Employees have the option to purchase HCA stock at a 10% discount (4x a year I think).
Yes to this and it can be sold whenever you want since it is publicly traded. Obviously short-term and long-term capital gains treatment applies so it is not necessarily an immediate 10% gain. Disclaimer - I’m an HCA employed anesthesiologist and I’ve done the ESPP from the day I started several years ago and it has worked out very well financially.
Then why are partners leaving his practice despite one of the most severe non competes ever?
Most of the partners I know in all markets regret PE and say it was a bad decision for the practice… good for those who took the buyout and got out but otherwise not.
They’re trying to move toward an employed model in USAP - maybe it’ll work… but there’s lots of overhead to cover. There’s easier work for more money and definitely more money per hour out there. But if you have to be in a location where they own the market 🤷♂️
Maybe the suddenly terrible economy and loss of investment wealth will change the anesthesia market.
The fact is that the underlying investment thesis for PE in anesthesia has changed, irrevocably so. I was there at the beginning and know better than most the original investment theory - gain scale, create back office efficiencies, level the playing field with payers and health systems and create better care delivery models backed up with quantitative information. Sounds like hyperbole now but the world is always crystal clear in the rear view mirror.
The flaw in the investment thesis, however, was that there was a limited investment horizon to achieve this before executing on the exit strategy: meaning one had to get into the market, grow quickly and then exit because the overall anesthesia market is fixed in size. One can only grow so much before there isn’t any more growth to legally achieve. PE is about growing a business, rationalizing business structure, maximizing EBITDA and then getting out. The original premise was to grow quickly, establish a best in class operation and then sell either to a larger strategic player or on the public market via IPO.
The problem, however, is that the runway ran out with the pushback from payers and the NSA. Once margin erosion ensued it became difficult/impossible to execute on the endgame and exit the business. The fact that all of the major players now are pivoting to “MSO services” should tell you everything you need to know about their view of the world. They are looking to grow top line revenue and EBITDA but MSO services are low margin businesses. USAP was designed to be a physician-owned entity that provided partnership like experiences to the clinicians and professionally managed services to the health systems. It does neither now and it was never intended to be an MSO business. They pivot because that is the only viable option they have.
The knock against all of the big vendors (I use that word intentionally) is that they largely continue to exist because they bind their clinicians with non-compete agreements. They increasingly do not have a rate advantage, their MSOs can be replicated and they are all recruiting from the same labor pool that increasingly has choices in terms of compensation. Their only competitive advantage is that they have non-competes.
Think about that from a business owner perspective - your competitive advantage is you have onerous no-competes with your employees??? There is no intellectual property, trade secret or loss of business that justifies this. I acknowledge that there may be recruiting costs that have value but a non-compete to protect that in perpetuity??
At this point in time significant portions of the large vendors’ revenue is coming in the form of subsidy support from health systems and it is being used to produce decreasing levels of margin. I have seen data to suggest that it is upwards of 30-40% for revenue to drive margins of 3-5%. This is not PE-level investment expectations.
It is a failing business model.
And in semi-disclosure mode, I helped develop the business model that is now failing. It made sense at the time but the world has moved on and it increasingly doesn’t make sense. Why should a health system pay a management firm and PE for services that don’t exist when the real work is being done at the bedside by the clinicians? Pay them more and eliminate the external overhead. Health systems are waking up to this fact and will work to insource hospital-based services across the board, not just in anesthesia. It will take a while but it will happen barring some barrier being erected through regulation or law.
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