Why Private Equity May Not Be A Good Solution For Your Medical Practice

The specialist group had a conundrum. The Doctor/CEO was no longer practicing but was 100% owner of the group. The physician workers wanted and were promised ownership, but financial terms were never finalized, and negotiations were not moving forward.

The group decided to bring in a private equity broker to help the situation. The idea, in theory, was simple; bring in outside money so physicians would not need to contribute money from their pockets to purchase the group, put immediate money in the practicing physicians’ pocket, plus put a fair market amount in the Doctor/CEO’s hands so he leaves the practice he started, content.

The reality, sometimes, gets in the way of theory, however.

The number one question that arose immediately: Who was entitled to the lion’s share of the initial proceeds, the Doctor/CEO owner who had put his sweat and hard work, not to mention capital and real estate holdings on the line to build the business, or the physicians, who were creating all of the revenue and were basically the assets that were being invested in by private equity?

In this case, there was no answer and the unfortunate result was the group was forced to downsize as unhappy practicing physicians left for greener pastures.

Moral of the story: Doctors should negotiate all aspects of their employment before they start! The potential of ownership and the time and financial road map to that ownership have to be negotiated beforehand.