Private Equity in Ophthalmology

Started by dantt
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makes sense to me: if you choose private practice, why choose a practice that has already sold off a large chunk of current and future profitability when you can join/start a practice that hasn't sold off its future profitability. The partners that were paid out are making 50% of what they used to make but they got paid money to make that sacrifice. why would a new grad sacrifice 50% of future earnings for nothing?
 
Many candidates do not want to join a PE firm. Worried about the future and what changes will occur if the PE sells to another.

Speaking with a physician who sold to a PE firm a year ago, the picture is not rosy. He is being forced to see more patients so that the practice can show an increased profit. He anticipates his income being cut in the near future.
 
Bgladney said:
Many candidates do not want to join a PE firm. Worried about the future and what changes will occur if the PE sells to another.

Speaking with a physician who sold to a PE firm a year ago, the picture is not rosy. He is being forced to see more patients so that the practice can show an increased profit. He anticipates his income being cut in the near future.
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Yeah the whole game is to get the income guarantee for 2-4 years and then cut out before they renegotiate. It only really works for those that plan on retiring in near future.
 
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RadsWFA1900 said:
Yeah the whole game is to get the income guarantee for 2-4 years and then cut out before they renegotiate. It only really works for those that plan on retiring in near future.
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If they are going to pay peanuts then everyone will leave and they won’t be able to recruit. Agree that will never max out near what partner makes but don’t think these doom/gloom scenarios are realistic either. Truth is somewhere in the middle I suspect.
 
MstaKing10 said:
If they are going to pay peanuts then everyone will leave and they won’t be able to recruit. Agree that will never max out near what partner makes but don’t think these doom/gloom scenarios are realistic either. Truth is somewhere in the middle I suspect.
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The newer generation gets screwed. That’s the middle. Really just quibbling over how much.
 
On the plus side re: working as an employee for a PE firm, I'd imagine the mgmt would be able to negotiate an appreciably better fee schedule from private insurances than a solo or small private group could. Wouldn't this translate to more money for the employee and for the PE firm?
 
iballme said:
On the plus side re: working as an employee for a PE firm, I'd imagine the mgmt would be able to negotiate an appreciably better fee schedule from private insurances than a solo or small private group could. Wouldn't this translate to more money for the employee and for the PE firm?
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Indirectly. Your salary will be set regardless of fee schedule. However if fee schedule is favorable this should increase your collections which should also increase your bonus. Ultimately these advantages really benefit the organization on a more macro level, contributing to efficiency and profitability for a higher resale value down the road
 
Maybe, but depends on the pay structure negotiated at the time of joining. There's one PE group which pays the docs a percentage of collections. I'd guess in that scenario the higher negotiated fee schedule would be beneficial for both parties, no?
 
I'd imagine that another plus side from the PE's perspective is that, if they're the only game in a large enough area, they'd be able to negotiate down all the doctor's salaries creating even more efficiency.

If they win this game, I'm guessing the last step would be to sell us to Walmart or CVS and we can go the way of the optoms and pharmacists.

I'm academic and the number one concern of all of my residents on the job search is the worry that the practice they join will be sold out to PE. I'm glad I have smart residents. The universal advice is to not join a practice that is likely to sell out the PE in the near future and definitely don't join a practice that has already sold out.
 
It's crazy that this is happening in so many fields of medicine right now. Intuitively it makes sense that anesthesia/radiology/EM would be at risk since they don't really "own" the patients and are beholden to the hospital, but my (probably) naive view of fields like derm and ophtho is that a solid clinician with great communication/business skills could still thrive in PP and so honestly I'm surprised this is an issue in ophtho. As a rads/IR resident PE is my major concern for the job hunt here in a few years as they have been aggressively expanding recently. Are ophtho residents generally on the more risk-adverse or practice-building side of things? Many of my med school classmates and certainly some rads residents seem to be perfectly fine with the idea of punching in a clock for a paycheck without having to do any of the administrative legwork, often not realizing the disproportionate loss of autonomy and pay that comes with an employed position. It wouldn't surprise me if a generational shift in mindset as well as not realizing the value an attending brings to a practice drives lower expectations and willingness to work for less for fresh graduates (and while thinking they are making out like a bandit). The problem in rads is that metro areas such as Houston and Miami have effectively been taken over by PE (even Baylor-Houston has a partnership with PE) so if someone is geographically hellbent then they have no choice.

Correct me if I'm wrong but isn't that the only conceivable way that PE survives long-term in ophtho? A combo of young docs collectively not wanting to be owners and geographic restriction? And even then as LightBox suggests couldn't solo folks just set up shop and compete? What am I missing? How is this a thing in ophtho?
 
It's a "thing" because the upfront payouts are so large. It's also a thing because many new grads don't want to take any business loans out and just start their own shops. I'm already thinking about my next career move after my contract is done. But I already have the confidence to start my own shop again, and will have even more resources to do so (if I choose to still practice at all). The one thing you are most right about is that being geographically-restricted cripples many people's options. I can move just about anywhere and be happy.
 
Dusn said:
I'd imagine that another plus side from the PE's perspective is that, if they're the only game in a large enough area, they'd be able to negotiate down all the doctor's salaries creating even more efficiency.

If they win this game, I'm guessing the last step would be to sell us to Walmart or CVS and we can go the way of the optoms and pharmacists.

I'm academic and the number one concern of all of my residents on the job search is the worry that the practice they join will be sold out to PE. I'm glad I have smart residents. The universal advice is to not join a practice that is likely to sell out the PE in the near future and definitely don't join a practice that has already sold out.
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Definitely pros and cons to PE, I'd like to hear more from other people who have experienced this as either associates or partners. The only advice i have to give with regards to new grads is don't join a group with a large non compete unless you're okay with one day being presented with an ultimatum of sign _________or you and your family are gone.
 
Kuratz said:
It's crazy that this is happening in so many fields of medicine right now. Intuitively it makes sense that anesthesia/radiology/EM would be at risk since they don't really "own" the patients and are beholden to the hospital, but my (probably) naive view of fields like derm and ophtho is that a solid clinician with great communication/business skills could still thrive in PP and so honestly I'm surprised this is an issue in ophtho. As a rads/IR resident PE is my major concern for the job hunt here in a few years as they have been aggressively expanding recently. Are ophtho residents generally on the more risk-adverse or practice-building side of things? Many of my med school classmates and certainly some rads residents seem to be perfectly fine with the idea of punching in a clock for a paycheck without having to do any of the administrative legwork, often not realizing the disproportionate loss of autonomy and pay that comes with an employed position. It wouldn't surprise me if a generational shift in mindset as well as not realizing the value an attending brings to a practice drives lower expectations and willingness to work for less for fresh graduates (and while thinking they are making out like a bandit). The problem in rads is that metro areas such as Houston and Miami have effectively been taken over by PE (even Baylor-Houston has a partnership with PE) so if someone is geographically hellbent then they have no choice.

Correct me if I'm wrong but isn't that the only conceivable way that PE survives long-term in ophtho? A combo of young docs collectively not wanting to be owners and geographic restriction? And even then as LightBox suggests couldn't solo folks just set up shop and compete? What am I missing? How is this a thing in ophtho?
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There is a concern that if the optometrists get consolidated the mds will be locked out of their referrals. It is unfortunately not illegal to require employed doctors refer to in house doctors unless patients express a preference, insurance requires a specific referral, or not in patients best interest. (Dont think for a second those docs will put up a fight about where to send patients)
 
Can someone more knowledgeable on these matters help provide some guidance? I'm not in optho, I'm actually a pain doc. I got an offer to join a PE backed ortho group and they are offering 50% collections which is pretty fair and above average for my area. They also tell me that after one year I would be able to buy shares in the MSO. Would this be a financially wise decision? My assumption is that if the PE group were to eventually sell to another group in 5-7 years as was suggested on this thread, that investing in the MSO could indeed be potentially lucrative?
 
sdnuser001 said:
Can someone more knowledgeable on these matters help provide some guidance? I'm not in optho, I'm actually a pain doc. I got an offer to join a PE backed ortho group and they are offering 50% collections which is pretty fair and above average for my area. They also tell me that after one year I would be able to buy shares in the MSO. Would this be a financially wise decision? My assumption is that if the PE group were to eventually sell to another group in 5-7 years as was suggested on this thread, that investing in the MSO could indeed be potentially lucrative?
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I can’t say I’m knowledgeable about PE. But this is what Warren buffett has to say about investing in it, which sounds about right to me:

My guess is that they’re selling you shares to lock you into the practice even if practice conditions worsen. Your shares will also be in the worst position in a downturn.
 
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If a PE-acquired practice isn't able to be sold a second time, and the PE firm starts having financial problems, would the docs who sold to PE (and received equity shares in the new entity) ever be financially liable for the portion of the debt that the PE firm used to buy their practice? Is it possible that they could be liable to creditors? Or wouldn't the equity portion of their deal simply go to zero? In a nutshell -- what happens to a practice / equity-owning partners when a PE firm goes bankrupt? Anything besides the practice gets sold to the highest bidder?
 
sdnuser001 said:
Can someone more knowledgeable on these matters help provide some guidance? I'm not in optho, I'm actually a pain doc. I got an offer to join a PE backed ortho group and they are offering 50% collections which is pretty fair and above average for my area. They also tell me that after one year I would be able to buy shares in the MSO. Would this be a financially wise decision? My assumption is that if the PE group were to eventually sell to another group in 5-7 years as was suggested on this thread, that investing in the MSO could indeed be potentially lucrative?
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Are they paying you n * EBITDA to buy your practice?
 
Maculous said:
If a PE-acquired practice isn't able to be sold a second time, and the PE firm starts having financial problems, would the docs who sold to PE (and received equity shares in the new entity) ever be financially liable for the portion of the debt that the PE firm used to buy their practice? Is it possible that they could be liable to creditors? Or wouldn't the equity portion of their deal simply go to zero? In a nutshell -- what happens to a practice / equity-owning partners when a PE firm goes bankrupt? Anything besides the practice gets sold to the highest bidder?
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I would not expect a private equity firm to require their physician partners to personally guarantee the companies loans. I woupd expect equity holders to be wiped out. On the other hand, if one owned a private practice, banks will often times ask the partners to personally guarantee any loans.
 
LightBox said:
1) Full-vested partner. Not close to retirement age.
2) General Ophthalmology practice with employee optometrists.
3) Suburban
4) Own ASC, Optical, and Real Estate before sale to PE. Own only real estate after sale to PE.
5) Obviously, compensation is lower after the acquisition. After all, you get an 8-digit buy-out taxed at capital gains rate 🙂
6) No pressure to upsell stuff. Practicing basically the same as before. It is annoying to ask permission to buy stuff (e.g. expensive equipment) now though.

I'll probably retire after a few more years and just do something else. Or maybe just start anew! It's nice having the financial cushion of a PE buy-out to allow you this flexible in career. There is zero chance I will be grinding it out seeing patients at age 60.
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You are early career ophthalmologist and you were able to become partner and get a >10M buyout taxed at capital gains?
 
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LightBox said:
The harder you work, the more "lucky" one becomes
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I mean...I don't think whether your practice sells or not has anything to do with hard work. This is absolutely right place right time. Kudos to you and honestly I'm happy that someone early career has made out like a bandit and not gotten screwed instead. But this isn't about hard work
 
I think it is a bit naive to discount the facts that 1) your partners were straightforward enough to offer you partnership when they knew they would be entertaining PE offers soon, 2) you were in practice at a time where interest rates are historically low and PE can borrow money for cheap for these outrageous buyout offers, 3) PE is actually interested in ophthalmology right now, and 4) the practice that you joined actually had worth, no pending litigation, no big skeletons in the closets, etc., -- stuff you would not have known until after joining.
 
LightBox said:
The harder you work, the more "lucky" one becomes
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I definitely do not discount that you put in hard work and do not personally envy your success. It'd probably be unrealistic for anybody including yourself to just go out there and open your own practice and "repeat" the process to sell it to PE for 8 figures after 5 years again. A confluence of events worked in your favor including PE shopping for practices and paying outsized valuations for certain types of practices and you being allowed to buy in right before that happened. Many (most) practices with 8 figure valuations per partner will likely have sold by now or if not expect incoming partners to pay close to that with the thought that their practices are worth that.
 
Obviously, I've been fortunate. But just being born in this country is fortuitous. There is always a bigger fish out there (e.g. real business owners that IPO'ed), so you must appreciate every stage in Life. Honestly, my happiness now is about the same as when I first finished training. Back then, I never worried about superfluous things like fancy vacations or boats because they were never close in reach. Time and health are escaping us all and they are the great equalizers.
 
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LightBox said:
Obviously, I've been fortunate. But just being born in this country is fortuitous. There is always a bigger fish out there (e.g. real business owners that IPO'ed), so you must appreciate every stage in Life. Honestly, my happiness now is about the same as when I first finished training. Back then, I never worried about superfluous things like fancy vacations or boats because they were never close in reach. Time and health are escaping us all and they are the great equalizers.
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Can you tell us more about the buyout? I feel most of us aren’t familiar with this and would be curious. So they paid you like 15M and how many other partners? How can they afford to pay out I’m assuming like 100M and then make a profit? Is this practice like printing money or something lol
 
forchinet121 said:
Can you tell us more about the buyout? I feel most of us aren’t familiar with this and would be curious. So they paid you like 15M and how many other partners? How can they afford to pay out I’m assuming like 100M and then make a profit? Is this practice like printing money or something lol
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I've seen this happen with others at a previous practice. One person made out like a bandit (not 8 figures but substantial) and the next nothing. Only difference between them was 1 year. One person bought in the year before and the other was supposed to buy in but then a LOI was signed with PE so their partnership track ended. Ironically, not even the new partner knew what was going down. Never recorded in the minutes. It was one day presented to the board of directors by the real board of directors. (Welcome to the real world if anybody here didnt know). Everybody was appropriately advised to vote for the sale as it was "once in a lifetime money".

It is unclear why the practice was worth 100 million but what do I know. They apparently flipped the whole thing for half a billion a year later.

Yes time and health are great equalizers. Some of those partners are now disabled. I grew up in an immigrant family on food stamps. Now our kids eat a pack of organic berries everyday lol.
 
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dantt said:
I've seen this happen with others at a previous practice. One person made out like a bandit (not 8 figures but substantial) and the next nothing. Only difference between them was 1 year. One person bought in the year before and the other was supposed to buy in but then a LOI was signed with PE so their partnership track ended. Ironically, not even the new partner knew what was going down. Never recorded in the minutes. It was one day presented to the board of directors by the real board of directors. (Welcome to the real world if anybody here didnt know). Everybody was appropriately advised to vote for the sale as it was "once in a lifetime money".

It is unclear why the practice was worth 100 million but what do I know. They apparently flipped the whole thing for half a billion a year later.

Yes time and health are great equalizers. Some of those partners are now disabled. I grew up in an immigrant family on food stamps. Now our kids eat a pack of organic berries everyday lol.
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So they profited 400 million in one year? Lol they clearly know something we do not..insane
 
forchinet121 said:
So they profited 400 million in one year? Lol they clearly know something we do not..insane
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No...they essentially pay out 10-12x multipliers for what they consider a platform practice for the area, and the docs from these practices usually end up on the boards. Then they buy a bunch of smaller practices at smaller multipliers, optom practices in the area etc. They then consolidate upper management and admin, Trim the fat, get much better discounts/rebates on things like high value drugs and can negotiate better contracts with insurance companies because of volume of patients. This all leads to increased profitability/projected profits and then they sell it to another PE based on this. The first sale doesn't really have time to squeeze the docs if they flip within a year or 2. It's the second sale that does this. This of course is assuming you aren't selling to a PE with no medical experience.
 
sdnuser001 said:
Can someone more knowledgeable on these matters help provide some guidance? I'm not in optho, I'm actually a pain doc. I got an offer to join a PE backed ortho group and they are offering 50% collections which is pretty fair and above average for my area. They also tell me that after one year I would be able to buy shares in the MSO. Would this be a financially wise decision? My assumption is that if the PE group were to eventually sell to another group in 5-7 years as was suggested on this thread, that investing in the MSO could indeed be potentially lucrative?
Click to expand...
Depends on the type of shares you are getting and at what price your are buying them vs their current and anticipated worth. In general, most of these deals will hand out B shares to new associates valued less than the original A shares given to founding partners but still worth quite a bit. At the time of a second sale you have the option to cash out a portion or keep them as they increase in value and cash out at a later time. As with any investment, there is risk either way. You should be able to negotiate some if not all of these shares be given as part of signing the contract. You should also have the option to buy more shares if you wish. By most accounts, though not a hard and fast rule, most second sales can yield a 2-4X return on investment. Can be more of course, or turn to zero. Odds are in your favor if this is a solid PE firm that you will be able to gain a profit on the shares. Have to do some due diligence.
 
dantt said:
I've seen this happen with others at a previous practice. One person made out like a bandit (not 8 figures but substantial) and the next nothing. Only difference between them was 1 year. One person bought in the year before and the other was supposed to buy in but then a LOI was signed with PE so their partnership track ended. Ironically, not even the new partner knew what was going down. Never recorded in the minutes. It was one day presented to the board of directors by the real board of directors. (Welcome to the real world if anybody here didnt know). Everybody was appropriately advised to vote for the sale as it was "once in a lifetime money".

It is unclear why the practice was worth 100 million but what do I know. They apparently flipped the whole thing for half a billion a year later.

Yes time and health are great equalizers. Some of those partners are now disabled. I grew up in an immigrant family on food stamps. Now our kids eat a pack of organic berries everyday lol.
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This is what, in part, gives PE deals a bad rap. The partners in the practice, not the PE firm, screw their young associates. At least with our PE deal, the distribution of funds was entirely up to the practice/partners. We made all our partnership track doctors full partners (so they got a partners share) and compensated our only associate fairly. We were bought out at the same time as several other practices and my understanding is that each practice did something different based on what the partners wanted to do. There was no demand from the PE firm to do things one way or another.
 
MstaKing10 said:
This is what, in part, gives PE deals a bad rap. The partners in the practice, not the PE firm, screw their young associates. At least with our PE deal, the distribution of funds was entirely up to the practice/partners. We made all our partnership track doctors full partners (so they got a partners share) and compensated our only associate fairly. We were bought out at the same time as several other practices and my understanding is that each practice did something different based on what the partners wanted to do. There was no demand from the PE firm to do things one way or another.
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Out of curiosity, did your associate have a vote in the determination to sell to PE? Or was the sale happening regardless of their vote and they could either take the money or leave
 
MstaKing10 said:
This is what, in part, gives PE deals a bad rap. The partners in the practice, not the PE firm, screw their young associates. At least with our PE deal, the distribution of funds was entirely up to the practice/partners. We made all our partnership track doctors full partners (so they got a partners share) and compensated our only associate fairly. We were bought out at the same time as several other practices and my understanding is that each practice did something different based on what the partners wanted to do. There was no demand from the PE firm to do things one way or another.
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Did you also make out with a 15M buyout?
 
MstaKing10 said:
Depends on the type of shares you are getting and at what price your are buying them vs their current and anticipated worth. In general, most of these deals will hand out B shares to new associates valued less than the original A shares given to founding partners but still worth quite a bit. At the time of a second sale you have the option to cash out a portion or keep them as they increase in value and cash out at a later time. As with any investment, there is risk either way. You should be able to negotiate some if not all of these shares be given as part of signing the contract. You should also have the option to buy more shares if you wish. By most accounts, though not a hard and fast rule, most second sales can yield a 2-4X return on investment. Can be more of course, or turn to zero. Odds are in your favor if this is a solid PE firm that you will be able to gain a profit on the shares. Have to do some due diligence.
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This post is spot on from my own personal experience.
 
jd123 said:
Out of curiosity, did your associate have a vote in the determination to sell to PE? Or was the sale happening regardless of their vote and they could either take the money or leave
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The decision was unanimous but of course, senior partners steered the ship and had the most votes. That said, if our young associate would have decided to leave or quit, it likely would have blown up the deal or at the very least had a major impact on our EBITDA and cost us a lot on the sale. As such, he had a lot of leverage and it was in our best interest to make him happy. It worked out for all of us.
 
MstaKing10 said:
The decision was unanimous but of course, senior partners steered the ship and had the most votes. That said, if our young associate would have decided to leave or quit, it likely would have blown up the deal or at the very least had a major impact on our EBITDA and cost us a lot on the sale. As such, he had a lot of leverage and it was in our best interest to make him happy. It worked out for all of us.
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This is interesting to me. Would the deal have blown up simply bc of an associate leaving? Assuming they bring in ~10% of the revenue?
 
MstaKing10 said:
The decision was unanimous but of course, senior partners steered the ship and had the most votes. That said, if our young associate would have decided to leave or quit, it likely would have blown up the deal or at the very least had a major impact on our EBITDA and cost us a lot on the sale. As such, he had a lot of leverage and it was in our best interest to make him happy. It worked out for all of us.
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I left out a detail in the situation I described earlier. The person who didn't get to buy in didn't get nothing. They had a mature practice and was about to buy in so they gave them an extra million on top of their already considerable compensation to stick around through the end of the year rather than quit immediately before the deal went through. But yes, a lot of it is being in the right place at the right time.
 
TheLesPaul said:
This is interesting to me. Would the deal have blown up simply bc of an associate leaving? Assuming they bring in ~10% of the revenue?
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I think some of it would have to do with PE firms confidence that the practice is stable enough to invest in. A reduction in EBITDA is one thing, but a practice that has no stability would spook an investor. These deals can hinge on the smallest detail. That would be a major issue.
 
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