VIDEO: Private equity one of several practice consolidation options
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David J. Jacofsky, MD, discusses the private equity model for orthopedic surgery practice consolidation, as well as other consolidation models physician practices can consider.
“So, private equity is neither good nor bad. I often describe it as a match. In the best of cases, it can start a fire that will fuel your growth. In the worst of cases, it can burn your house down. You need to figure out what is your strategy and is that the best way to get there,” Jacofsky, CEO of Healthcare Outcomes Performance Company, said.
He also discusses employment by a hospital, health system or insurer as an option, noting this model for practice consolidation may be more ideal for physicians with 5 years or fewer left to practice.
“You’ll get an upfront check. It may be relatively small, but initial income may increase. Although, in many cases with health systems, history would say that after 2 or 3 years, they may renegotiate that and then [it’s] difficult to go out and reestablish the practice,” Jacofsky said.
Another option is the “build-it-first model, meaning you create a [management services organization] MSO. You aggregate local groups and merge them to gain scale. You invest lots of money to build value-based care and infrastructure to hire the best team to optimize your operations. Then after that, once you are a true platform, you can partner with private equity and get that check upfront,” he said.
The last option for practice consolidation is forming a partnership with a strategic investor, which typically is longer term than the other options discussed, according to Jacofsky.
With a strategic partnership, an upfront check and few changes to leadership can be expected, he said. “You should accept that income repair should be likely and there should be [an] upside for improved income potential.”
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