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Do you believe private equity investment will be more successful than the physician practice management companies’ attempt at consolidations in the 1990s?
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High risk, high return
For many years, eye care has been considered “outside the nest” of traditional medicine, and now as the payer world is evolving and there are solid attempts to consolidate through ACOs, IPAs, mergers and acquisitions, we need to find a way to differentiate ourselves and jump back into that “nest.” It is more critical than ever that we proactively build strong relationships with payers and legislators. We must invite them into our world to help them understand who we are and where we fit in the health care continuum. Consolidation will no doubt dominate our industry. We need to find ways to share resources, reduce costs, create market share and build in efficiencies to sustain profitability into the future. In walks private equity, which is incredibly disruptive, but indeed a vehicle to assist in this consolidation effort. It is a high-risk/high-return venture that differs from that of the physician practice management companies of the past. While the window of opportunity may only be for the next few years, it is indeed something I encourage my colleagues to get educated about. In preparation for any talks, I would also add that group owners must be aligned and in consensus with one another. They must be disciplined about strategic planning, focused on practice culture and the patient experience, and ensure that they are entering these conversations for the right reasons.
Private equity firms are looking for groups that are leaders in the market, that have a desire to grow and build a sustainable and profitable business into the future. While this could be viewed as a retirement strategy for older surgeons with successful, productive practices, private equity acquisition has much larger implications for younger equity partners who have much longer professional time horizons. Such potential acquisitions are complex and potentially complicated, but I do believe that with the proper mindset, these consolidations will lead to a healthier form of health care delivery in our unique field of medicine.
Elizabeth Yeu, MD, is OSN Cornea/External Disease Section Editor. Disclosure: Yeu reports no relevant financial disclosures.
The jury is still out
Massive fortunes were made in the 1990s by “rolling up” fractionated industries such as trash hauling (Waste Management) and turning the grouped assets into a stock play. Physician practice management companies (PPMCs) attempted to do the same. This was a spectacular failure. It required doctors to accept a massive decrease in pay in return for stock whose value was determined by that foregone pay. Most practices were reacquired by the original owners for pennies on the dollar. With more investment money than it knows what to do with, private equity (PE) groups are rolling up practices in return for cash. This is a great option for those near retirement. For everyone else, the jury is out. Why? See above. The value of the new business is still driven by foregone salary. In order to profit, one must invest a substantial percentage of the money you have been given and hope your new best friends can then resell the group.
What this new wrinkle has going for it is upfront cash. In addition, today’s PE groups are taking the “M” of PPMC seriously. Very seriously. These new super groups are actively managed in all respects. If you are part of a roll-up today, you will run lean and mean in the ultimate eat-what-you-kill environment. If PPMC v2.0 fails, it will not be because there was insufficient management.
There are two massive challenges to success. Can you recruit and retain young talent to replace the older docs who “got well?” No group has yet proven it can even retain existing young talent. More challenging still is keeping the mid-career workhorses around and happy enough that they continue to produce. Look to see which electronic medical record is being used and you will get an idea of how seriously the money guys are taking this last point and how likely they are to succeed.
That is not a done deal, either.
Darrell E. White, MD, is an OSN Cornea/External Disease Board Member. Disclosure: White reports no relevant financial disclosures.