Private Practice vs. Private Equity Overhead (Young doctor)

[Ophthodoc2018]

Hi all,

I wanted to get some advice on my current situation as a Private Equity Employee 1-2 years out of training. I actually really like my practice and the PE does not seem to meddle with things too much. However, I know that things can change very quickly if and when the PE is losing profit.

I have a nice refractive/comprehensive practice and am able to basically do whatever I want (LASIK, cataract, minor procedures) and the income potential and volume is pretty high. My partners are extremely nice, supportive, and mentoring (but then again I would be too if I got bought out by PE to ride off into the sunset). I can buy into 2 profitable ASCs and I guess I can buy into the PE shares at some point (is this even worth it?).

Although I like my practice/job, I know that deep down I will always an employee and will have limited flexibility/control. I wanted to ask what the usual overhead is for a private practice? I have heard that it can range from 45-55%. I am assuming that my PE will give me 30-35% production salary eventually and I was weighing how much of the difference I am willing to sacrifice to be a PE employee. Even though the income potential and control for a private practice is greater I am worried in this current market that these big corporates/hospital system will eventually take over the patient population market. I kind of wish I was born 20 years ago but I have to make do with the situation I have now as a young doctor out of training.

Thanks for your help!

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[mjohnsonets]

Hi all,

I wanted to get some advice on my current situation as a Private Equity Employee 1-2 years out of training. I actually really like my practice and the PE does not seem to meddle with things too much. However, I know that things can change very quickly if and when the PE is losing profit.

I have a nice refractive/comprehensive practice and am able to basically do whatever I want (LASIK, cataract, minor procedures) and the income potential and volume is pretty high. My partners are extremely nice, supportive, and mentoring (but then again I would be too if I got bought out by PE to ride off into the sunset). I can buy into 2 profitable ASCs and I guess I can buy into the PE shares at some point (is this even worth it?).

Although I like my practice/job, I know that deep down I will always an employee and will have limited flexibility/control. I wanted to ask what the usual overhead is for a private practice? I have heard that it can range from 45-55%. I am assuming that my PE will give me 30-35% production salary eventually and I was weighing how much of the difference I am willing to sacrifice to be a PE employee. Even though the income potential and control for a private practice is greater I am worried in this current market that these big corporates/hospital system will eventually take over the patient population market. I kind of wish I was born 20 years ago but I have to make do with the situation I have now as a young doctor out of training.

Thanks for your help!

A very traditional comprehensive practice may be able to run in the 45-55% range but likely not in a HCOL area. From what I know, more typical is in the 50-60% overhead. Heavily co-managed or refractive-focused practices tend to run around 65-70% but I have encountered ones even higher. The general rule of thumb has been anything under 70% is okay but again that's relative to who you ask.

 

[eyeeye_captain]

I am assuming that my PE will give me 30-35% production salary eventually

For your sake, that had better already be in your contract. Never assume compensation - get it in writing. Comp will generally be the 50-60+% mentioned for overhead and PE is at the bare minimum going to want to take 10% and probably closer to 20%. That makes your numbers a little on the optimistic side. Since your partners seem pretty open, you can ask what they’re getting. If they’re hanging up the spurs, you may be able to negotiate some more since they’ll need docs. Crunch your numbers on collections and see what you come up with on a percentage of your collections and compare that with a base, base + bonus, etc.

Sounds like you enjoy your set up at least. Seems pretty reasonable for a PE gig, hope it works out for you.

 

[Ophthodoc2018]

For your sake, that had better already be in your contract. Never assume compensation - get it in writing. Comp will generally be the 50-60+% mentioned for overhead and PE is at the bare minimum going to want to take 10% and probably closer to 20%. That makes your numbers a little on the optimistic side. Since your partners seem pretty open, you can ask what they’re getting. If they’re hanging up the spurs, you may be able to negotiate some more since they’ll need docs. Crunch your numbers on collections and see what you come up with on a percentage of your collections and compare that with a base, base + bonus, etc.

Sounds like you enjoy your set up at least. Seems pretty reasonable for a PE gig, hope it works out for you.

Thank you I appreciate your support. My first two years had a base salary + production bonus after a multiplier. My salary/production after Year 2 has not been established yet, but I will be sure to investigate my partners' deals.