kind of general. Um, approaches before, and I'm wondering if you might comment on what some of the opportunities and challenges are when you're looking at a healthcare investment compared to, let's say, another business services or consumer services, uh, business that's not a healthcare one.

Ariez Dustoor: 20:39

Yeah, I mean, healthcare, as you know, is. Incredibly complex, um, in a way that I don't think any other sector is. Um, so it, that creates some opportunities, but, you know, just creates, it creates challenges with understanding businesses. Ding 'em all that. I think the two really, the two big differences, if I. Step back. I think the two big differences between healthcare and other sectors that we might look at is, you know, one, one is the payer dynamic. Uh, the other is the regulatory dynamic. So, um, on the payer side in most, in most sectors, so you take a consumer, you take a restaurant business, or you take most bus business or most B2B businesses. So you know a company that sells software to another company or, uh. Company, janitorial company that's saying, Hey, we're, we're selling our cleaning services to large office buildings. I mean, you kind of pick all these examples, um, as the provider of the service, as the business you control, what price you control, the price you charge. Um, and you know, obviously there's, there's a market. You have to work within that market, but you, you have control over that pricing. Um. The, uh, uh, the, the obvious difference in healthcare is if it's a reimbursed service, you don't, you don't control that part, part, or you con, I would say you control that less. And certainly if you are getting reimbursed by the government, um, you, you know, unless you're a very large player or something like that, you, you tend to be, you're just taking price. You're accepting the price that's in the market, and that creates a lot of challenges. So I think one, one challenge that you've seen over the last several years is that, as. The cost inflation's happened for, for wages, for, you know, if you're running a doctor's practice, your, your front desk staff, your medical assistants, uh, the cost of, of supplies, all those things have increased. There has not actually been a commensurate increase in your reimbursement and you don't really control that. Um, and so what, what ends up happening? You just end up making less money. Uh, so like that's one big challenge. The other obvious one in healthcare is just. Regulation. Um, and I think there's, you have to operate at a really high level with a lot of compliance, a lot of attention to that, but also there's the fact that it can change at any point in time. It can change at the state level. It can change at the federal level. I. Um, I think you're seeing this right now with, you know, there's a new administration, they're talking about cuts to Medicaid. Uh, it's not clear exactly what they're gonna do, but this has introduced all this uncertainty into the market now, right? And so any business where you're getting a lot of reimbursement on Medicaid, um, there's this big open question and that obviously flows through to, uh, to investors. So it just ends up, you know, much more complicated sector, I think to invest in than, than others. Doesn't mean it's a bad thing, but it's something that you. You know, wrap your, uh, wrap your arms around

David: 23:44

now. Healthcare is, uh, expensive, especially in the us. It's also a service where there's not that much, uh, satisfaction and it's very emotional. It deals with all the, all the sort of issues. And, uh, private equity has been a bit of a whipping boy. Um, in healthcare. I think in some cases your colleagues haven't, uh, helped their, their case by. You know, certain activities they've taken. I'm, I'm thinking of something like Steward Healthcare, you know, which is, uh, you know, uh, at the, at the top level,

Ariez Dustoor: 24:12

big, uh, high profile example. Yeah,

David: 24:15

exactly. But why, why is private equity getting pushback in healthcare? Is it just a convenient target or there things that are done that where you could sort of understand why people would go after it?

Ariez Dustoor: 24:26

I mean, I have a, I think, a relatively balanced view on this. You know, I'm not gonna sit here and, uh. Say that private equity's perfect, or that in all instances it's been great for, for the system or for consumers. I think there have been high profile blowups, um, of companies that private equity had been backed. I think in some of those cases, it's because of the approach that the P firm took or they put too much debt on the company or something like that. In other cases, it's, you know. It's hard to run the counterfactual, but sometimes they're investing in businesses that have issues and those businesses are gonna have issues whether a private equity firm was involved or not. Um, but I think you have had some bad actors. You know, I've had some PE firms that have not, um, have not been a, a great investor and, uh, that leads to reputational issues for, for the entire sector. Um, I think, having said that, I think there's lots of examples I can point to where I think that. You know, private equity invested in a healthcare business and that business has gotten, business has gotten stronger, it's been better for the patients, all of that. Um, but there are certainly examples where that, that's not the case. Um, I don't think the industry has done a very good job, probably specifically in healthcare, but just broadly speaking, I don't think the industry does a great job of telling its story in a. An ordinary American can understand, like, what, what does a private equity firm do? Why is it good? Um, you know, all of that. Um, and I do think there's, look, like you just said, it's, it's a very emotional, uh. It's your health. There's nothing more important for most people. Um, so when something goes wrong, I think people are looking for someone to blame. And it can be a relatively easy, easy target in some cases warranted. I think in others, you know, not I.

David: 26:23

Good. All right. Well, Aris, my last question for you is for a book recommendation. I always ask my guests if they have any books that they would recommend, and I also ask, uh, sometimes if you have anything you would recommend people avoid reading.

Ariez Dustoor: 26:35

You know, I didn't think about that latter, uh, that latter question actually. It's a good one. Um. So I'll, I'll give you two books I recently read. Uh, neither have anything to do with, uh, with healthcare or private equity. I don't really, uh, when I read, I try not to read about business and investing and stuff like that. Um, so one is I just finished The Anxious Generation by, uh, Jonathan Ha. Uh, it's a great book. I have two young kids. Um, I think it, uh, kind of has informed, it basically talks about, uh, how. Childhood and the way we raise kids. And all that has changed with the advent of both social media and smartphones. And he has some, I think, really interesting concrete recommendations for like, what can you do as a parent, but also public policy-wise, which we be doing to, to address this. And so I enjoyed that book. Um, another I read recently was a book called, uh, world Undone. So I, you know, history major at. Read lots of World War II history. I've always been super interested in it. I've not really read anything about World War I, and this was kind of a primer that walked through like the whole conflict. And so if you're interested in, if you're interested in history, it's really well written, really comprehensive, and I learned a lot that I didn't know before. Um, and, and was, uh, was a great read.

David: 27:56

Excellent. No, those sound like two very good recommendations. Yeah. Sometimes people assume I wanna hear about a business book or something, which I, I don't read those books. So, uh, it's the last

Ariez Dustoor: 28:04

thing I want to do, uh, you know, after working is read about whatever, you know. 10 tips to, to marketing success or something like that, but yeah, to each of their own.

David: 28:14

Good. Exactly. Well, that's it for another episode of the Health Biz Podcast. My guest today has been Ariez Dustoor. If you like what you heard, please subscribe and leave a review. Ariez, thanks so much for joining me today.

Ariez Dustoor: 28:27

Great to be with you.