Private Equity Rumblings

[percyeye]

Starting to hear rumblings in the PE Optometry world that things are getting dicey. Any word of struggling firms in the Ophthalmology space?

Keplr, a large Optometry PE company is starting major layoffs

Large layoff planned for Bloomington optometry practice

100 workers affected by Bloomington layoff

www.25newsnow.com

And there is also talk of another large PE in the Midwest struggling

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[mjohnsonets]

I'm hearing more lean into PE from physician-owned practices, some large multi-specialty. I've not been hearing financial hardship necessarily but it's just harder financially to run a practice with inflated wages and costs while facing decreasing reimbursements. There was a multi-specialty group in CO that just went bankrupt too.

I heard earlier in the year that M&A activity was expected to pick up later this year and early 2025. That coincides with rate cuts so makes sense. Add on what I've said previously and it seems like the conditions are ripe for PE growth if the backers will fund it.

There were some PE groups in trouble earlier this year and from what I know, they were given up to the debt holders who are now running them themselves at a steep discount to previous valuations. Obviously, not going to be true in all cases but it seems there is appetite to keep them from going fully bankrupt. I would imagine Keplr is actively seeking a sale coinciding with rate-cut hopes.

 

[solitude]

interest rates may never return to their decades-low level that fostered this madness. Formerly very prominent and selective groups now sold to PE are having a lot of trouble recruiting, even in desirable areas. Give it a few more years and when the senior partners retire, the house of cards will fall.

 

[RetinaDude]

Yeah look at the AAO job site and there are so many PE associated groups recruiting right now. I mean, just one after another. And like you said, once the senior guys work out their contracts, and then ride off into the sunset, there’s gonna be a whole lotta hurtin going on

 

[eyeeye_captain]

Matt obviously hears from more practices than any of us, but I haven’t gotten the impression from my network that the market is going to heat up. Interest rates are still pretty high and with that many failures, maybe these speculators will show a little caution.

Per Google, it looks like that Colorado practice was in Pueblo. My friend who trained in Denver hated that place because of all the trauma/crime. I suspect a bad payor mix had something to do with the bankruptcy.

At AAO last year, I went to one of those small breakout sessions in the vendor area about what to look for in a job. I don’t need one, but I was curious what they were going to sell to residents. There was a speaker with the cojones to say, “It’s a myth that there’s no equity in private equity.” Then begged for people to apply for their 3+ open positions in a desirable area. Coincidentally was hanging out with another friend at the meeting who practices in that city and asked about the group, who almost fell to the ground laughing. Apparently the speaker is half time clinical at best and mostly does admin. Almost all of the senior doctors had already retired and the rest were less than 2 years away. Multiple new hires had already left. Cornea/glaucoma/plastics were shared between the original and a merger practice, so minimal coverage. Trying to hire optometrists to cover the volume left behind but struggling.

For any residents reading, that’s apparently the state of big PE as of last year. I don’t anticipate a miraculous improvement for employed doctors since the corporate overlords have taken a substantial hit and want to make their money back.

 

[Slide]

Matt obviously hears from more practices than any of us, but I haven’t gotten the impression from my network that the market is going to heat up. Interest rates are still pretty high and with that many failures, maybe these speculators will show a little caution.

Per Google, it looks like that Colorado practice was in Pueblo. My friend who trained in Denver hated that place because of all the trauma/crime. I suspect a bad payor mix had something to do with the bankruptcy.

At AAO last year, I went to one of those small breakout sessions in the vendor area about what to look for in a job. I don’t need one, but I was curious what they were going to sell to residents. There was a speaker with the cojones to say, “It’s a myth that there’s no equity in private equity.” Then begged for people to apply for their 3+ open positions in a desirable area. Coincidentally was hanging out with another friend at the meeting who practices in that city and asked about the group, who almost fell to the ground laughing. Apparently the speaker is half time clinical at best and mostly does admin. Almost all of the senior doctors had already retired and the rest were less than 2 years away. Multiple new hires had already left. Cornea/glaucoma/plastics were shared between the original and a merger practice, so minimal coverage. Trying to hire optometrists to cover the volume left behind but struggling.

For any residents reading, that’s apparently the state of big PE as of last year. I don’t anticipate a miraculous improvement for employed doctors since the corporate overlords have taken a substantial hit and want to make their money back.

Your experience mirrors what my colleagues have all told me in retina. Several who joined a group only to have the rug pulled from them for partnership have either left or are now debating leaving. Younger grads now know the false pretenses offered by PE and stay away if possible. The older guys are still grinding away until they retire or can officially leave; once that happens, there's going to be fireworks with these PE firms.

 

[mjohnsonets]

Your experience mirrors what my colleagues have all told me in retina. Several who joined a group only to have the rug pulled from them for partnership have either left or are now debating leaving. Younger grads now know the false pretenses offered by PE and stay away if possible. The older guys are still grinding away until they retire or can officially leave; once that happens, there's going to be fireworks with these PE firms.

I encourage my non-PE clients who tell me they will not sell to put PE sale protections in their contracts. Younger docs know about these and they are growing in popularity. These are normally clauses that remove a non-compete or allow the associate to buy in immediately before a sale. They don't stop the sale but they make it cost something and I try to use it more as an honesty check.

I'm happy to share examples of these clauses for those interested, send me a message.

I understand the thought process on not being transparent about PE sales/rug pulls. However, it's short-term thinking. We know at this time you will make more long-term being up-front about it. If your associate is blindsided by this, they are going to negotiate much harder with the PE group or move.

 

[RetinaDude]

I like this idea for contracts. When I was first starting out, I was scared to be screwed over, by the more senior partners, early in my career…..not in my current group but as a general statement for when I was looking for a job. We try to tell new recruits we have no intention of selling to PE but I sometimes feel they have a hard time believing this because they have friends who were mislead by other practices. This is a good way to help protect new docs.

 

[mjohnsonets]

I like this idea for contracts. When I was first starting out, I was scared to be screwed over, by the more senior partners, early in my career…..not in my current group but as a general statement for when I was looking for a job. We try to tell new recruits we have no intention of selling to PE but I sometimes feel they have a hard time believing this because they have friends who were mislead by other practices. This is a good way to help protect new docs.

I can tell you from my side there is general anxiety in the market about this. Anything you can do to assuage this anxiety will be beneficial to your recruitment process.

I'm hopeful the PE interaction will become more honest going forward. The reality is the PE groups are blamed for this however, it's really the practice owners that are doing the rug pulls and creating this anxiety.

 

[dantt]

I can tell you from my side there is general anxiety in the market about this. Anything you can do to assuage this anxiety will be beneficial to your recruitment process.

I'm hopeful the PE interaction will become more honest going forward. The reality is the PE groups are blamed for this however, it's really the practice owners that are doing the rug pulls and creating this anxiety.

Agreed. PE is very upfront about what they are.

Former practice owners were the one doing the rug pulls. The most malicious theories are they hired to increase valuation of practice for a sale.

 

[eyeeye_captain]

I’m surprised those PE sale contract protections aren’t almost standard at this point. I think my group has had them for at least a decade, and frankly they should be in any reasonable offer.

While I completely agree that owners selling out from under associates is, at best, a sign of a poor moral compass, someone has to flash the cash to make it happen. When’s the last time you heard of an owner just giving the keys to PE out of the goodness of their heart? It’s way easier to shoot the associate if someone hands you a gun and motive.

 

[mjohnsonets]

I’m surprised those PE sale contract protections aren’t almost standard at this point. I think my group has had them for at least a decade, and frankly they should be in any reasonable offer.

While I completely agree that owners selling out from under associates is, at best, a sign of a poor moral compass, someone has to flash the cash to make it happen. When’s the last time you heard of an owner just giving the keys to PE out of the goodness of their heart? It’s way easier to shoot the associate if someone hands you a gun and motive.

A smarter buy strategy for PE groups would be to require the partners make associates minority partners of some kind before the sale as this would put them in the partnership sale agreement to stay for 3-5 years. Definitely easier said than done but would align incentive structures better.

This is my non-MBA, non-private equity guy advice to people managing funds worth hundreds of millions if not billions of dollars and it didn't even cost them 0.02 haha

 

[dantt]

A smarter buy strategy for PE groups would be to require the partners make associates minority partners of some kind before the sale as this would put them in the partnership sale agreement to stay for 3-5 years. Definitely easier said than done but would align incentive structures better.

This is my non-MBA, non-private equity guy advice to people managing funds worth hundreds of millions if not billions of dollars and it didn't even cost them 0.02 haha

Been there tried that. The PE group wants the practice. The associates are the gravy but not essential. And the partners want the money. That's what it was 5 years ago. Perhaps it's changed.

 

[i-doctor]

I know a lot about what’s happening here and know several people in P.E. The likely dip in interest rates over the next year or two might be the last hurrah for the whole ophthalmology PE industry…the last-ditch attempt by P.E. companies to dump their ophthalmology practices while they can when interest rates are favorable. The trick though is to find buyers for these practices. Good luck with that.
Most want out. They know that in most cases they massively overpaid. And now they are trying to stop the revenue hemorrhaging due to retiring docs, and they are desperate to hire younger docs to shore up their investments. And we all know how that’s going.
Now is the perfect time to be a starting or prospective ophtho resident. You’ll finish training during (or just after) the PE implosion, with massive job openings and limitless opportunities.

 

[percyeye]

I first thought it looked concerning when there were so many job openings. If you go to the websites of the biggest PE companies they just have tons of job openings all over the country. They overpaid on practices and for every job opening they have they are losing out on revenue. They are are stacked with debt, combined with Docs not wanting to work there it could/will be a disaster.

 

[LightBox]

I sold to a PE group. We seem to be doing fine. But who knows what the future will entail. You can't fault the sellers -- the multiple offered was astounding a few years ago when interest rates were zero.

 

[RetinaDude]

I first thought it looked concerning when there were so many job openings. If you go to the websites of the biggest PE companies they just have tons of job openings all over the country. They overpaid on practices and for every job opening they have they are losing out on revenue. They are are stacked with debt, combined with Docs not wanting to work there it could/will be a disaster.

There were already more ophthalmologists retiring than could be replaced even before the entire PE explosion came into the light. Now, PE comes along and offers the older docs (partners) in a group a ton of $$$, so the situation will get worse since these older docs can now retire much earlier than intended. With these older docs gone, and there not being enough new grads to fill all the available openings (PE and non-PE groups), it puts some of the PE purchased groups in a bind trying to find new docs to continue churning through patients

 

[Bgladney]

After recruiting within ophthalmology for almost 30 years, the pattern continues. Every 10 years or so, someone comes up with a new "corporate style" but the result is the same.....bankruptcy. Anyone remember Physician Resource Group (PRG)? How about American Optical Services (AOS)?

Physician ownership and control is the only way to go!

 

[solitude]

I sold to a PE group. We seem to be doing fine. But who knows what the future will entail. You can't fault the sellers -- the multiple offered was astounding a few years ago when interest rates were zero.

is your PE owner altering the way you practice? Any difficulty recruiting new docs? I am genuinely interested to hear the counter arguments...you obviously made out like a bandit.

Would be interested to hear the perspectives of folks who joined PE groups as associates and are glad they did. Anybody out there??? I have many friends who joined PE, and not a single one of them seems particularly happy about it, more just resigned to it because they were limited in terms of location because of family etc, especially those who felt compelled to move to major metro areas. I also think it's easier to recruit associates for a few years out of training because they are still making good money relative to residency/fellowship, and they don't yet realize that they are actually making, in some cases, pennies on the dollar compared to pre-PE partnership income.

 

[Slide]

is your PE owner altering the way you practice? Any difficulty recruiting new docs? I am genuinely interested to hear the counter arguments...you obviously made out like a bandit.

Would be interested to hear the perspectives of folks who joined PE groups as associates and are glad they did. Anybody out there??? I have many friends who joined PE, and not a single one of them seems particularly happy about it, more just resigned to it because they were limited in terms of location because of family etc, especially those who felt compelled to move to major metro areas. I also think it's easier to recruit associates for a few years out of training because they are still making good money relative to residency/fellowship, and they don't yet realize that they are actually making, in some cases, pennies on the dollar compared to pre-PE partnership income.

The only ones I know that are happy are the ones that sold as a partner because of the multiple received on their buyout. The money some of them got is generational wealth if managed properly. I don't completely blame any of the sellers (everyone has a price, including me), but at the same time the bias of my generation with the older group of docs out there, which is that the older guys will ratf*ck the younger guys for a dollar without hesitation and was already happening prior to PE taking off, has really turned us off towards them in general.

 

[Ophthodoc2018]

I joined a PE-based practice ~2 years prior and I am overall pretty happy. But I really believe that it's because of my practice (not PE) where the senior partners continuously support and encourage me. The volume is also excellent and so I was able to grow to the level of someone who has been in private practice for 5-7 years. The PE does not really meddle with too much except to push more premium IOLs but my senior partners have vehemently opposed any "pushing" of premium IOLs.

I will always wonder "what if" I joined a private practice and became an owner or start my own practice. 1) Will there be enough patient volume or did the PE/hospital groups conquer the whole referral system? 2) How long will it take to grow volume? I do think with enough time, it would work out. It is the uncertainty that gets me.

 

[Slide]

I joined a PE-based practice ~2 years prior and I am overall pretty happy. But I really believe that it's because of my practice (not PE) where the senior partners continuously support and encourage me. The volume is also excellent and so I was able to grow to the level of someone who has been in private practice for 5-7 years. The PE does not really meddle with too much except to push more premium IOLs but my senior partners have vehemently opposed any "pushing" of premium IOLs.

I will always wonder "what if" I joined a private practice and became an owner or start my own practice. 1) Will there be enough patient volume or did the PE/hospital groups conquer the whole referral system? 2) How long will it take to grow volume? I do think with enough time, it would work out. It is the uncertainty that gets me.

I'm glad it's working out but the real test for you is going to be in 3-5 years. In more traditional models that's when partner decisions come about and that's when your gross salary/take home should start increasing significantly. If your senior partners are nearing retirement, this is gonna be key because if you're taking over their patients but not getting much of a bonus, that to me is someone making money off your work. If your take home is stuck within 5-10% at that point you need to determine if that's really how much you value your efforts in whatever context you're in.

 

[TheLesPaul]

I joined a PE-based practice ~2 years prior and I am overall pretty happy. But I really believe that it's because of my practice (not PE) where the senior partners continuously support and encourage me. The volume is also excellent and so I was able to grow to the level of someone who has been in private practice for 5-7 years. The PE does not really meddle with too much except to push more premium IOLs but my senior partners have vehemently opposed any "pushing" of premium IOLs.

I will always wonder "what if" I joined a private practice and became an owner or start my own practice. 1) Will there be enough patient volume or did the PE/hospital groups conquer the whole referral system? 2) How long will it take to grow volume? I do think with enough time, it would work out. It is the uncertainty that gets me.

I'm glad it's working out but the real test for you is going to be in 3-5 years. In more traditional models that's when partner decisions come about and that's when your gross salary/take home should start increasing significantly. If your senior partners are nearing retirement, this is gonna be key because if you're taking over their patients but not getting much of a bonus, that to me is someone making money off your work. If your take home is stuck within 5-10% at that point you need to determine if that's really how much you value your efforts in whatever context you're in.

We pay our ASC (51% corporate owned) a 5% management fee to handle all the BS. That means #1) no cash calls, #2) no dealing with renegotiating the lease, #3) no dealing with employee issues like unemployment/harrasment claims etc. It is worth it.

You will have to figure out what you are paying the PE company to do for you. Total collections - true overhead - your compensation = what PE is skimming off you. If that is 5% and you really just want to be a worker bee or mommy track, that is probably a worthwhile trade. If you are busting your butt and they are taking 15% off the top, and the practice bylaws/structure/contracts were already well-established by your senior partners, then what are you really paying PE for?

 

[eyeeye_captain]

You will have to figure out what you are paying the PE company to do for you. Total collections - true overhead - your compensation = what PE is skimming off you. If that is 5% and you really just want to be a worker bee or mommy track, that is probably a worthwhile trade. If you are busting your butt and they are taking 15% off the top, and the practice bylaws/structure/contracts were already well-established by your senior partners, then what are you really paying PE for?

Also keep in mind that 15% lost isn’t really 15%. Say the practice runs pretty efficiently and is at 50% overhead to pay the bills. When corporate takes 15% out of the remaining 50%, they’re taking 30% of the profit you generated. You’ve cut your pay by almost a third. If you’re willing to stomach that, so be it, but it wouldn’t be my recommendation.

 

[solitude]

Also keep in mind that 15% lost isn’t really 15%. Say the practice runs pretty efficiently and is at 50% overhead to pay the bills. When corporate takes 15% out of the remaining 50%, they’re taking 30% of the profit you generated. You’ve cut your pay by almost a third. If you’re willing to stomach that, so be it, but it wouldn’t be my recommendation.

my understanding is that PE has had a much more significant effect on partnership income than a 1/3 reduction.

 

[Ophthodoc2018]

For those of who are in private practice/ownership, how does the tax write offs work out? For example, if overhead and expenses is 50% as a private practice partner, is it equivalent to having 50% production in a Private Equity w2 gig? I hope that makes sense haha.

 

[dantt]

50% of collections as an employee? Sign me up.

 

[Ophthodoc2018]

50% of collections as an employee? Sign me up.

I say 50% theoretically, but it can be 30% or 40% haha.I am just wondering about the tax advantages of writing off expense in private practice.

 

[eyeeye_captain]

For those of who are in private practice/ownership, how does the tax write offs work out? For example, if overhead and expenses is 50% as a private practice partner, is it equivalent to having 50% production in a Private Equity w2 gig? I hope that makes sense haha.

I don't think you quite understand the difference in business models (understandable, none of us really do until we get in the real world). There is no equivalency between 50% in PP vs PE. You will never see 50% in PE because they will be taking a significant portion of your profit, with myself and Les ballparking it at 30% as an exercise, but I agree with dantt and would put it more like 50+% vs being a full partner based on what I've seen posted and heard about in the retina arena. If you're managing 50% collections in a PE practice (again, doesn't exist), you could be getting 65+% as an owner (also doesn't really exist at that margin).

PE makes money by taking it from you. Let me say it again, PE makes money by taking it from you, the producer of said income. Yes, they do provide services that can be helpful and can potentially streamline your practice in terms of overhead. Yes, you will also pay a premium for those services.

Tax breaks from ownership are a massive rabbit hole that you would need to discuss with an accountant for a full picture. They aren't earth-shattering, but depending on how aggressive you are, there's a good bit to be saved.

 

[TheLesPaul]

PE makes money by taking it from you.

Louder for the people in the back! But seriously -- that's how PE makes money. But not just PE. Your chair of department if you are in academics, or your senior partners if you are an associate. That's their reward for relieving you of the administrative burden and risk of starting your own practice. However, ophthalmologists should be finding themselves in a relatively good position with relative scarcity of surgeons, volume of pathology, and a nice mix of medical and cash-pay procedures that lead to happy patients (i.e., you are not telling them to lose weight, you are allowing them to see, and they are duly motivated). It's unlikely in any of these models you will take home more than 30-40% of your collections, and in some cases, significantly less.

Tax breaks can be relatively simple starting out. If you earn $100 in a day and your rent + staff wages + supplies = $50 for that same day, yes -- you collect $50 or 50% of your collections. A lot of things can fall into that pre-tax bucket as a business owner (meaning you are getting them at a 32-39% discount) -- computers, travel, utilities -- the IRS has strict rules about these things but when followed are quite advantageous. Even if your "take home" is 50%, you can still benefit from things that fall into the overhead bucket.

As eyecaptain said -- no one will give you 50% production in a PE practice. If they give you 50%, then their true overhead is likely much less.

 

[Ophthodoc2018]

On a side note, what do you think of the future of office-based surgery? I was reading into iOR and it seems to good to be true as OBS can still get a secondary/enhanced facility professional fee (in addition to surgery fee) with a fraction of a cost of building out an ASC.

 

[eyeeye_captain]

Louder for the people in the back! But seriously -- that's how PE makes money. But not just PE. Your chair of department if you are in academics, or your senior partners if you are an associate. That's their reward for relieving you of the administrative burden and risk of starting your own practice.

Agreed. Since I talked junk about PE, I’ll address the other two as well.

The upside to PP is that you can make what you produce downstream, usually 2-3 years and with a buy in. Not everybody likes those terms because it’s not the compensation you were hoping for out of the gate. It took me ~4 years to be paid off and making my worth. Those 2-3 years (although I’ve heard as long as 7, or never) are a risk for partners as well. Les is correct that they put in legwork to establish and run a practice, so you don’t have to do a ton of set up work that is expensive in money and time. You’re also seeing patients the partners could potentially have folded into their individual panels, so they lose some there. If you’re going to another state, it will take easily a year to get on all the insurance panels, so it can take time to build where you’re not even paying your own salary for a while. PE just wants to churn out patients, so they will usually have a higher starting base as they don’t have to appease individual doctors, but also because of their desperation to find staff in the current market.

Overall, PP gives you the highest ceiling for compensation and decision making if you can tolerate an imperfect system where both you and a group assume risk for a time. This is also me being slightly optimistic for once and believing there are significantly more good groups than predatory ones. Unfortunately the latter exists. I interviewed with a group in a nice spot with high volume and something felt off. Go figure, they’ve been on the job boards ever since with a carousel of associates. Their last ad listed 3 fewer docs than were on their website so I guess it was time to reshuffle the deck. I will choose to cover my eyes, plug my ears, and believe that’s the outlier, whereas that seems to be the norm for PE.

Academics is the worst of all worlds. Worse pay than PE, more admin than PP. My best paid retina friend took close to 10 years to get the base salary I did out of fellowship. A different one couldn’t come hang out when I was visiting town because of all the paperwork they had due on Monday. You also can’t forget the politics, politics, politics, as well as being the last stop for every disaster in your region. I can understand if your mission is research, teaching, and/or crazy cases, but that’s not my speed anymore.

 

[dantt]

Agree with TheLesPaul. PE "making money off of you" is not unique to PE but is inherent to any employed position. That is the nature of capitalism. Before capitalism, you would work for the state/the king/etc. I don't view hiring a surgeon or optometrist as "making money" off of them any different than a technician or an administrator.

What makes starting your own practice more viable than say an anesthesiologist/radiologist is the relatovely low barrier to entry of opening your own practice. Equipment is expensive but its just money. It is still a ton of work but you've solved the biggest problem any large practice PE and academic has; finding a doctor to see the patients.

 

[percyeye]

Article on PE in healthcare declaring bankruptcy, where some Eye related ones are going down.

Private equity healthcare bankruptcies show no signs of slowing

During the first half of 2024, nine private equity-owned healthcare companies have filed for bankruptcy, comprising 23% of all large US healthcare bankruptcies so far this year.

pestakeholder.org

Also interestingly, EyeCare Partners, one of Ophthalmology's largest PE companies appear to be defaulting on debt, trying to stay out of bankruptcy court. Weren't they the ones who's CEO quit?