Older Doctors Selling Out to Private Equity
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- Опубликовано: 4 июл 2021
- Private Equity Firms Are Making Partial Purchases of Physician Practices.
The Deals Are Frequently Structured as Follows:
--The Private Equity Firm Offers an Up Front Lump Sum of Money and Administrative Services Such as Billing and Collections for the Practice.
--In Return, the Doctors in the Practice Agree to Have 30-40% of All Future Revenue Go to the Private Equity Firm.
The Up Front Lump Sum Can Be Equal to as Much as 10 - 20 Years of Income for a Physician.
The Older Doctors in the Practice Who Are Usually the Partners Frequently Take This Deal, Resulting in the Younger Partners Making Less Take-Home Pay.
Implication for Employers: Private Equity Firms Create Larger Group Practices to Have Better Negotiating Leverage with Commercial Insurance Carriers and Obtain Higher Fee-for-Service Reimbursement.
Overall Healthcare Costs for Physician Services Go Up, While the Take-Home Pay for Doctors Goes Down... and the Private Equity Firm Keeps the Difference.
**Correction: The Older Doctors Who Are Paid the Lump Sum Are Still Required to Stay at the Practice for a Certain Number of Years After the Transaction.
Sources: Personal Correspondence with Physicians
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Another example of upward transfer of wealth away from people actually providing value (docs and their working patients) to financiers
You are Correct.
Thank you for watching and for your comment.
Spot On
Always enjoy your videos. First time in the comments: I have done many practice acquisitions for hospital systems. The most typical isn't a lump sum payment due to pay for referral compliance issues. There can be some sign on bonus or such but not 10-20 years of pay. Not even close. It is a straight FMV asset purchase with FMV chart purchase payments. The upside to physicians is typically they get paid more for work produced (wRVU) than in private practice for the length of the contract. This can be a nice annual bump, but still has to be FMV or commercially reasonable. They also no longer have the admin burden or ownership risk. Hospitals have the upside of locking in the provider(s) to the system and if appropriate the increase in billing a facility fee---which can be substantial. On the PE side I have not seen too many doctors happy in the long run. They like the money upfront but then regret the decision in a couple of years.
Thank you for sharing your experience. Appreciate you watching.
Thank you for bringing this issue up. As for how practices are sold (I've handled a couple private equity practice buy-outs). The practice sends their financials statements and the private equity firm does an EBITDA calculation and multiplies those earnings by a multiplier that can range from 5-12x. So if your earnings for the year are $1 million you can expect to receive about 5-12 million as a cash lump sum. Things like potential growth, age of physicians, and negotiating can allow you achieve higher multipliers! They usually require to retain 30-40% equity in the practice so you don't up and leave, thus heavily hindering the practice. But I agree imo it's a terrible deal for younger physicians, but a great deal for older physicians who want to retire and live a less stressful life!
Thank you for sharing your experience and detailed financial information.
Appreciate you watching.
What if the physician is retiring and there are no other younger doctors?
How many years do you have to stay? And what if youre a solo practitioner?
I really appreciate how you explained this. As a healthcare business owner looking for an exit strategy, this gives me alot of insight.
Thank you for watching and for your comment.
I just went through this with private equality. you said word for word their sales pitch. however, they are lowballing upfront costs and they are mixing in value-based payment models.
Thank you for sharing your experience.
Knowing this, why would anyone want to become a physician now? I’m really starting to see what they mean by medicine not being what it used to be. It’s not fair.
Thank you for watching and sharing your thoughts.
Can you give us estimates of the lump dollar sums that senior MDs working in different specialties take from PE and hospitals as payments? You seem uncomfortable with this part of analysis? it’s just data!
Wow so enlightening
Thank you for watching and for your feedback.
I’d be happy to walk you through more thoughtful structures in pe that embrace physician ownership and physician governance. Some groups
are using financial and thought
capital from pe firms to empower them to do things they couldn’t do on their own without taking on a lot of risk. Yes, the pe firm gets a return for taking on risk, just like any investment, but physicians are then ending up with a larger organization to proliferate low cost/high quality independent medicine as opposed to selling out to a hospital or payor. Typical pe investments are 4-7 years and can be used to accelerate growth.
Thank you for watching and sharing your perspective.
Where can I find a couple of cash operating Drs. Need help with removing metal in stomach from a radioactive tube exploding inside them. .. Dr. Threatened. I heard this. Also they need spinal work. . Retired surgeon around. Doctor has been controlling who they can see. But how?
Go thru that right now
@@MacchiatoSwirlGirl ...you going through that now.
I just discovered your informative channel. Is there a way to stealthily determine if a practice is private equity owned?
Good question. Other than Google search, I do not know.
Seems like there would be higher turnover with the younger doctors after this occurs if they do not get the lump sum.
They can't even if they wanted, only those who have a stake (stock/ownership) in the practice get access to those funds. Majority of younger physicians are salaried/RVU, few actually negotiate a percentage in a practice.
Correct, but fewer and fewer alternatives.
Thank you for watching.