Experience joining Private Equity

[bergmistro]

Hi everyone,

I've read through the prior posts on this forum discussing private equity, but was hoping to hear some experiences of ophthalmologists (any specialty) who have graduated residency/fellowship and joined a private equity owned group (not people who were partners and got bought out, etc). One of the key markets I'm considering moving to after training (personal reasons) has a huge PE footprint, so would love to hear experiences in joining PE groups. From my understanding - starting salary can be higher than PP (although not always), ceiling is lower, less financial risk (no buy-in), no partnership opportunity obviously although some allow for purchase of shares (are these worth anything?).

Basically, I understand moving to this market would be to take a "home team discount", but I was hoping to get a sense on whether that discount may be more than I am willing to take. Thanks in advance.

---

Members don't see this ad.

 

[Dusn]

Start your own practice. They’ll make you sign a noncompete and then, once you finally get fed up with them, you’ll need to leave the area. So if you have strong personal reasons to be in the area, I would not even consider PE as an option. PE is not a long term job.

 

[sloh]

Start your own practice. They’ll make you sign a noncompete and then, once you finally get fed up with them, you’ll need to leave the area. So if you have strong personal reasons to be in the area, I would not even consider PE as an option. PE is not a long term job.

What if it’s a location like SoCal where it’s very saturated?

 

[solitude]

PE pays worse than even academics, when you calculate the $/RVU, and without the work-life balance, flexibility, interesting cases, and interaction with trainees. PE shares are probably worthless, I wouldn't even factor them into your total comp. These groups are having a lot of difficulty recruiting new physicians: Recruiters from formerly desirable/prestigious large groups in desirable locations (including SoCal) are constantly e-mailing to see if I want to join. They are tightening the screws bigtime. A lot of patients at PE practices in my area are abandoning them.

Even in desirable locations, there are non-PE groups, you could start your own practice, or you could do academics and do more of a clinical and less of a research role.

 

[PLA2]

If you're doing retina, RCA comp package is 400k, 500k, 600k your first 3 years while they make millions off you. Not worth it.

 

[eyeeye_captain]

Private equity is only a victory when you’re selling a practice. It’s always losing when you join after the fact. Less potential money, less of a say in the business. More likely to have checked out colleagues ready to retire.

If you’re stuck geographically, it’s maybe the worst move you can make with the non-competes they usually have. It’s pretty easy for RCA’s bottom line to cut you loose and hire a new grad for $200k less after a couple years…

 

[Dusn]

What if it’s a location like SoCal where it’s very saturated?

I can’t speak from personal experience but I know people who are doing very well in SoCal as solo, young ophthalmologists. I’ve been quoted an average collections of $200 per patient visit from a retina doc in so cal - you can do the calculations yourself based on expected overhead and the number of patients you’d like to see each day. You can do very well seeing 20 patients a day if you keep your overhead down and don’t need to give a large part of your collections to some PE firm that contributes nothing (while they make you burn out by seeing very high volumes with crappy ancillary staff).

 

[solitude]

If you're doing retina, RCA comp package is 400k, 500k, 600k your first 3 years while they make millions off you. Not worth it.

What happens after the 3rd year?

 

[solitude]

Private equity is only a victory when you’re selling a practice. It’s always losing when you join after the fact. Less potential money, less of a say in the business. More likely to have checked out colleagues ready to retire.

If you’re stuck geographically, it’s maybe the worst move you can make with the non-competes they usually have. It’s pretty easy for RCA’s bottom line to cut you loose and hire a new grad for $200k less after a couple years…

Some not only have non-competes, but make you sign a commitment for X number of years. If you decide to leave, you have to pay them a large cash sum.

 

[MstaKing10]

If you're doing retina, RCA comp package is 400k, 500k, 600k your first 3 years while they make millions off you. Not worth it.

My starting salary was almost half this in non-PE retina only private practice. The rest was distributed among my future partners and went towards my buy in. That added up to close to 7 figures after all said and done.

 

[MstaKing10]

What happens after the 3rd year?

They become partners but obviously different than traditional non-PE partnership. There’s different revenue streams that become available to partners that are not available to associates.

 

[quickpsych]

I’m Not in your field but Private Equity is 99.9% of the time bad news. Bad for patients, bad for providers, bad for healthcare.

PE generally ruins everything it touches.

 

[bergmistro]

They become partners but obviously different than traditional non-PE partnership. There’s different revenue streams that become available to partners that are not available to associates.

Do these revenue streams generally require buy-in? Or are they more "pay your dues" type of opportunities.

 

[MstaKing10]

Do these revenue streams generally require buy-in? Or are they more "pay your dues" type of opportunities.

There's no buy in. The only "pay your dues" would be the first three years as an associate, similar to most private practice.

 

[mjohnsonets]

Some PE groups are becoming more open to surgery center buy-ins directly. I expect this kind of benefit/model will proliferate. RCA groups allow surgery center buy-ins because RCA doesn't own the surgery centers they operate in.

 

[MstaKing10]

Some PE groups are becoming more open to surgery center buy-ins directly. I expect this kind of benefit/model will proliferate. RCA groups allow surgery center buy-ins because RCA doesn't own the surgery centers they operate in.

Fair point. Thanks for clarification. I was referring to partnership buy in.

 

[RetinaDude]

These PE groups must be hurting for fresh meat because I’m getting a lot of recruitment emails from them, and there’s also a lot of PE groups recruiting on the AAO website. It’ll likely never happen but I’d love to see these PE groups reach a -pint where they are so desperate for candidates that a new doc can basically say “I expect X dollars to start”.

 

[solitude]

They become partners but obviously different than traditional non-PE partnership. There’s different revenue streams that become available to partners that are not available to associates.

right, but what is the salary and how does it compare to a traditional non-PE partnership? That is the missing info...

 

[visco]

These PE groups must be hurting for fresh meat because I’m getting a lot of recruitment emails from them, and there’s also a lot of PE groups recruiting on the AAO website. It’ll likely never happen but I’d love to see these PE groups reach a -pint where they are so desperate for candidates that a new doc can basically say “I expect X dollars to start”.

I don’t think they’re hurting like we would maybe like to think they are. They’re just motivated to grow because that’s the entire reason they exist. They’re also smarter than we sometimes give them credit for and will adapt to changes in supply and demand when it comes to recruiting. Hiring a new doc is going to net a loss for 1-2 years which is a big chunk of time when most of these PE firms are looking for a second sale in 5 years. Offering a higher base only delays them breaking even on a new hire. Many PE groups are now structuring their contracts to minimize these up front losses and incentivizing physicians to focus their practice on those surgeries/procedures/visit types/etc which are the most profitable.

 

[docdoc2012]

I don’t think they’re hurting like we would maybe like to think they are. They’re just motivated to grow because that’s the entire reason they exist. They’re also smarter than we sometimes give them credit for and will adapt to changes in supply and demand when it comes to recruiting. Hiring a new doc is going to net a loss for 1-2 years which is a big chunk of time when most of these PE firms are looking for a second sale in 5 years. Offering a higher base only delays them breaking even on a new hire. Many PE groups are now structuring their contracts to minimize these up front losses and incentivizing physicians to focus their practice on those surgeries/procedures/visit types/etc which are the most profitable.

I disagree. The one thing PE groups offer Is volume. Most of my retina cofellows who joined PE were at full schedules one month out. The bigger groups are definitely not netting a loss on the new hire

 

[Dusn]

Btw. For anyone looking to start their own practice, this site isn’t mine (I think I learned about it years ago from a poster on SDN) but it’s a helpful resource:

www.soloeyedocs.com

 

[visco]

I disagree. The one thing PE groups offer Is volume. Most of my retina cofellows who joined PE were at full schedules one month out. The bigger groups are definitely not netting a loss on the new hire

I don't think our two points are mutually exclusive. In fact, the volume that they offer and their ability to get new docs up to speed quickly supports my point that they're not hurting financially and we're unlikely to see a day where a new recruit can "name their price" so to speak.

 

[i-doctor]

Regarding the option of purchasing some shares of the PE group (to get some ownership, or “skin in the game”), the potential payoff only occurs if there is that second sale. Then your shares could potentially yield profit. But there is a risk. Keep in mind that for now second sales have completely dried up due to high interest rates. As have most new PE ophthalmology deals. The whole PE (leveraged buyout) model depends on access to cheap capital and low interest rates. Some of these PE companies will be in trouble. If they can’t hire new doctors to replace the (now wealthier) retiring doctors and they also can’t sell the practices in the second sale, they may be forced to close their doors. So be careful about buying ownership shares. Probably some of the well-run PE companies will still do ok. (Over time, however, unless interest rates come down significantly and stay low, the whole PE model might collapse in the end.)

Also I think that since PE buyouts have given a lot of late-career doctors a nice cash infusion, it has accelerated retirements in the field, and this will accelerate over the next few years. So there will be a huge shortage of ophthalmologists and a wide open job market. Unlimited opportunities. So those ophtho residents starting their training around now will be finishing at the perfect time.

 

[RetinaDude]

I don't think our two points are mutually exclusive. In fact, the volume that they offer and their ability to get new docs up to speed quickly supports my point that they're not hurting financially and we're unlikely to see a day where a new recruit can "name their price" so to speak.

I’m not sure about this either. As the senior docs, who benefited from the PE deal’s large cash infusion, end up retiring, the PE groups have to replace them. Even before PE became prominent, there were more ophthalmologists retiring/dying every year then there are new ophthalmologists entering the field. If these PE “blessed” senior docs leave with their piles of cash, you may find the ratio of ophthalmologist in vs ophthalmologist out gets worse. Personally, just in the past few years, I am seeing a lot more ads on the AAO site, as well as my own email, of PE recruiters looking for retina……some even offering $100k sign in bonuses

 

[solitude]

I’m not sure about this either. As the senior docs, who benefited from the PE deal’s large cash infusion, end up retiring, the PE groups have to replace them. Even before PE became prominent, there were more ophthalmologists retiring/dying every year then there are new ophthalmologists entering the field. If these PE “blessed” senior docs leave with their piles of cash, you may find the ratio of ophthalmologist in vs ophthalmologist out gets worse. Personally, just in the past few years, I am seeing a lot more ads on the AAO site, as well as my own email, of PE recruiters looking for retina……some even offering $100k sign in bonuses

I agree with this. When formerly "prestigious" retina-only groups in highly desirable locations are hiring recruiters who are cold-calling and e-mailing doctors thousands of miles away to fill positions that have gone unfilled for months, it says that the model may not be viable for much longer. These groups used to have people begging to join.

 

[RetinaDude]

From what I hear, many of these PE deals only require a 3-4 years commitment from the partners before they can leave (with their pile of PE money). This then opens the door for big gaps in continuing care. If the PE folks had thought it through, they would’ve said “no one leaves until your replacement is found” or made it a ten year exit plan (or more).

Our group refuses PE, it if a PE group offered me $5M+, and said you have to sign a contract with us for 3-4 years, I’d take that deal (if I was interested in dealing with PE)

 

[i-doctor]

Our group refuses PE, it if a PE group offered me $5M+, and said you have to sign a contract with us for 3-4 years, I’d take that deal (if I was interested in dealing with PE)

Those offers are drying up and may never come back. The ship has sailed. PE companies are mostly trying to stay afloat with what they already bought. And trying to get that second sale.

 

[solitude]

From what I hear, many of these PE deals only require a 3-4 years commitment from the partners before they can leave (with their pile of PE money). This then opens the door for big gaps in continuing care. If the PE folks had thought it through, they would’ve said “no one leaves until your replacement is found” or made it a ten year exit plan (or more).

Our group refuses PE, it if a PE group offered me $5M+, and said you have to sign a contract with us for 3-4 years, I’d take that deal (if I was interested in dealing with PE)

most PP retina docs at the end stage of their career, should not be hurting for money.

 

[RetinaDude]

most PP retina docs at the end stage of their career, should not be hurting for money.

You would be surprised how quickly some of these docs spend the money. Even with a seven figure income, expensive bad spending habits can put them in a hole.

 

[RetinaDude]

Those offers are drying up and may never come back. The ship has sailed. PE companies are mostly trying to stay afloat with what they already bought. And trying to get that second sale.

Especially with high interest rates. If the interest rates can ever go back to historic lows (unlikely), you may see it take off again. But, the PE groups are still lurking. We are contacted on a routine basis……but not sure how much they’d offer because we refuse to talk with them

 

[i-doctor]

My understanding is that now the multiple offered is lower due to the high interest rates. But ASC’s still command a higher multiple.

 

[mjohnsonets]

Especially with high interest rates. If the interest rates can ever go back to historic lows (unlikely), you may see it take off again. But, the PE groups are still lurking. We are contacted on a routine basis……but not sure how much they’d offer because we refuse to talk with them

I believe once interest rates fully settle and there's strong suggestion of dropping them, we will start to see more acquisitions. This isn't just a hunch, I've heard this from trusted sources. The offers will probably be less or as mentioned earlier, the lock up of owners will be longer or have more contingencies on exiting.

Long term I see the PE groups gaining leverage due to their ability to hire optometrists and the inevitable expansion of scope they will continue to receive in response to rural eye care needs. If the PE groups continue to hire these docs which they seem to have a much easier time with, they will eventually control a much larger portion of the referral sources for ophthalmology. This is already a model some of the large PE groups deploy. This will likely lead to them being able to pay more for the MDs they do hire. Most individual ophthalmologists, in particular owners/partners, I know are against ODs receiving the kind of scope expansion they have (lasers, LASIK, injection) for obvious reasons. However, PE groups likely have no resistance to that and likely would be quite interested in it. It would also serve as a marketing tool to the ODs they hire that they "want to see them succeed and practice how they want" or something like that. Ophthalmologist-owned groups are likely not going to be okay with that.

None of his will happen overnight but I think it hurts the idea of growing a large physician-owned group from scratch like has been done previously. There are real downside risks from competitors controlling the market around you.

Also seeing and likely to see more fellowships developed in PE practices as recruitment tools.

 

[RetinaDude]

I believe once interest rates fully settle and there's strong suggestion of dropping them, we will start to see more acquisitions. This isn't just a hunch, I've heard this from trusted sources. The offers will probably be less or as mentioned earlier, the lock up of owners will be longer or have more contingencies on exiting.

Long term I see the PE groups gaining leverage due to their ability to hire optometrists and the inevitable expansion of scope they will continue to receive in response to rural eye care needs. If the PE groups continue to hire these docs which they seem to have a much easier time with, they will eventually control a much larger portion of the referral sources for ophthalmology. This is already a model some of the large PE groups deploy. This will likely lead to them being able to pay more for the MDs they do hire. Most individual ophthalmologists, in particular owners/partners, I know are against ODs receiving the kind of scope expansion they have (lasers, LASIK, injection) for obvious reasons. However, PE groups likely have no resistance to that and likely would be quite interested in it. It would also serve as a marketing tool to the ODs they hire that they "want to see them succeed and practice how they want" or something like that. Ophthalmologist-owned groups are likely not going to be okay with that.

None of his will happen overnight but I think it hurts the idea of growing a large physician-owned group from scratch like has been done previously. There are real downside risks from competitors controlling the market around you.

Also seeing and likely to see more fellowships developed in PE practices as recruitment tools.

An example of this already occurs in many markets with some of the cataract cowboys who establish a huge OD network. An MD and an OD usually co-lead the group, have many ODs within the group screening other OD referrals for cataract surgery, and a large majority of surrounding ODs “co manage” with this group. These MDs go out of their way to support any OD friendly legislation within their state, and this only furthers the OD referral base for them (and other, outside MD cataract docs lose out)

 

[LightBox]

Many PE Ophtho groups have gone through their 2nd bite already (e.g. before mid-2022 when interest rates starting going up). Who knows if they will be able to get their 3rd bite, but seems less likely since many productive/older docs likely took their huge payout into an early retirement. It's hard to replace that productivity with younger, less-motivated/incentivized doctors.

 

[RangerBob]

What if it’s a location like SoCal where it’s very saturated?

It's not clear to me the OP is looking at CA, but if so, thankfully non-competes aren't enforceable in CA

 

[Slide]

I suspect the end game for these PE groups after the second or third sale is to ultimately sell to a large hospital system or to a healthcare company like Optum or Amazon for vertical integration. The PE firms are there to flip for a ROI, not actually run the practices.

 

[LightBox]

I suspect the end game for these PE groups after the second or third sale is to ultimately sell to a large hospital system or to a healthcare company like Optum or Amazon for vertical integration. The PE firms are there to flip for a ROI, not actually run the practices.

Yes, the goal of any private equity company is to obtain a reasonable ROI with a 3-5 year time horizion.