There are many factors to consider when bringing on a private equity investor for a medical practice or ASC; one of the big areas is physician pay.
Physician practices and surgery centers can employ a variety of ownership models, and as independent groups they don't have to keep large amounts of cash in reserve. Owners receive their distributions quarterly or at the end of the year.
But when a private equity firm invests, things change.
Private equity groups often require companies to retain an EBITDA and have a certain amount of cash at the end of the year, which comes out of the physicians' distributions During the 19th Annual Spine, Orthopedic and Pain Management-Driven ASC Conference in Chicago June 15-17, several discussions touched on private equity investment in orthopedic practices.
Vishal Mehta, MD, president of Fox Valley Orthopedics, said recruiting physicians into a private equity-backed group can be more challenging than recruiting into independent groups because new physician investors would prefer to take their full distributions at the end of the year, not feed the EBITDA. Private equity partners will also have a say in business decisions, and expect growth.
"You have these goals to hit that are oftentimes artificial. You'e got to grow [a certain] percentage each year, and that's just not how orthopedic markets work," said Dr. Mehta. "We work by making decisions based upon the needs of our communities and where it makes sense and that goes in little spurts. It doesn't grow 20 percent each year."