Independant contractor/small group/solo in the private equity era?

[docdoc2012]

Hey Everyone,
As multiple discussions have indicated, new grads and young ophtho are working with increasingly limited practice options. In many areas the choice seems to be
a. Join a large-ish group that is basically run like a corporation with crazy partnership buyins and high overheads
b. Join a smaller practice - which if not well run, you can get screwed at the time of partnership. And if well run- the senior guys have a high likelihood of selling before you are a partner
c. Join a private equity group

We've extensively discussed in a different thread the ins and outs of working for a PE practice. Basically, as a new grad it seems like unless you are geographically bound there is no good reason to join one.

However, it seems like many of these groups strategically buy optom practices first to induce ophthal practices to sell to them under the subtle threat of lost referrals. The larger firms that own multiple practices in the area basically are creating a referral monopoly.

Under these circumstances, I really question whether opening up shop in a PE heavy territory is even sustainable? Has anyone done it? Where are your referrals coming from? Would love some insight thanks!

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[MstaKing10]

I would challenge the notion that those three scenarios are the only options. Or that these groups are all run as poorly as you described. That said, your question regarding opening up shop in a PE heavy territory is interesting. Most PE deals I'm aware of are focused on larger, metro areas. It would seem that starting a practice in these areas would be difficult for multiple reasons, but the addition of having a heavy PE presence will likely add to the challenge as there goal is to consolidate and squeeze out the competition. It would be difficult to compete with them but not impossible. Perhaps being small and nimble may add some versatility that large PE groups can't have. Interested to hear others thoughts.

 

[orbitsurgMD]

I would challenge the notion that those three scenarios are the only options. Or that these groups are all run as poorly as you described. That said, your question regarding opening up shop in a PE heavy territory is interesting. Most PE deals I'm aware of are focused on larger, metro areas. It would seem that starting a practice in these areas would be difficult for multiple reasons, but the addition of having a heavy PE presence will likely add to the challenge as there goal is to consolidate and squeeze out the competition. It would be difficult to compete with them but not impossible. Perhaps being small and nimble may add some versatility that large PE groups can't have. Interested to hear others thoughts.

Many PE acquisitions are in non-urban areas. Their main criteria are practices with a well-established (but not necessarily captive) referral base, a solid income flow, and significant associated revenue-producing assets, surgery centers, opticals, and real estate. I would think a PE-owned firm would find maintaining market dominance much easier in less populated areas. Buying referring optometric offices in outlying areas reinforces that dominance.

Any area where the market is dominated by few practices, or where there are no independent surgery facilities for non-PE affiliated practitioners to perform surgery will be difficult to establish a viable practice. PE management typically emphasizes minimal outside referral or utilizes distant providers such that the patients will not be tempted to remain in the practice to which they have been referred.

 

[MstaKing10]

Guess in the early stages, platform practice acquisitions that I’m familiar with have been in metro areas, not rural. Certainly seems reasonable to aquire these rural or peripheral practices to enlarge the catchment area after the platform practice has been acquired. Gaining dominance is important, and this is easier in rural areas, but enhancing value and increasing revenue is likely more limited in these areas. But my experience is limited to some insight from a handful of deals where I have close ties.

 

[docdoc2012]

Guess in the early stages, platform practice acquisitions that I’m familiar with have been in metro areas, not rural. Certainly seems reasonable to aquire these rural or peripheral practices to enlarge the catchment area after the platform practice has been acquired. Gaining dominance is important, and this is easier in rural areas, but enhancing value and increasing revenue is likely more limited in these areas. But my experience is limited to some insight from a handful of deals where I have close ties.

My concern was primarily about midsized cities/surrounding areas where the best jobs usually seem to be. I witnessed the acquisition of a large comanagement multispecialty group in one such area. The owners didnt want to sell but the PE firm bought out their optometry referral sources in large swaths covering almost half their catchment area. They finally sold as the platform practice...dont get me wrong I'm sure they did extremely well on the sale but it really seemed like their hand was forced. These acquisitions seem to be happening to practices with a wide referral catchment, regardless of the metro size. A worrying trend indeed

 

[schistosomiasis]

You can open up in a highly saturated, private equity dominated area and still be extremely successful. Many of my friends have done so. Of course it’s easier to get your feet off the ground in a less competitive area but its a MYTH that solo or small practices only succeed in middle sized cities. Most of our email thread is in large urban areas- because no owner would give them a fair deal, or they didn’t want to work for PE. A solo practice has a totally different model and “personality” than the big box practices, and attracts a different type of patient who doesn’t want to be run through the mill.

two years after i opened doors the biggest private equity group in town opened up on my block. I can see their office out my window, and their ads are banner on the front page of the local paper. My cataract surgery volume went up 10% last year and I‘m doing just fine.

see this discussion: Questions about starting a solo medical/ ophthalmology practice