Orthopedic groups and surgeons are thinking twice about partnering with private equity, and instead exploring other avenues that allow them to retain more control.
Many surgeons go the private equity route because they feel that is the best way to accelerate their practice’s growth. The capital to get things moving can be beneficial to help practices get things off the ground quicker, there are some drawbacks that can come with that up-front funding.
Private equity partnerships can work out for practices, but there are a number of important questions and tradeoffs that surgeons need to consider before signing those contracts.
These four orthopedic surgeons and executives discussed the long-term impact of taking on private equity funding, and the pros and cons of that decision at Becker’s 23rd Annual Spine, Orthopedic and Pain Management-Driven ASC + The Future of Spine Conference in Chicago.
Note: Responses were lightly edited for clarity and length.
Question: What questions or challenges are orthopedic groups who have taken private equity funding facing today?
Michael Boblitz. CEO of Athens (Ga.) Orthopedic Clinic: Obviously, it always comes down to the circumstance of the practice. You have to really understand what your business needs are and there are different ways to address those needs. Some PE groups have done a good job getting good rates for practices, as one example. But overall, I’m a big believer in holding all the cards. I think the landscape has swung back in favor of private practice. I’m doing some very innovative discussions and work with large payers, and they want us to win which is very refreshing. Payers are seeing some of the other care options that are high cost, and they want us to win. Holding all the cards in the short term is paying off, and I think it’s going to continue to pay off.
Stephen DeBiasi. CEO of Northeast Orthopaedic Alliance (Waltham, Mass.): I think that there is this decline of interest in private equity. We’ll continue to see that as groups grow and strengthen, there’s less need for that. What larger, more sophisticated groups are finding is that they can access things in the debt market, and that they really don’t need to use private equities to get to. There’s a much stronger model for either financing through internal operations and excess cash flow or through bank financing that eliminates or mitigates the need for outside funding.
We can still learn a lot from PE though, because I think where they’ve done extremely well is in adding resources quickly for administrators to run things through more data rather than gut instinct. PE’s ability to execute on a plan can sometimes actually be faster, even though they’re a larger organization because they have the access to capital. For example, adding a new ancillary line that may be challenging for an independent physician group, private equity may be able to flip a switch and get access to things faster. I think that private practice groups, through affiliations and through some larger networks, have been able to offer an alternative to that.
Tyler Goldberg, MD. CEO of North American Orthopedic Concierge Association (Austin, Texas): With regard to PE, I think it’s just about the tradeoffs and whether or not you’re willing to do them. That’s the way with anything in life. You know what the outcome for PE will be and what they want out of you. The question then is are you willing to make that sacrifice to get whatever they can provide for you? Is it contracts, is it money to create new entities? It’s just about the trade. You’re going to have lifestyle trade, you’re going to have economic trade and you’re going to have operational trade. And if you are, then then PE is fine for you. But as you can see, everything is a circle inside of medicine. We all go around in a big circle. So PE was in a few years ago, now it’s out, it’ll come back in again.
Nicholas Grosso, MD. President of The Centers for Advanced Orthopaedics (Bethesda, Md.): If you’re an orthopedic surgeon, you’re inherently risk averse. It’s easier for a group to say, well, look, somebody else put the money up for our new ASC or put some money up for our new PT venture, instead of taking that debt on ourselves. At the same time, you still have access to debt and debt markets. If you’re willing to take the risk, you get all the reward. If you give up the risk for the comfort of somebody else’s money being up front, you’re going to give up a lot of the reward. I’ve heard people refer to PE as a payday loan, so basically you’re just borrowing against future earnings.
At the Becker’s 32nd Annual Meeting: The Business and Operations of ASCs, taking place October 29-31 in Chicago, ASC leaders, surgeons and healthcare executives will explore strategies to drive growth, enhance operational performance, navigate reimbursement challenges and prepare for the future of ambulatory surgery. Apply for complimentary registration now.