Sell to Private Equity?

[OphthoJ]

Has anyone sold their practice to a private equity group?  If so, how was the experience, and would you do it again?  On the front end their appears to be significant money to be made but then you are working for a bunch of suits that likely couldn't care less about patient care, just the bottom line.

[Doctor Money Matters]

I would like to do an episode on my podcast about this topic as its becoming more common. Anyone who would be interested in discussing please email me help@ doctormoneymatters.com (you can remain anonymous for the show)

Thanks

[Donnie]

Interesting how the OP seemingly disparages private equity as "a bunch of suits" who only care about the "bottom line" while in the same sentence talking about how much money one could make from selling to private equity. I don't really see how it would be ok to sell to private equity for a lot of money, but not ok for them to try to generate a return on investment.

You are generally right that private equity will seek to optimize the business to enhance profits. They will leave the patient care to you as long as you operate within their profit maximizing framework. In many cases, selling to PE can be a good thing because PE can leverage back office across many investments, keeping costs down and improving the quality of back office functions due to scale. These functions are the things that many docs and dentists dislike doing anyway.

[Miss Bonnie MD]

PE owned derm groups are awful...

[Jaqen Haghar MD]

Probably great to sell to and walk away, and can be a nightmare to work for depending on the specialty.  Turns you into a burger-flipping employee, with a whole new purpose for your life.... making them money.

[VagabondMD]

Our radiology group came close to selling to one of the VC-owned national groups. It would have been a great payday for the rads in the group with a short time horizon but a colossal mistake for the younger members and would have likely resulted in implosion of the group, loss of hospital contracts, and probably a few careers cut short.

[Kamban]

With the interest from banks and other traditional investments being so low, the private equity firms are scrambling to get their higher returns from medical practices.

One of the bank VP's from whom we got commercial lending called me up one day and wanted to buy my office building and then lease it back to me so that I could have all that extra money to invest at great returns. I was surprised that the bank wanted to do that until he mentioned that he had jumped ship and was now working for a private equity firm. ( I did not have the heart to retort back that if that was so great for me whey did he not do it himself and get those high returns).

He then wanted to buy my practice and make me work for the VC group. If I wanted to work for someone I would rather work for a hospital that these VC groups whose only motto is to make more money for themselves. I would have lost the independence to practice the way I wished. I cannot write off receivables from really poor patients. I could not take vacations when and how long I wanted. I said s***w you in kinder words.

[ajm184]

Odd approach by PE in my opinion.  Sure you can probably do some things from the back end to save money (centralize EHR at scale, centralize billing/collections, more effectively manage the R/E etc.) but any centralization savings gained is out the door buying practices all around the country or a CMS region.  From a physician perspective, I would be a bit concerned around the billing side (your P/E coding for level 5 visit but is really a level 2 or 3) which they are going to 'take off your hands' from an oversight perspective.  More interesting imo is depending upon the group size, the docs are the 'brains' of the business and PE messing around with doctors too much could trash the group brand or force en-mass resignation from your money generators.  Only out that comes to mind for PE is re-flipping into a regional hospital system which the group probably broke from in the first place for whatever reason.

[VagabondMD]

Without going into exhaustive detail, the deal killer for us was the concern that we would have a difficult time recruiting new rads to the group. As I follow these national groups from afar, this seems to be the case.

I recently received a postcard for the following rad job in San Francisco, offered by Sheridan (perhaps the largest national radiology, anesthesiology, and ER group):

48 weeks of work

No benefits

5 days, Thursday through Monday, 12-8p

Salary was about 75% full time national average

No partnership opportunity

I guess if you are desperate for a job in the Bay Area, desire no social or family life, and do not mind living with roommates, it could be a great job.

[childay]

Can anyone else comment on how PE is managing these practices they are buying?  Are they just cost-cutting or are there really efficiencies of scale?

[Dreamgiver]

In my field (anesthesia) it is a pretty well known fact that the pay from these corporations is low and usually the bottom of the barrel ends up working for them. I personally would walk away fast from these entities. The dr/pt relationship does not need this garbage.

[Zaphod]

childay wrote:

Can anyone else comment on how PE is managing these practices they are buying?  Are they just cost-cutting or are there really efficiencies of scale?

Click to expand...

Im not sure there are any efficiencies of scale a PE firm can do that anyone else cant. You can outsource anything these days, billing, the whole HR, etc...you can purchase for a reasonable price economies of scale while still controlling your practice.

PE firms usually have a very specific time frame and return level for exits, and usually a catalyst in mind before they begin. I would think that entails cutting to the bone, increasing workload and consolidating practices to increase average bill (due to size). The other option is making this new fancy efficient practice look great to sell and move on which is likely another target.

The plastic surgery model one that I know (and talked with the CEO and MD director) all pitch the business stuff is taken care of, no worries, you just operate and some minor clinic. Which translates into basically a sweatshop where one operates almost everyday on patients they havent met until right before the surgery that are being screened, signed up and preopped by patient coordinators, maybe a nurse. You make final call on the spot right before possible surgery.

Obviously that is only efficient for the person scraping the cash pile first, your time is disregarded as is everything else. In reality its a horrible model, anyone working there is about 5 times busier in the OR and paid marginally at best. Its crazy as this greatly increases ones risk profile not only due to not properly consulting/screening patients but sheer volume of procedures increases risk of course. To boot your pay is less than a much less busy surgeon. I didnt understand it, and of course, those that are desperate or lower tier are the ones taking those positions.

Honestly I dont know how its even legal, I do know the corporate practice of medicine thing has so many loopholes and caveats that it basically no longer exists, but these things are straight up high school grads feeding you cases.

[OphthoJ]

Thanks for all the comments, basically what I was thinking.

[Donnie]

Zaphod wrote:

childay wrote:

Can anyone else comment on how PE is managing these practices they are buying?  Are they just cost-cutting or are there really efficiencies of scale?

Click to expand…

Im not sure there are any efficiencies of scale a PE firm can do that anyone else cant. You can outsource anything these days, billing, the whole HR, etc…you can purchase for a reasonable price economies of scale while still controlling your practice.

PE firms usually have a very specific time frame and return level for exits, and usually a catalyst in mind before they begin. I would think that entails cutting to the bone, increasing workload and consolidating practices to increase average bill (due to size). The other option is making this new fancy efficient practice look great to sell and move on which is likely another target.

The plastic surgery model one that I know (and talked with the CEO and MD director) all pitch the business stuff is taken care of, no worries, you just operate and some minor clinic. Which translates into basically a sweatshop where one operates almost everyday on patients they havent met until right before the surgery that are being screened, signed up and preopped by patient coordinators, maybe a nurse. You make final call on the spot right before possible surgery.

Obviously that is only efficient for the person scraping the cash pile first, your time is disregarded as is everything else. In reality its a horrible model, anyone working there is about 5 times busier in the OR and paid marginally at best. Its crazy as this greatly increases ones risk profile not only due to not properly consulting/screening patients but sheer volume of procedures increases risk of course. To boot your pay is less than a much less busy surgeon. I didnt understand it, and of course, those that are desperate or lower tier are the ones taking those positions.

Honestly I dont know how its even legal, I do know the corporate practice of medicine thing has so many loopholes and caveats that it basically no longer exists, but these things are straight up high school grads feeding you cases.

Click to expand...

I think this is very case specific.  Many PE shops will just seek to achieve scale because they can arbitrage buying single location practices at 3-4x EBITDA (earnings before interest, tax, depreciation, and amortization).  Once the business reaches scale, they can sell at a more diverse business consisting of many locations at 6-7x EBITDA.

Typical conditions of a sale include:

• PE will right-size your compensation to that of an employee rather than an owner.


• PE will want you to keep some of your equity in the business.


• PE will lock you up with a multi-year non-compete in the geographic region around where the practice is.

Typically your practice wouldn't be the first practice they are buying, so speak with prior sellers and the physicians at other practices before deciding it is something you do or don't want to do.  If someone makes you an offer, there is no reason not to explore it.

[Ghetto]

True. But that hasn't stopped many in our specialty from selling out. In fact, it seems to be accelerating.