Speaker: Practices seeking private equity partnership should know benefits, downsides
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GRAPEVINE, Texas — A private equity transaction may make sense for an orthopedic private practice that finds it increasingly difficult to reduce costs and increase revenue in today’s financial and health care environment, a speaker said.
During a symposium at the American Association of Hip and Knee Surgeons Annual Meeting, R. Michael Meneghini, MD, discussed ways that private equity (PE) and outside capital can provide orthopedic surgeons with some needed extra financial help.
He said results of a recent survey by the American Academy of Orthopaedic Surgeons showed about 48% of orthopedic surgeons remain in private practice. Although this comes as good news, Meneghini said these same physicians are the ones who are most feeling the effects of unsuccessful strategies to curb expenditures and maintain or increase revenue today.
Groups faced with such challenges may want to consider a PE transaction, and they should carefully consider the advantages and disadvantages of this type of agreement, he said.
PE “can preserve practice autonomy. You have the potential for greater wealth creation. You get equity ownership of the parent company, which is important. You also still get ASC ownership, as well. You have access to capital for growing your enterprise, expanding your services,” said Meneghini, who is an Orthopedics Today Editorial Board Member.
"There are downsides to it and you have to navigate these if you consider this type of partnership,” he said.
Older and younger surgeons also require special consideration when a PE partnership is being explored.
“Transactions may financially favor the older surgeons,” Meneghini said.
Therefore, a practice needs to take care to not overpay its older surgeons while at the same time having a realistic strategy to keep younger surgeons in the practice without overburdening them, he said.
Ultimately, orthopedic surgeons must know their risk tolerance and select the model of practice that corresponds best to their risk tolerance, according to Meneghini.
“Understand the details of bringing on new surgeons in these environments,” as well as the path to partnership with an equity purchase and all of the financial implications for the practice when a physician exits or retires, Meneghini said.
“I would argue what’s more important than anything, more important than the multiple, is finding the PE partner who has the same ideals and values and is a good partner and emphasizes the team approach,” he said.
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Meneghini RM. Need some extra help? The role of PE and outside capital in orthopaedics. Presented at: American Association of Hip and Knee Surgeons Annual Meeting; Nov. 3-6, 2022; Grapevine, Texas.
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