Private Equity Partnering in Healthcare – Why Private Equity firms may be the Perfect Solution for Your physician practices and Medical Group in 2020.
The surgeon was upset. She had had a hard week and was looking forward to taking some extra time this next weekend to spend with her newborn.
Her office manager had other plans for her, however. The practice was booming, patients were becoming impatient waiting for surgery dates, the staff was going on the warpath and there was no end and solution to the chaos in sight. The office manager remembered that the surgeon told him that he could open the surgeon’s surgery schedules on a non-clinic day if the cases were an emergency. Surely a gallbladder removal from a patient that had been waiting for two weeks but was calling twice a day, disturbing the staff, qualified as an emergency?
Medical clinics are a business that can potentially generate quite a bit of free cash flow and profits, attractive byproducts for a savvy investor. Private Equity has made their presence known increasingly in healthcare, currently buying up specialty medical practices as if they are blue light specials at Kmart.
The private equity group traditionally have their own management that they insert into the practice to watch and grow their investment. Physicians become more like employees than business owners, but with the added benefit that they are able to take a large percentage of their potential income in the next few years upfront, plus they will get another big chunk of money once the private equity firm has a liquidity event(selling the practice to a bigger fish).
The pros of this type of arrangement are not always obvious for a physician besides the ability to pocket some cash upfront with a prospect of more down the road. But another major benefit (which may seem like a negative to the entrepreneurial physicians in the group), is that a very difficult business is now going to be run by seasoned professionals that have way more experience than either physicians or staff have. The physicians’ headaches resulting from non-strategic operations and decisions would be almost eliminated. So if the physician plans a 3-day weekend, she will get a 3-day weekend.
A big caveat to any private equity deal is that the physician must definitely know thyself. If losing a large degree of independence and some inefficient staff that has become like family is the reason you get up in the morning then most likely, private equity is not for you.
However, if you want to not have to worry about collections, personal phone calls, sick days, cost of healthcare for employees, staff politics, contracts with providers, vendors, insurers and cash flow and would like to get a few big fat checks, then perhaps private equity is the way to go.