An Alternate Take on Private Equity in Anesthesia

[Howard888]

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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.

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.

Said same thing on here for years. Model made sense until it didn’t. NSA was the nail in coffin. Wish it was for just usap and PE though. It’s going to change anesthesia forever. NSA was the icing on the cake for hospitals and surgeons to only view us as a cost. 1:6 likely the future and would be now..if their were enough CRNAs. Luckily their aren’t. Enjoy while you can

 

[sevoflurane]

Said same thing on here for years. Model made sense until it didn’t. NSA was the nail in coffin. Wish it was for just usap and PE though. It’s going to change anesthesia forever. NSA was the icing on the cake for hospitals and surgeons to only view us as a cost. 1:6 likely the future and would be now..if their were enough CRNAs. Luckily their aren’t. Enjoy while you can

I don’t accept this.
Know your worth.

 

[amyl]

There are enough sellouts to make Howard’s vision of anesthesia work. Don’t worry sevo we will be okay…. We are both insulated from broader market forces in our current locations and the point we are at in our careers (forgive me if I’m wrong but I’m guessing we are both about mid career?). Idk about the people graduating now tho….

 

[DesiredMemberName?]

I don’t accept this.
Know your worth.

I would hope that all these competitive applicants now entering anesthesia residency will have higher standards for what is an acceptable work/pay ratio.

I really don’t understand why so many doctors are still working ridiculous hours and conditions for below market pay.

 

[jthedestroyr]

I would hope that all these competitive applicants now entering anesthesia residency will have higher standards for what is an acceptable work/pay ratio.

I really don’t understand why so many doctors are still working ridiculous hours and conditions for below market pay.

Geographically restricted ! Had a great locums job but they hired 2 FTE locally finally who took way lower market rates because they’re dumb.

They basically screwed also the locals cycling in doing locums. Hospitals just want cheap bodies….. that’s it.

 

[aneftp]

Geographically restricted ! Had a great locums job but they hired 2 FTE locally finally who took way lower market rates because they’re dumb.

They basically screwed also the locals cycling in doing locums. Hospitals just want cheap bodies….. that’s it.

Locums job always cycles. One door opens. One door closes.

I’ve said it probably 10x… don’t be a one trick pony. I have privileges at 12? Hospitals now. Another 4 surgery centers. Someone is always sick or scheduling issues/conflicts. You become the relief emergency pitcher out of the bullpen.

I was only gonna to work 3 days than week. But now gonna to work 6 days. Places text me left and right this week for some reason. Even doing double duty Sunday in two different cities. 50 min apart.
Probably work 4 hours but will bill full weekend hourly rate for 12 hrs Sunday morning than roll to my other hospital and bill another 12 hrs of call hopefully work zero hours cause all my call hours are guaranteed even on beeper and Sundays are usually light I’ll kick back the other doc $350 post tax cash (equivalent of $450 pretax ) if I get stuck for an hour on Sunday around 6pm traveling.

 

[sbmed100]

Locums job always cycles. One door opens. One door closes.

I’ve said it probably 10x… don’t be a one trick pony. I have privileges at 12? Hospitals now. Another 4 surgery centers. Someone is always sick or scheduling issues/conflicts. You become the relief emergency pitcher out of the bullpen.

I was only gonna to work 3 days than week. But now gonna to work 6 days. Places text me left and right this week for some reason. Even doing double duty Sunday in two different cities. 50 min apart.
Probably work 4 hours but will bill full weekend hourly rate for 12 hrs Sunday morning than roll to my other hospital and bill another 12 hrs of call hopefully work zero hours cause all my call hours are guaranteed even on beeper and Sundays are usually light I’ll kick back the other doc $350 post tax cash (equivalent of $450 pretax ) if I get stuck for an hour on Sunday around 6pm traveling.

But this is also contributing to putting private practices out of business... do you know how much back end work it takes the chief of a private group to get you credentialed, presented to medical board, enrolled in all the systems, show you around, make sure you do the "compliance courses" and hospital orientation and get you parking and an ID badge, enroll you in their EMR....dude all this shifting FTEs around causes lots of extra work. We are losing our leaders because of it too

 

[AppTrail]

I would hope that all these competitive applicants now entering anesthesia residency will have higher standards for what is an acceptable work/pay ratio.

I really don’t understand why so many doctors are still working ridiculous hours and conditions for below market pay.

it’s really not hard to understand…lotta docs are lazy/crave familiarity. Place I’m at out now, more than half the docs it’s the only job they’ve ever had, they are too scared to try something new. 2 of the docs never sit cases, only medical direction, hardly ever give breaks. Literally just do pre ops, it’s embarrassing. Once you’re stuck in that mindset, you are fine accepting low pay as long as you don’t have to go in a room solo.

 

[RedandBlack7]

it’s really not hard to understand…lotta docs are lazy/crave familiarity. Place I’m at out now, more than half the docs it’s the only job they’ve ever had, they are too scared to try something new. 2 of the docs never sit cases, only medical direction, hardly ever give breaks. Literally just do pre ops, it’s embarrassing. Once you’re stuck in that mindset, you are fine accepting low pay as long as you don’t have to go in a room solo.

I feel this is true as well. Many people get comfortable with one job and place and don’t even care if a place nearby is offering more money/vacation/better hours. They are too afraid to leave

 

[jthedestroyr]

it’s really not hard to understand…lotta docs are lazy/crave familiarity. Place I’m at out now, more than half the docs it’s the only job they’ve ever had, they are too scared to try something new. 2 of the docs never sit cases, only medical direction, hardly ever give breaks. Literally just do pre ops, it’s embarrassing. Once you’re stuck in that mindset, you are fine accepting low pay as long as you don’t have to go in a room solo.

Yep it’s sad. I can supervise but prefer to be solo most the time.

I think doubt locums has given me a lot of flexibility.

 

[RedandBlack7]

In my area, one of the big companies was having trouble recruiting and opted to double PTO weeks and keep salary the same. All these big companies can give a better deal but they need to be pushed. Until doctors stop working 250/hr per diem or tolerating crap nothing will change

 

[aneftp]

it’s really not hard to understand…lotta docs are lazy/crave familiarity. Place I’m at out now, more than half the docs it’s the only job they’ve ever had, they are too scared to try something new. 2 of the docs never sit cases, only medical direction, hardly ever give breaks. Literally just do pre ops, it’s embarrassing. Once you’re stuck in that mindset, you are fine accepting low pay as long as you don’t have to go in a room solo.

It’s alright. Whatever makes them happy as long as they are content.

Im desperately trying to convince my friend to leave his current place (25 minutes to commute) to go to closer place 12 min from his house

More money. 100k more , less work. Weekends are even elective work at this new place. I literally handed him the job on the silver platter.

But he’s creature of habit. And he doesn’t want to leave. New place is 1:2 or 1:3 supervision. Beeper call at 5pm with 100% crna supervision done usually by 10pm no trauma. Crnas cover ob. Easy job hospital employee with 25k hospital match.

I said he’s got about 2 weeks to decide or another doc will take it.

 

[aneftp]

In my area, one of the big companies was having trouble recruiting and opted to double PTO weeks and keep salary the same. All these big companies can give a better deal but they need to be pushed. Until doctors stop working 250/hr per diem or tolerating crap nothing will change

Double the normal Vacation up to 17-26 weeks off while maintaining a normal 40 hr week the 20-30 weeks you actually are working is the key to recruitment if you are hospital employee or amc employee.

17-26 weeks off doesn’t work if you are working 80 hrs a week. Has to average 40 -45 hrs a week the weeks you work.

This is a far better solution than paying locums docs $$$. And I say this as a hybrid w2 doc with tons of time off and locums doc making $$$ on the side.

My weeks off I can choose to make $0 or 50k. Usual average is at least 15-20k with no calls.

So think of each week off worth at min 15k in this environment.

Pay w2 doc 500k 20-26 weeks off

That’s equivalent of paying a doc 670-750k/40 hrs and 10 weeks off.

Many ways to get to the end game.

 

[nimbus]

I’ve said it probably 10x… don’t be a one trick pony. I have privileges at 12? Hospitals now. Another 4 surgery centers. Someone is always sick or scheduling issues/conflicts.

How many places total have you had privileges during your career?

How many places do you have to list when you apply for privileges at a new hospital? Do you just submit a spreadsheet?

 

[Shimmy8]

I’m currently credentialed at 14 facilities across 4 states. I list my main 4-5 on new credentialing paperwork.

 

[aneftp]

How many places total have you had privileges during your career?

How many places do you have to list when you apply for privileges at a new hospital? Do you just submit a spreadsheet?

I list them all (the hospitals). I don’t list a lot of the old surgery centers 12-15 years ago. Some of them do not even exist.

They usually only care about the last 7 years I think.

Sometimes they ask idiotic questions like explain the gap between 3 months between May 1996 and August 1996. Like idiots. That’s in between schools.

 

[nimbus]

I list them all (the hospitals). I don’t list a lot of the old surgery centers 12-15 years ago. Some of them do not even exist.

They usually only care about the last 7 years I think.

Sometimes they ask idiotic questions like explain the gap between 3 months between May 1996 and August 1996. Like idiots. That’s in between schools.

How many is all? What’s the total?

 

[PainInTheAnes]

But this is also contributing to putting private practices out of business... do you know how much back end work it takes the chief of a private group to get you credentialed, presented to medical board, enrolled in all the systems, show you around, make sure you do the "compliance courses" and hospital orientation and get you parking and an ID badge, enroll you in their EMR....dude all this shifting FTEs around causes lots of extra work. We are losing our leaders because of it too

Is the end of private practice in anesthesia really such a bad thing?

Employed positions almost universally pay more on a per hour/call basis with better lifestyle than private partner roles and private associate roles especially.

 

[NicholasPavona]

Is the end of private practice in anesthesia really such a bad thing?

Absolutely not. The end of fat ass, lazy anesthesiologists taking advantage of unsuspecting new grads would be most welcome.

 

[aneftp]

Is the end of private practice in anesthesia really such a bad thing?

Employed positions almost universally pay more on a per hour/call basis with better lifestyle than private partner roles and private associate roles especially.

Some hospitals employed suck

What you need is good leadership willing to go to bat for the department regardless if private or hospital employed.

There are tons of hospitals employed w2 that are collapsing as we speak. Whether it’s university run, hca run or whatever non profit in house w2 model

Without the right visionary anesthesia leaders who aren’t selfish it will become a cycle of revolving docs. (And crnas).

I’ve seen so many shares of anesthesia chiefs who game the system for their own gains.

 

[ucladoc2b]

Some hospitals employed suck

What you need is good leadership willing to go to bat for the department regardless if private or hospital employed.

There are tons of hospitals employed w2 that are collapsing as we speak. Whether it’s university run, hca run or whatever non profit in house w2 model

Without the right visionary anesthesia leaders who aren’t selfish it will become a cycle of revolving docs. (And crnas).

I’ve seen so many shares of anesthesia chiefs who game the system for their own gains.

Seriously. No reason this shouldn’t be the golden age of anesthesia.

 

[nimbus]

Just like red lobster

https://www.linkedin.com/in/samuel-s-lee-46a27a271?utm_source=share&utm_campaign=share_via&utm_content=profile&utm_medium=ios_app

 

[nimbus]

Newport Beach doctor thrives in new practice after alleged ouster from another he had founded

A lawsuit filed by Dr. Steven Abelowitz in August alleges Pediatric Associates Holdings LLC, sought to put profits before the people's well being, and then retaliated against him.

www.latimes.com

 

[circleK]

Newport Beach doctor thrives in new practice after alleged ouster from another he had founded

A lawsuit filed by Dr. Steven Abelowitz in August alleges Pediatric Associates Holdings LLC, sought to put profits before the people's well being, and then retaliated against him.

www.latimes.com

Was the previous bill so onerous that Newsome had to veto it? I’m not in Cali and not familiar with it, but the veto reasoning mentioned in the article seems like a stretch.

 

[nimbus]

Since Blackstone is in the news.

Helter Shelter: How Blackstone Contributes to and Profits from California’s Broken Housing System

From fighting rent control to hiking rents, how Blackstone benefits from California’s serious affordable housing crisis

pestakeholder.org

 

[amyl]

Just found out the dividends USAP paid us in the past weren’t profit as presented to all of us…. They were borrowed. They weren’t profit dividends for hard working doctors and investors. They were a way to extract money from the company and saddle it with debt. And all of docs oblivious- now I know why I got the response I did when I started asking questions and the reason for the lack of transparency.
I feel like such an idiot right now. 😕

 

[aneftp]

Just found out the dividends USAP paid us in the past weren’t profit as presented to all of us…. They were borrowed. They weren’t profit dividends for hard working doctors and investors. They were a way to extract money from the company and saddle it with debt. And all of docs oblivious- now I know why I got the response I did when I started asking questions and the reason for the lack of transparency.
I feel like such an idiot right now. 😕

Most things in private equity are highly leveraged

Companies “borrow” from their own wholly owned subsidies all the time.

Even famous cases like toy r us was saddled with debt by the parent company

 

[amyl]

Most things in private equity are highly leveraged

Companies “borrow” from their own wholly owned subsidies all the time.

Even famous cases like toy r us was saddled with debt by the parent company

And the nursing homes, and hospitals, red lobster and hooters…. We are the plunderers is a good read on the subject

 

[PainInTheAnes]

Just found out the dividends USAP paid us in the past weren’t profit as presented to all of us…. They were borrowed. They weren’t profit dividends for hard working doctors and investors. They were a way to extract money from the company and saddle it with debt. And all of docs oblivious- now I know why I got the response I did when I started asking questions and the reason for the lack of transparency.
I feel like such an idiot right now. 😕

See, that's another Ponzi scheme.

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[circleK]

And the nursing homes, and hospitals, red lobster and hooters…. We are the plunderers is a good read on the subject

And prisons….basically any other industry where the “customer” has no other choice

 

[aneftp]

And prisons….basically any other industry where the “customer” has no other choice

The prison in San Quintin California in the Bay Area was actually my highest paying anesthesia per unit. lol. Better the the commercial insurance.

Total scams going on

 

[Euripides]

Just found out the dividends USAP paid us in the past weren’t profit as presented to all of us…. They were borrowed. They weren’t profit dividends for hard working doctors and investors. They were a way to extract money from the company and saddle it with debt. And all of docs oblivious- now I know why I got the response I did when I started asking questions and the reason for the lack of transparency.
I feel like such an idiot right now. 😕

Dividend recapitalization is what it is called. Tried and true PE finance tool. The PE firm (and the other original investors) get all of their investment out very early and a whole lot more. The whole thing could have cratered and it still would have worked financially if you were in at the beginning. All of the original investors had an excellent ROI. Add on the "income recovery" through their payer contracting strategy and it was even better. Most of the original physician investors had recovered a great deal of their pre-deal income within a year or two.. However, the environment changed and the business model was challenged which precluded the "second bite of the apple" of a public offering or sale to a strategic partner ( payer, health system, larger PE firm, etc.) Not sure how it is working now but it worked back then.

 

[triggermaster]

I was supposed to buy 100k over 5 years but I left before the last year. Someone else just gave notice who hadn’t bought their 100k but had hit the 5 year mark and they are making that dr buy the rest. I wouldn’t mind if I could sell it at all - just could take the loss on taxes. It’s privately held stock so they can make the rules. They say you can sell 10% at the next liquidity event - which will happen if someone wants to buy USAP (so never).

Makes me proud to have attempted to warn people about USAP and other sell out practices for more than 10 years. I wish they would go fully out of business and the sell outs would walk away with nothing. Not gonna happen, they’ve made their money, but a guy can dream.

 

[aneftp]

Dividend recapitalization is what it is called. Tried and true PE finance tool. The PE firm (and the other original investors) get all of their investment out very early and a whole lot more. The whole thing could have cratered and it still would have worked financially if you were in at the beginning. All of the original investors had an excellent ROI. Add on the "income recovery" through their payer contracting strategy and it was even better. Most of the original physician investors had recovered a great deal of their pre-deal income within a year or two.. However, the environment changed and the business model was challenged which precluded the "second bite of the apple" of a public offering or sale to a strategic partner ( payer, health system, larger PE firm, etc.) Not sure how it is working now but it worked back then.

Plus lending has been so cheap from end of 2008-2021.

I don’t know what interest rate usap can charge itself in 2021 vs 2025

 

[centdoc]

Plus lending has been so cheap from end of 2008-2021.

I don’t know what interest rate usap can charge itself in 2021 vs 2025

They can’t. That’s one of the big reasons any M&A has stopped. Too expensive for the debt. As a result, From what I can see, no more acquisitions will occur, and these big AMCs will slowly divest of their lower performers. The NSA also didn’t help.

 

[aneftp]

They can’t. That’s one of the big reasons any M&A has stopped. Too expensive for the debt. As a result, From what I can see, no more acquisitions will occur, and these big AMCs will slowly divest of their lower performers. The NSA also didn’t help.

It’s pretty bad when usap with its high gross margins even in 2021 (before the NSA) had to “borrow” money from itself to pay partners dividends.

So you cannot blame the NSA for that. You can’t even blamed interest rates for both Envison and usap becuase interest rates were still low 2021 as well.

 

[amyl]

They can’t. That’s one of the big reasons any M&A has stopped. Too expensive for the debt. As a result, From what I can see, no more acquisitions will occur, and these big AMCs will slowly divest of their lower performers. The NSA also didn’t help.

I believe there’s still an injunction against USAP preventing it from adding practices without permission. Sound, symmetry, Napa… possibly vituity (I don’t know that much about them) are all bidding contracts with extended care team…. USAP has to do the same or loose… and they also have to cover the pe cut 18-38% depending as well. Hard to believe they will be winning more contracts but who really knows. I am surprised to see Napa limping along still…. And will be interesting to see if vituity can make Des Moines run.
As for me I wish I could give the stock back for zero…. And take the capital loss - but we can’t even do that