Physicians should maintain influence over their practices in private equity transactions
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When deciding whether to partner with a private equity firm, private orthopedic practices need to make sure the management services organization that the private equity firms is invested in does not have influence over the clinical aspects of the practice, according to a presenter at the American Alliance of Orthopaedic Executives Annual Conference.
“They cannot come in and add five new doctors and put them in an office and cause everyone else to starve a little bit,” Andy Blankemeyer, MHSA, CEO of Ortho Alliance, said in his presentation. “The practice independently determines the need for new physician recruits.”
He also noted physicians have to have the ability to maintain their staff.
“Just like we typically did pre-transaction, we give [practices] suggestions on staffing levels, we give them suggestions on technologies that can help reduce their costs but ultimately, it needs to be their responsibility,” Blankemeyer said.
Partner practices within the management services organization should have aligned interests, which should be identified prior to discussing private equity with the practice, according to Blankemeyer. He added that the physicians need to be seen as the most valuable assets of the practice with an equitable compensation plan that not only motivates them to work but also allows new physicians to come into the model successfully and grow. Blankemeyer said physicians should also be able to continue to maintain relationships with other organizations, such as hospitals.
“If the physicians are not seen as the most valuable assets, it is going to be impossible to retain and attract new doctors and grow the organization,” Blankemeyer said. “You cannot just grow through acquisition and add in all these groups across the country. You need to build density in the markets that you are in and so you have to make sure that the practice that you are today is going to still be able to grow over the next 5 to 10 years or however long your timeline horizon is.”
However, Blankemeyer noted the private equity model is not the best model for every private orthopedic practice.
“[Private equity] is not perfect, but neither is the traditional private practice model where there is a significantly more amount of risk on the individual physicians,” he said.
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B. Sonny Bal, MD, MBA, JD, PhD
The article is on point. Maintaining physician independence over day-to-day staffing decisions, hospital relations and new practice partners are important elements that owners should seek to preserve in a private equity transaction with an orthopedic practice. The goal is to preserve, to the best extent possible, the autonomy and freedom of private practice, while reducing the risks and headaches of being out there on your own in the uncertain world of health care economics. Medical practices in dermatology, ophthalmology, optometry and increasingly ASC-centered orthopedic surgery are attractive to private equity investors as reliable cash generators that are ideal for consolidation, economies of scale, future growth based on population demographics and opportunity to shrink costs. Orthopedic practices can expect more, rather than less, private equity investment going forward, despite the predictable slow-down related to COVID-19.
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Blankemeyer A. Private equity in orthopedics: Understanding the emerging trend. Presented at: American Alliance of Orthopaedic Executives Annual Conference; May 1-4, 2020 (virtual meeting).
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