Shareef Mahdavi

Given the frenzy over private equity that’s emerged over the past several years, many practices are at least considering a sale. One of the first questions asked is around figuring out how much the practice is worth. The answers to this are complex and involve more than calculating the free cash flow (normalized EBITDA) of the enterprise. Once that number is determined, the next question is, “How can we improve it?” as the math of PE becomes crystal clear. Every extra dollar of profit can mean anywhere from 4 dollars to 10 dollars of value in a transaction.

Most of us think we are better than we really are. Sad but true. It shows up all across society, and psychologists even have a term for it: illusory superiority, aka the above-average effect. OK, so we are a bit biased when it comes to ourselves. I’m sure I suffer from it just like everybody else.

Most doctors tell me their practices are well run and firmly believe it based on growth in revenue, tenure of staff and patients who seem to be pleased with the services they receive. But a businessperson might look at that same practice and see something different: out-of-whack operating costs, duplication of effort, low productivity of doctors and/or staff, and patient reviews that indicate significant room for improving the customer experience.

SAN DIEGO — At the American Society of Cataract and Refractive Surgery meeting, Shareef Mahdavi, president of SM2 Strategic, discusses the launch of his new blog at www.healio.com/ophthalmology/news/blogs/mahdavi, which will focus on private equity in ophthalmology and how surgeons can improve their practices.

Just about every doctor I speak with wants to know more about private equity, and larger practices seem to be inundated with inquiries from prospective buyers. Why the sudden interest in medical practices? Well, actually it’s been going on for years; you just might not be aware of the activity beyond the hospital-driven move to integrate private practices into their system and thus “lock in” future business. Take a look at dermatology, anesthesiology and other specialties, and you will see consolidation of individual practices into regional and national entities, funded by private equity investment capital that is seeking new places to invest and generate outsized returns relative to traditional public equity markets. With the stock market sitting near all-time highs and corporate tax policy’s repatriation bringing billions of dollars back into the U.S., there is a lot of money that ultimately wants to be put to work.

The IntraLase FS60 femtosecond laser used in combination with the Allegretto Wave Concerto 500-Hz excimer laser achieves good visual acuity and reduces procedure time, according to a retrospective review from one clinic in Japan.

In today’s competitive world, you probably have heard many experts use the word “value” when describing what’s important to manufacturers and consumers. This concept can be applied to the business of refractive surgery. It’s important that surgeons look back at what has happened over the past decade in trying to determine what might happen over the next decade.