Article

As I See It

Private equity, reconsidered

Two years ago, I wrote a column (Viewpoint, September 2017 issue; https://tinyurl.com/y5oh4xh2 ) pondering the purchase of existing private ophthalmology practices by private equity companies.

A lot has transpired since then, and I thought it worthwhile to revisit the topic and share some thoughts — and concerns.

THINK TWICE

First, despite what you may have read, not everyone is selling out. While the numbers are in constant flux and so difficult to confirm, a very rough estimate is that about 10% of ophthalmologists are working in companies now owned by private equity firms, and that in two years that number may grow to 25%. No one but God would dare venture an estimate beyond that.

Second, not everyone who has sold to private equity is happy with their decision — despite the impression one might glean from the many glowing articles in circulation. You can’t expect these ophthalmologists to sell their practices, retain a major financial incentive from a second sale in 5 to 7 years and then publicly bash the company with which they are now aligned. I say this with careful consideration: I am aware of a number of doctors who have sold and now, off the record, are not nearly as happy as public proclamations suggest.

Third, why did you get involved in medicine? I’m not going to rank these motivations, but I’d guess yours included both helping patients and providing well for yourself and family.

Why does a private equity company purchase your practice? So, they can sell it in the not-too-distant future and make money. Period.

Your profit motive hopefully is balanced out by doing what’s best for your patients, who trust you to act in their best interest. In our practice, we do some things that, frankly, just aren’t profitable, and maybe even lose money, because it’s the right thing to do. I’m not sure how long that attitude would survive once the owner’s only real motive is to sell the practice and make money for the investors.

Fourth, a lot of ink has been spilled about how important it is to perform due diligence with prospective buyers. I couldn’t agree more. But here’s the rub: Once you’ve sold, it’s not your practice anymore. If and when that second “bite” happens in 5 to 7 years, you’ll likely have little say regarding your next employer. And if you have a restrictive covenant, you’ll have to stay and put up with it — or pack your bags.

WHAT HAPPENS IF WE’RE NOT SUCH A CASH COW?

But here’s a final concern: Cataract surgery is about to take a major hit. CMS recently released its planned 2020 physician fee schedule, and it appears our cataract surgery fees will take a 15% cut beginning in January. While this is a real problem for those of us who make a large percentage of our income from cataracts, I’d submit to you this may be a greater problem for companies that just spent millions on practices anticipating major growth over the next few years.

As I said before, I’m not anti-private equity. I just think there are a lot more questions than answers out there right now. While it may be a great deal for someone like me on the way out, I have a son just starting his fourth year in practice with me. I’m not at all convinced it’s in his best interest.

Caveat emptor. OM