Public notice: stop taking PE jobs

[Etorphine]

What do all PE practices have in common?

They all need employee producers before they can churn and burn the practice to next buyer for that sweet 10x EBITDA multiplier.

Ophthalmology is a small field w/ greater than 50% of workforce over 55, and if all young ophthalmologists collectively stuck together and said no to PE jobs, it would be game over. This is already happening to some degree.

If young ophthalmologists banded together about tail insurance clauses and asked “partnership track” positions to pay tail/release non-compete if practice sells, and it became market norm, it’d also give back some power to younger docs.

My 2 cents

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[LightBox]

Ophthalmologists are terrible at banding together. Just look at Optometry scope battles and you will see how someone always bends the knee if it is to their economic advantage. I don't forsee young Ophthalmologists doing any different. We as a field are way too competitive against each other and someone will always take advantage of others' solidarity.

 

[docdoc2012]

What do all PE practices have in common?

They all need employee producers before they can churn and burn the practice to next buyer for that sweet 10x EBITDA multiplier.

Ophthalmology is a small field w/ greater than 50% of workforce over 55, and if all young ophthalmologists collectively stuck together and said no to PE jobs, it would be game over. This is already happening to some degree.

If young ophthalmologists banded together about tail insurance clauses and asked “partnership track” positions to pay tail/release non-compete if practice sells, and it became market norm, it’d also give back some power to younger docs.

My 2 cents

I would love for this to be a reality.
Unfortunately, there's always someone with enough family money to not really care and will pick a PE for location.
I remember this same discussion happening about 10 years ago with predatory starting salaries. The reason they were offering 100k starts on the coasts...is because people were taking the jobs.

 

[Dusn]

One difference between now and 10 years ago is that the job market should be much better now. With the boomer generation reaching eye-disease age and that same generation of ophthalmologists retiring, there will be a huge unmet need for ophthalmologists now and in the future. There’s no need to sell yourself short. Start your own practice.

 

[jd123]

One difference between now and 10 years ago is that the job market should be much better now. With the boomer generation reaching eye-disease age and that same generation of ophthalmologists retiring, there will be a huge unmet need for ophthalmologists now and in the future. There’s no need to sell yourself short. Start your own practice.

Or join a practice outside a huge city. There are tons of jobs available outside major cities. They usually have less competition, lower cost of living, and less PE involvement in the area. Unless there are an odd set of circumstances, there is almost no reason to join a PE group rather than a physician owned private practice. You might as well go work in academia or Kaiser if you think PE is your best option.

 

[jd123]

Ophthalmologists are terrible at banding together. Just look at Optometry scope battles and you will see how someone always bends the knee if it is to their economic advantage. I don't forsee young Ophthalmologists doing any different. We as a field are way too competitive against each other and someone will always take advantage of others' solidarity.

I agree with this. That’s why ophthalmology will become more corporate over the years. In 20-30 years, a majority of practices will be owned by a corporation. But in my opinion, there is no need for a young ophthalmologist to be owned right now. There is plenty of opportunity out there to those who seek it.

 

[percyeye]

Right now the PE job lists are a mile long and they need them to be filled. With rising interest rates and a few years of new grads not accepting any PE jobs the whole system may collapse. I still don't understand how someone can go to all that level of education, allegedly be very smart and then take a job as an associate for a PE firm with almost no future upside.

 

[mjohnsonets]

I would love for this to be a reality.
Unfortunately, there's always someone with enough family money to not really care and will pick a PE for location.
I remember this same discussion happening about 10 years ago with predatory starting salaries. The reason they were offering 100k starts on the coasts...is because people were taking the jobs.

This hits the nail on the head. PE groups in highly desirable metros will likely thrive and those in secondary/less desirable areas will struggle with recruitment. This generally follows the trend of younger people weighting lifestyle heavier than other factors when considering jobs.

 

[i-doctor]

Depending on one’s life circumstances, you can game the system. If you are right out of residency, still single and not tied down, you can accept your first job or two with a desperate PE-owned practice in some locations for a very high starting salary, way above the norm. For one or two years maximum. You might be able to pocket a couple of hundred thousand dollars or more before you eventually settle into your permanent job in your desired location. I think that’s a much better way to gain more surgical experience if needed than going to a so-called “cataract fellowship” position for a year for little money and used as cheap labor.
I realize that this is just another example of putting personal interests above those of the profession as a whole.

 

[Openglobetrotters]

Or join a practice outside a huge city. There are tons of jobs available outside major cities. They usually have less competition, lower cost of living, and less PE involvement in the area. Unless there are an odd set of circumstances, there is almost no reason to join a PE group rather than a physician owned private practice. You might as well go work in academia or Kaiser if you think PE is your best option.

How far outside a major city?
It seems like it really depends.

For Los Angeles, you would probably have to go 2-3 hours.

For Houston or Atlanta, maybe 2 hours ?

 

[jd123]

How far outside a major city?
It seems like it really depends.

For Los Angeles, you would probably have to go 2-3 hours.

For Houston or Atlanta, maybe 2 hours ?

Yeah, it depends. I suggest young grads be flexible in regards to location. You don’t need to live in Manhattan or San Fran. You can make a ton of money in a “less desirable” area, live in a huge house, and fly in for a weekend in one of the “desirable” locations.

 

[AQ888]

Some PE practices that I have been in contact with are already getting desperate due to a lack of interest from fellows. There is absolutely no reason to join a PE group. The entire business model is based on making as much money as possible from the associates. Once you settle in they might sell to another group and forcibly change your entire pay structure and there isn't much you can do. They have known to cut the down the number of techs working for a doc as a way of increasing revenue, decrease the amount of time with each patient and forcing you to use certain drugs such as biosimilars for higher rebates to the company. I don't understand why some people would still consider joining PE practices.

 

[TheLesPaul]

In a physician-owned practice, you are human capital. In a PE-owned group, you are overhead.

 

[eyeeye_captain]

PE kind of strikes me as a multi-level marketing scheme. People you sort of know, trying to recruit you to join their team, to make them money, on a business model that is essentially a house of cards. Selling Avon isn’t my cup of tea.

 

[LightBox]

It's really no worse than working for Kaiser.

 

[docdoc2012]

It's really no worse than working for Kaiser

Hmm...grind and see more and more patients for progressively less money and a potentially turbulent pay structure with ****ty benefits? How is this like kaiser?
At least at Kaiser your volume is capped, you have great benefits and retirement and a good quality of life. You may not have decision authority on day to day in either situation which is really the only similarity I see. but in the long run I think quality of life would be infinitely better for a physician at Kaiser than at a PE

 

[sloh]

It's really no worse than working for Kaiser.

Can you elaborate on this?

 

[Slide]

Pay attention to the financial news in the upcoming weeks….if we are really going to hit a terminal rate of 6-7% interest rates, these PE firms may really start feeling distress. Second buyers may start drying up and we may see some interesting decisions made by these firms.

 

[i-doctor]

Pay attention to the financial news in the upcoming weeks….if we are really going to hit a terminal rate of 6-7% interest rates, these PE firms may really start feeling distress. Second buyers may start drying up and we may see some interesting decisions made by these firms.

Yes, some are dealing with the trifecta of 1) retiring doctors, 2) inability to hire new docs, and 3) increasing costs servicing their debt due to higher interest rates, and/or difficulty getting new capital. The possibility even exists that some could see their monthly revenue stream be less than their monthly expenses (debt payments + practice expenses/employee salaries). So what is the worst that could happen? They could close the business. You could go into your office on Monday morning and see a sign on the door that says “Out of business”. Very unlikely, but not impossible. Much more likely they’d do what happened in the 90’s. They’ll give the doctors a choice to either buy back their practice or they’ll close it and sell off the equipment.
I’m not actually predicting this, just giving you worst case scenario. Most practices are very profitable for them.

 

[RetinaDude]

I’m really surprised the PE firms didn’t look into these matters more, before starting this massive buying spell.…..older docs retiring after their initial contract with PE is done.
You find a group of older docs, say 55+, cut their salaries by 25-50%, give them $3-$6M cash with additional stock options (so possibly more with a second sale), and a contract for them to work 3-4 more years, and then these docs retire after this with a hefty addition to their retirement funds sitting in the banks. It’s a no brained for the older docs.
Yeah they could stick around for a second sale and possibly double or triple the millions but why should they. At this point in their lives, many 55+ docs have already made a ton of money, and hopefully saved a lot of money too, so adding these PE millions to an already flush bank account would be the icing on the cake.
My group does not plan to go the PE route, but if someone offered me a few million to work 3-4 more years, and then said “come on, please stay for another 3-4 years and you could possibly have $10M+ to add to your accounts”. I’d say “nope” and retire in a heartbeat. I’ve already got enough to retire so adding even a few extra million would be inflation padding (protection). Adding $10M+ would be nice but there’s no way I’d ever spend that amount, in addition to what I’ve already saved. Guess my kids, and subsequent grandkids, would be set for life

 

[i-doctor]

As an old-timer here, I can tell you that there are plenty of ophthalmologists in their 50’s and even 60’s who need the money and would gladly take a huge PE buyout.
Those not financially secure (or think they are not) have many reasons:
—some are terrible investors

—some are extravagant spenders and didn’t save enough (trips, toys, Vegas, etc)

—some live an upper class lifestyle and actually live largely paycheck to paycheck (all their kids went to private high schools, colleges, and now med school, they have a summer home in the Hamptons or Lake Charlevoix, and a winter home in Florida)

—some made bad business decisions

—and the biggie: Divorce—lose half your net worth. Then halve it again in your second divorce. Fortunately the divorce rate for ophthalmologists is lower than other doctors due to better lifestyle and being home more

Remember, these are mostly boomers we’re talking about here. We like material things, and to spend, spend, spend…

 

[dantt]

I’m really surprised the PE firms didn’t look into these matters more, before starting this massive buying spell.…..older docs retiring after their initial contract with PE is done.

They do not care. They just have to keep the practice intact until the second sale. The next fund is buying such a large practice they're not looking at the individual docs.

Think of collateralized debt obligations. You buy a bunch of "subprime" practices. Once you bundle them together, the overall risk decreases. Think of all those home loans pension funds buy. They dont care if 75% of them are subprime. You mitigate the risk by buying more of them. Genius. 😉

 

[TheLesPaul]

If only we could get Margot Robbie to explain this to graduating residents.

 

[Dusn]

I’m really surprised the PE firms didn’t look into these matters more, before starting this massive buying spell.…..older docs retiring after their initial contract with PE is done.
You find a group of older docs, say 55+, cut their salaries by 25-50%, give them $3-$6M cash with additional stock options (so possibly more with a second sale), and a contract for them to work 3-4 more years, and then these docs retire after this with a hefty addition to their retirement funds sitting in the banks. It’s a no brained for the older docs.
Yeah they could stick around for a second sale and possibly double or triple the millions but why should they. At this point in their lives, many 55+ docs have already made a ton of money, and hopefully saved a lot of money too, so adding these PE millions to an already flush bank account would be the icing on the cake.
My group does not plan to go the PE route, but if someone offered me a few million to work 3-4 more years, and then said “come on, please stay for another 3-4 years and you could possibly have $10M+ to add to your accounts”. I’d say “nope” and retire in a heartbeat. I’ve already got enough to retire so adding even a few extra million would be inflation padding (protection). Adding $10M+ would be nice but there’s no way I’d ever spend that amount, in addition to what I’ve already saved. Guess my kids, and subsequent grandkids, would be set for life

The managers of the PE firms make money when they use it and when they cash out. They get a standard management fee of 2% of assets annually and 20% of profits above a certain threshold known as the hurdle rate. This incentivizes them to buy something and show a quick return, even if the long term prospects for their investment sucks.

I have friends working for PE. They don’t care about the long term future of their firm and they don’t care about their investors. They’re just like the physician practice owners - they want to make quick cash and retire.

 

[docdoc2012]

The managers of the PE firms make money when they use it and when they cash out. They get a standard management fee of 2% of assets annually and 20% of profits above a certain threshold known as the hurdle rate. This incentivizes them to buy something and show a quick return, even if the long term prospects for their investment sucks.

I have friends working for PE. They don’t care about the long term future of their firm and they don’t care about their investors. They’re just like the physician practice owners - they want to make quick cash and retire.

To add to this, they can gain this quick return in the short term by cutting overhead and not necessarily having to recruit to increase collections.
Essentially decimate practices in the short term for gain. Pt care suffers. No one really cares- not the PE firm, not the selling docs.
With the current economic climate though, it'll be interesting when the quick turnaround can't happen.

 

[PLA2]

It seems private equity buy ups in healthcare is a result of 0% interest rates and quantitative easing monetary policy that essentially printed money. Once new monetary policy is in place and interest rates rise, the banks won't be able to offer huge PE buy outs any the money train for selling to PE will end.

 

[LightBox]

It seems private equity buy ups in healthcare is a result of 0% interest rates and quantitative easing monetary policy that essentially printed money. Once new monetary policy is in place and interest rates rise, the banks won't be able to offer huge PE buy outs any the money train for selling to PE will end.

Definitely true. The PE buyout gravy train has come to a halt in all fields (not just healthcare).

 

[AQ888]

As a vitreoretinal surgeon with over 20 years private prectice experience in Chicago metro, you clearly need to do more homework about retina practices. Without the need for refractions and with the use of 2 scribes per physician, a successful retina practice can certainly see 30-40 pateints per half day. For a half-day clinic of 3 hours, we schedule 12 patients per hour, ending 3.5 hours after start time.
35 pts per half day, 8 half-days per week for clinic, 1 or 2 half days for surgery: $220-$240/pt visit including ancillary testing, drawings, injections, lasers, etc = $225K/month for clinics for 3.5 wks/mo + $800-$1200K/surgery x 15 surg/mo=$15K/mo=$240K/mo billings=$2.88 million/yr with about 6-7 wks vacation/yr. Depending on profitabiliy of practice with injectable med costs/rebates, profit margins for successful retina practices are 45-55%= $1.44 million/yr take home. And yes, I have averaged this amount for about 15 years as partner of a busy, successful, metro practice.
Patient volumes and standards of care can be confirmed with Medicare database for traditional Medicare, but now does not include Medicare advantage plans (nor private insurance). These numbers are well within standard of care, with some very busy vitreoretinal partners close to $1.75 to $2 million take home in past 5-10 yrs. With decreasing reimbursements, avg take-home pay for partners will continue to slowly drop as costs increase.

If you want to know why PE is interested in retina & oncology practices, it is because they are better able to manage costs (primarily employee costs) and, of course, they take drug rebates paid to practices for themselves. If drug rebates disappear, they will soon drop/sell/flip such practices after reducing costs since their profit margins will drop (or they will have to significantly cut physician reimbursement).

Successful, established retina practices understand this and will sell to the benefit of older partners. Only practices that care about new hires or maintaining their practices will resist the siren call of PE.

"Successful, established retina practices understand this and will sell to the benefit of older partners. Only practices that care about new hires or maintaining their practices will resist the siren call of PE" - Exactly my point, hence no reason for new grads to join these practices. The system is tailored to the benefit of either the older partners or the PE groups.

 

[solitude]

It would be interesting to hear from some current associates working in PE. Why did you choose the job, and are you happy in it?

 

[switchwithme]

I would definitely avoid any PE jobs, especially in the current environment. The whole leveraged buyout model is based on cheap money ie low-interest rates. As rates go up so does the cost of debt servicing and word is some PE groups are already becoming insolvent. We will see more and more groups scramble to find buyers and those who can't find any will declare bankruptcy. The PE managers will walk away with their management fees already paid out. The owners who sold and have any residual equity stuck in the entity will see those go to zero. The practices are on the hook for the debt and any assets will be liquidated to pay back creditors.

This whole thing was a house of cards bound to implode at some point. The current environment is speeding up the whole process.

 

[dantt]

I would definitely avoid any PE jobs, especially in the current environment. The whole leveraged buyout model is based on cheap money ie low-interest rates. As rates go up so does the cost of debt servicing and word is some PE groups are already becoming insolvent. We will see more and more groups scramble to find buyers and those who can't find any will declare bankruptcy. The PE managers will walk away with their management fees already paid out. The owners who sold and have any residual equity stuck in the entity will see those go to zero. The practices are on the hook for the debt and any assets will be liquidated to pay back creditors.

This whole thing was a house of cards bound to implode at some point. The current environment is speeding up the whole process.

Which PE groups are becoming insolvent. Let's gossip about them.

Edit: this is of course for the public good. You wouldn't want an unsuspecting friend to join an insolvent practice, would you?

 

[LightBox]

I'm sure many of these PE groups will go bust...and then the original owners will sweep in again and buy things at fire sale!

 

[dantt]

I'm sure many of these PE groups will go bust...and then the original owners will sweep in again and buy things at fire sale!

Original owners are mostly retired. Young ophthalmologists will be able to buy at fire sale if they'd like. (Or they can just take the staff with them and open up next door). It's a good time to be an ophthalmologist.