What’s wrong with private equity?

[dermfirstyear]

as someone who is looking for jobs, what is wrong with private equity?

I get the very nature of having business and medicine intertwined as a serious potential for conflict of interest.

But a lot of them seem like they have pretty clear benefits. Good pay, streamlined billing, HR, staff training, etc.

The ones I have spoken to don’t necessarily force you to do any specific procedures, don’t force you to see more patients than you are comfortable seeing, don’t make you supervise or train midlevels, etc.

Anything I should look out for, other than the basic of being afraid of the emphasis of making money in medicine?

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[MOHS_01]

Welcome to Pandora’s box.

More when I have time.

 

[dermfirstyear]

Welcome to Pandora’s box.

More when I have time.

Hahah I'd love to hear more!

I completely understand in theory how these practices are terrible for medicine. Its really hard if not impossible to practice medicine in an unbiased manner when you have a significant amount pressure to make more money. Unnecessary procedures, unethical utilization of midlevels, emphasis on quantity of care over quality of care.

But... I'm in the position now where I am searching for jobs and hearing what some of these groups have to say. All the bad publicity surrounding PE leaves a bad taste in my mouth, but of course they do a great job selling themselves as a well oiled machine. Efficient billing, HR, staff training, etc. They stress that they do all the back end work to allow you to practice medicine the way you want. None of them have insisted that I train/supervise midlevels or that I see "X" number of patients a day. They claim to give you full autonomy in how you practice, allow you to do only what procedures you feel comfortable with.

So if all of the things in the last paragraph are true (I'm assuming this is a big IF but I don't have any evidence for it) and assuming I get an offer that seems fair (decent base salary, 45-50% bonus on collections after 2.5x base), is it a bad option for a first job?

 

[russwheeler]

Bernie Madoff promised to make his clients rich...

 

[MOHS_01]

Hahah I'd love to hear more!

I completely understand in theory how these practices are terrible for medicine. Its really hard if not impossible to practice medicine in an unbiased manner when you have a significant amount pressure to make more money. Unnecessary procedures, unethical utilization of midlevels, emphasis on quantity of care over quality of care.

But... I'm in the position now where I am searching for jobs and hearing what some of these groups have to say. All the bad publicity surrounding PE leaves a bad taste in my mouth, but of course they do a great job selling themselves as a well oiled machine. Efficient billing, HR, staff training, etc. They stress that they do all the back end work to allow you to practice medicine the way you want. None of them have insisted that I train/supervise midlevels or that I see "X" number of patients a day. They claim to give you full autonomy in how you practice, allow you to do only what procedures you feel comfortable with.

So if all of the things in the last paragraph are true (I'm assuming this is a big IF but I don't have any evidence for it) and assuming I get an offer that seems fair (decent base salary, 45-50% bonus on collections after 2.5x base), is it a bad option for a first job?

Not bad... assuming you set your base at $1.

 

[dermfirstyear]

Not bad... assuming you set your base at $1.

Lmfao. Yeah I have another opportunity with a lower base but a much better bonus structure (I take home base or 50% collections whatever is higher).

But I've been talking to people about why PE just puts a bad taste in my mouth and that's all I keep coming back to. All of the reasons I think of are more just theoretical. Of course I obviously haven't seen how these offers end up playing out but I just wanted more ammunition of actual examples of how things can get really shady so I can explain this to people as well.

 

[asmallchild]

Beyond the financial stuff, PE groups are often very corporate.

I never knew what that meant until I worked for one myself. (Briefly, I no longer work there)

I remember hating the hierarchies of the hospital during my internship year. It's not quite as bad in a PE group but there's definitely more of it as compared to a solo practice or a small Derm group. I remember thinking to myself that if I hated it so much as an intern, why would I sign up for that kind of practice model as an attending?

Do you like reporting to multiple middle management administrators to get the smallest changes enacted? And more importantly, how do you think they get paid? You think it's taken out of the PE group's cut?

 

[MOHS_01]

First job? Not anchored to a particular geographic region? Open to moving if you don't like it? Time horizon measured in a few years or a career? Depending upon the answer to these questions, a corporate practice (matters not if PE backed or megagroup not technically PE financed) may or may not be a viable option (for a short term first job); otherwise, one really just has to go in with their eyes wide open and be honest with themselves about what they are willing to tolerate, what they are willing to give up, and for what gain.

To be honest, the model has never made sense to me, this notion that there exists enough inefficiency in a decently run operation to afford similar returns to the provider plus a return to the "investor" -- read "owner". If someone not named you is the owner, they will be ultimately be paid before you do over the long run. This means there is less left for yo. The owner makes the rules, and the rules will be made to benefit them as they are not "altruistic angels just wanting to free little Johnny and Susie from the evil, horrible administrative hassles and headaches so that they may enjoy the practice of medicine, taking care of their patients". Nope, not it -- they're there to make sure that you make them money, else you are an unnecessary, high cost line item burden.

Math and trend, ultimately, are not the PE dividend paying operation's friend, I'll just be glad when more people figure this out.

 

[doctalaughs]

as someone who is looking for jobs, what is wrong with private equity?

I get the very nature of having business and medicine intertwined as a serious potential for conflict of interest.

But a lot of them seem like they have pretty clear benefits. Good pay, streamlined billing, HR, staff training, etc.

The ones I have spoken to don’t necessarily force you to do any specific procedures, don’t force you to see more patients than you are comfortable seeing, don’t make you supervise or train midlevels, etc.

Anything I should look out for, other than the basic of being afraid of the emphasis of making money in medicine?

Think about why you really have a “bad taste” in your mouth... its because working for PE is extremely short-sighted.

Lets just pretend their offers actually are honest (a big leap of faith by the way) - they don’t control how you practice, how many patients you see and who you refer to. They pay you a very good wage and handle all the business stuff like a “well oiled machine.” The real question is how LONG do you think that arrangement will last? Remember, we’ve seen this happen across multiple fields of medicine and the result is always the SAME. As the PE firms and mega groups gain a certain threshold dominance of the market they WILL eventually control everything, because you wont have any alternative practice choice (referrals supervision, patient number etc). They may offer a good deal now, but as more people sell out they will be telling you when you’re allowed to take a ****!

It’s amazing that physicians can be so naive when they have perfect examples of how this played out in multiple specialties - look at anesthesia, EM and path to take a few examples.

I guess the question is this — do you want to sell your specialty out for what “might” look like a fair personal deal for the next few years? I suppose if you are nearing retirement it might make some (selfish) sense, but a new derm should be running the other way.



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[MOHS_01]

Beyond the financial stuff, PE groups are often very corporate.

I never knew what that meant until I worked for one myself. (Briefly, I no longer work there)

I remember hating the hierarchies of the hospital during my internship year. It's not quite as bad in a PE group but there's definitely more of it as compared to a solo practice or a small Derm group. I remember thinking to myself that if I hated it so much as an intern, why would I sign up for that kind of practice model as an attending?

Do you like reporting to multiple middle management administrators to get the smallest changes enacted? And more importantly, how do you think they get paid? You think it's taken out of the PE group's cut?

Preach. What people need to understand is that we operate in a very simple paradigm: it's price fixed widget making. Every single thing you do has a code associated with it; this code is legally defined and deviation from using it has legal penalty. Each and every code has an assigned value that varies from payer to payer and institutional contract to institutional contract. Providers' labors are the only real revenue source (aside from retail sales), so those monies are earned by you, the licensed provider. The PE guys provided some value to the older guys who sold you out, but make no mistake -- what they sold -- and, thusly, what the PE group bought -- was your indentured servitude. They bought your future labors and the earnings associated with it.

They really should come with their own sigil.... and you should hear the words "we do not sow" when they speak -- for they do not. They sail in, take what they want, and "allow" you to labor for it.

 

[dermfirstyear]

Thanks for all the replies! I think it’s more of a systemic concern vs it being a bad individual decision, so I get it.

What are y’alls thoughts on working for big hospital groups like Kaiser, Sinai, etc.

 

[MOHS_01]

Thanks for all the replies! I think it’s more of a systemic concern vs it being a bad individual decision, so I get it.

What are y’alls thoughts on working for big hospital groups like Kaiser, Sinai, etc.

Similar story with a different name; you are trading one set of problems for another.

It's more than just a philosophical, theoretical exercise, however, and very much constitutes a bad individual decision as well... unless you are a particularly submissive soul who enjoys performing and earning money for others. If that's the case, don't let us discourage you in chasing your dreams! Collar and gag up!

 

[caltigers]

So if you are not interested in PE or a hospital group, what is the best way to find a job with a private practice? Just cold call? If I don't have any connections in that state or city, how can I find out if they are a well run practice? I'm looking for Mohs if it makes any difference.

 

[dermfirstyear]

Similar story with a different name; you are trading one set of problems for another.

It's more than just a philosophical, theoretical exercise, however, and very much constitutes a bad individual decision as well... unless you are a particularly submissive soul who enjoys performing and earning money for others. If that's the case, don't let us discourage you in chasing your dreams! Collar and gag up!

Can you elaborate? I’m seriously considering a position at one of these with a reasonable bonus structure.

 

[reno911]

So if you are not interested in PE or a hospital group, what is the best way to find a job with a private practice? Just cold call? If I don't have any connections in that state or city, how can I find out if they are a well run practice? I'm looking for Mohs if it makes any difference.

Yeah, that makes a huge difference. In a lot of larger cities, there are no great options of any kind for Mohs. So whatever scant opportunities you are able to come by don't seem so bad. General derm doesn't really have this problem as much.

 

[doctalaughs]

Ever think of hanging a shingle? May not be as lucrative initially but at least you wouldn’t be selling out the future of your specialty... btw I disagree that VA, academics, kaiser and other “big” players are as bad as PE because at least they are accountable to more than their wall street investors. Money may be part of their equations, but it’s not the whole reason for their existence.


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[MOHS_01]

Can you elaborate? I’m seriously considering a position at one of these with a reasonable bonus structure.

There are so many things about practice and life that the brevity required for a post here (and the time constraints on any given person to formulate something useful) always shortsells the situation, I'm afraid.

The truth of the matter is that really is no perfect setting or perfect practice for everyone; we each have different rank orders for our priorities, preferences, etc, and these preferences will change with time. What you have to determine what you're most concerned with, what you are willing to compromise on, whether your current preferences are likely to remain static over the years, and what the costs will be to extricate yourself from an unfavorable situation should it arise. The problem with PE funded structures is that you have now introduced and accepted a permanent extra hand in the pot, line on the income statement, etc... and it will always be paid from monies earned by you and those like you and will be paid before you see any "bonus" money. You are trading ownership, autonomy, and self direction for some false veil of safety; you will be limited by standard medical practice and standards, medicare fee schedules, injury attorneys, provider grading panels, peer reputation, etc, just like everyone else. There are both soft and hard limits on how much you can do, what you'll get paid for it, etc, and the addition of another layer of cost will eventually catch up with them.

Beyond that, we should look at what has happened to our colleagues when they had similar threats: radiology, pathology, anesthesia, dentistry. No practitioner in any of those fields would say that the changes have been positive for the specialty. We will be no different.

 

[MOHS_01]

Yeah, that makes a huge difference. In a lot of larger cities, there are no great options of any kind for Mohs. So whatever scant opportunities you are able to come by don't seem so bad. General derm doesn't really have this problem as much.

Yeah, we've definitely overtrained. I've harped on this before, including as a resident when appointed to an AAD task force wherein I was told "You know nothing, John Snow." and to sit down and shut up.

 

[MOHS_01]

Ever think of hanging a shingle? May not be as lucrative initially but at least you wouldn’t be selling out the future of your specialty... btw I disagree that VA, academics, kaiser and other “big” players are as bad as PE because at least they are accountable to more than their wall street investors. Money may be part of their equations, but it’s not the whole reason for their existence.


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Disagreed; everyone answers to someone, shareholders by any other name, etc. Universities apply a university tax. Large health systems internally redistribute. They all have layers of governance and bureaucracy that constitute impedances. They all carry with them a cost... and if that cost is in excess of any pricing advantage or operational efficiency, it is money out of your pocket combined with decisions out of your hands. There's not a lot of win in that scenario save you the headache that comes with managing people and business, I suppose.

 

[reno911]

The way I think of PE infiltration into derm is like a giant prisoner's dilemma.

If dermatologists as a whole all rejected PE, dermatology would be better for everyone. But this only really works if everyone rejects PE. Once you get a few defectors, then you too could very well be better off taking the deal. So, many rational actors will accept a good PE opportunity, whether it is a job or selling your practice.

We never really had a chance, though. The coordination required to resist this kind of thing is nonexistent in derm. Or any other specialty for that matter.

 

[dermfirstyear]

There are so many things about practice and life that the brevity required for a post here (and the time constraints on any given person to formulate something useful) always shortsells the situation, I'm afraid.

The truth of the matter is that really is no perfect setting or perfect practice for everyone; we each have different rank orders for our priorities, preferences, etc, and these preferences will change with time. What you have to determine what you're most concerned with, what you are willing to compromise on, whether your current preferences are likely to remain static over the years, and what the costs will be to extricate yourself from an unfavorable situation should it arise. The problem with PE funded structures is that you have now introduced and accepted a permanent extra hand in the pot, line on the income statement, etc... and it will always be paid from monies earned by you and those like you and will be paid before you see any "bonus" money. You are trading ownership, autonomy, and self direction for some false veil of safety; you will be limited by standard medical practice and standards, medicare fee schedules, injury attorneys, provider grading panels, peer reputation, etc, just like everyone else. There are both soft and hard limits on how much you can do, what you'll get paid for it, etc, and the addition of another layer of cost will eventually catch up with them.

Beyond that, we should look at what has happened to our colleagues when they had similar threats: radiology, pathology, anesthesia, dentistry. No practitioner in any of those fields would say that the changes have been positive for the specialty. We will be no different.

This makes sense. While PE and big hospital group are both making money off the provider, I can just stomach earning money for a hospital system better than earning money for a suit shareholder.

This is just a temporary move for me to live in a new place. Afterwards I am certainly only looking for positions that offer partnership.

Thanks for your input!

 

[MOHS_01]

This makes sense. While PE and big hospital group are both making money off the provider, I can just stomach earning money for a hospital system better than earning money for a suit shareholder.

This is just a temporary move for me to live in a new place. Afterwards I am certainly only looking for positions that offer partnership.

Thanks for your input!

Fair enough -- but do it with the full understanding that one of the most costly decisions you will ever make (aside from overpaying for an already expensive residence and divorce) is to relocate practice locations. Expect a several hundred thousand dollar hit with every move.

 

[asmallchild]

Fair enough -- but do it with the full understanding that one of the most costly decisions you will ever make (aside from overpaying for an already expensive residence and divorce) is to relocate practice locations. Expect a several hundred thousand dollar hit with every move.

Very true, and in that same vein:
One House, One Spouse, One Job: Avoiding the True Pitfalls in Personal Finance

 

[dermfirstyear]

Fair enough -- but do it with the full understanding that one of the most costly decisions you will ever make (aside from overpaying for an already expensive residence and divorce) is to relocate practice locations. Expect a several hundred thousand dollar hit with every move.

Do you mean because you would presumably be going from a busy practice with a full schedule to start over in a new location and need to build up your entire base again? So the hundreds of thousands we are talking is basically like the opportunity cost of how much I would have made in the time it takes for me to get fully busy in the new office?

But yeah I want to move to a particular city for my significant other and maybe I will end up settling there but likely will just go back to the city I'm from!

 

[Skindoc83]

I can speak knowledgeably about mohs with kaiser. Mohs is vastly overtrained and most people that do mohs want to do exclusively mohs. That makes practicing mohs in a desirable location very difficult except if you’re in a kaiser like program, because they have a captive patient base. Kaiser pays a decent salary to practice medicine. But the pay you receive doing a full case load at kaiser vs doing a full case load in private practice is drastically lower. Kaiser also expects you to be reachable to your patients almost 24-7 and promotes this to patients. That means getting a lot of pictures emailed to you by patients making sure their linear repair looks normal at post op day 9, 11, 13, 22, 24... Its a giant bureaucracy and the group that hires physicians is separate from the group that hires staff. That means you have no say over staffing and there is very high turnover. Why would an MA want to work in a busy mohs clinic when she can just room patients and sit around in the family med clinic? That turnover means you can’t delegate a lot of responsibilities to your MA. And forget about having a certified histotech, oftentimes they are simply MA’s... who also leave. That means you continually have to train new MA’s to histotech while still doing the same case load. Each kaiser has its own culture that you are expected to conform to. Some kaisers want you to send all bigger closures to plastics, other kaisers expect you to do all of your own closures. The benefit of Kaiser is that it lets you practice mohs in a competitive city but it comes at the absence of autonomy and lower pay.

 

[MOHS_01]

The way I think of PE infiltration into derm is like a giant prisoner's dilemma.

If dermatologists as a whole all rejected PE, dermatology would be better for everyone. But this only really works if everyone rejects PE. Once you get a few defectors, then you too could very well be better off taking the deal. So, many rational actors will accept a good PE opportunity, whether it is a job or selling your practice.

We never really had a chance, though. The coordination required to resist this kind of thing is nonexistent in derm. Or any other specialty for that matter.

I thought that way as well -- at first -- right up until the point that I came to the understanding that this is a Trojan Horse in the form of a Ponzi-lite scheme wherein the only real beneficiaries are the early adopters who are / were paid a premium for granting access, allowing a toehold, and whoring their good name for a quick buck. Harsh? Perhaps. Is it wrong, though? While I'm not totally committed to saying "final answer", I believe the truth of the matter lies closer to that interpretation than not.

The PE / corporatization of derm is not a random development; there are aspects of dermatology that made it uniquely attractive for this infiltration. We are highly fragmented, well compensated, and in increasing demographic driven demand relative to most specialties. This means there are efficiencies to be realized, represents low hanging fruit. Similarly, we have not been the target of mega-health systems, so institutional competition was low to non-existent.

As for the coordination required to combat this being nonexistent? Try illegal. Significant cooperation, much less coordination, between "competing" entities never gets very far thanks to legal counsel and anti-trust issues; we learned this the expensive way locally when trying to create a co-op front and back office third party entity, through which all non-hands on clinical care was to be coordinated for the purposes of minimizing redundancies and squeezing out efficiencies where ever possible. Like most things in life, a JD rained on the parade -- but not until several hundred billable hours were under belt, of course.

The bottom line, though, is that, over time, their system will prove to be at a structural disadvantage relative to a well ran group of adequate size. Solo practice is always inefficient. Multi-specialty and health systems are necessarily redistributionist, and their attractiveness is wholly dependent upon whether you are the one providing the subsidies or receiving them. A decent size, single specialty group practice will always enjoy the sweet spot... and are the hardest jobs to find for the fellowship trained subspecialist.

 

[dermfirstyear]

A decent size, single specialty group practice will always enjoy the sweet spot... and are the hardest jobs to find for the fellowship trained subspecialist.

This is exactly the practice situation I was trying to find. Until I ended up having to move to a large, saturated city and coming from a different region of the US made it really hard to find those opportunities.

 

[MOHS_01]

Do you mean because you would presumably be going from a busy practice with a full schedule to start over in a new location and need to build up your entire base again? So the hundreds of thousands we are talking is basically like the opportunity cost of how much I would have made in the time it takes for me to get fully busy in the new office?

But yeah I want to move to a particular city for my significant other and maybe I will end up settling there but likely will just go back to the city I'm from!

Something like that. It takes, generally, several years before a person plateaus in income for a variety of reasons, and every time you start over, you are resetting the clock back to the lowest earning time period of your working career. Further, moves in jobs generally result in changes in housing, and that has a significant cost associated with it as well -- especially if you have to take out mortgages.

For example, I had to relocate in order to extricate myself from a practice situation that changed significantly from what was discussed and agreed upon to something very, very different after the first year. By the second year after the move (started a solo practice in another town) I was making twice what I was while actually doing less (it takes a while to get really busy); even with this, by conservative estimates this move cost me $1m in lifetime earnings. That is $1m not earned or saved in my early / mid 30's. The DJIA hit 6500 that summer. I was an incredible saver at the time, living wayyyy below the income, simple life in a small town. That is the difference between retiring in your early 50's and mid 60's -- assuming the market holds true to historical trends and you didn't do something stupid.

I cannot overstate the importance of finding the "forever job" early.

 

[MOHS_01]

This is exactly the practice situation I was trying to find. Until I ended up having to move to a large, saturated city and coming from a different region of the US made it really hard to find those opportunities.

Best of luck; the local ones caught on several years ago and now their MMS and path guys are paid peanuts and funding everyone else's vacations. And retirements. And private schools.

 

[reno911]

I thought that way as well -- at first -- right up until the point that I came to the understanding that this is a Trojan Horse in the form of a Ponzi-lite scheme wherein the only real beneficiaries are the early adopters who are / were paid a premium for granting access, allowing a toehold, and whoring their good name for a quick buck. Harsh? Perhaps. Is it wrong, though? While I'm not totally committed to saying "final answer", I believe the truth of the matter lies closer to that interpretation than not.

Yeah, the prisoner's dilemma is definitely not a perfect analogy.

As for the coordination required to combat this being nonexistent? Try illegal. Significant cooperation, much less coordination, between "competing" entities never gets very far thanks to legal counsel and anti-trust issues; we learned this the expensive way locally when trying to create a co-op front and back office third party entity, through which all non-hands on clinical care was to be coordinated for the purposes of minimizing redundancies and squeezing out efficiencies where ever possible. Like most things in life, a JD rained on the parade -- but not until several hundred billable hours were under belt, of course.

Agreed. But even if it were legal, it wouldn't have mattered. Derm is just too fragmented.

The bottom line, though, is that, over time, their system will prove to be at a structural disadvantage relative to a well ran group of adequate size. Solo practice is always inefficient. Multi-specialty and health systems are necessarily redistributionist, and their attractiveness is wholly dependent upon whether you are the one providing the subsidies or receiving them. A decent size, single specialty group practice will always enjoy the sweet spot... and are the hardest jobs to find for the fellowship trained subspecialist.

This is true, but the problem is that when the decent sized single specialty group hits a critical mass, PE swoops in and buys them out at 12x EBITDA or whatever. And suddenly, the independent group practice is gone. I know a number of people who are partners in groups with 10+ derms. Almost none of them (there are a few notable exceptions) have any doubts about whether or not they should sell to PE. It's just a question of when. The younger ones (obviously) want to sell after some time and the older ones want it done yesterday.

I agree with you that the PE model is flawed and is going to experience problems in the long run. But given the rate at which they're growing, they may have largely killed off the specialty as we know it before they see the consequences. At that point, will we be able to return to the days where a large, independent derm group was not an anomaly? I guess we'll find out.

 

[MOHS_01]

What I wish people would grasp - and by people, I mean these young, starry eyed youths we’re turning out these days - is that EBITDA purchase represents their future, their income, their autonomy. It is the elders of the world selling their successor’s future earnings. There are many reasons to dislike those who have gone before us, but this one has to be one of the more damning for as you point out, once critical mass is achieved, turning back becomes ever more difficult.