Can private equity uphold your interests?
To win over doctors, a private equity firm may agree to finance projects that the doctors want. For example, Dr. Lindstrom said after his group joined Unifeye, Waud Capital agreed to finance the doctors’ plan to open a new $6 million office. Before the deal, the partners would have had to take out a $6 million loan and personally guarantee it, he said.
A private equity firm may even agree to support the selling doctors’ practice philosophy, such as serving low-income patients – as long as it has a revenue stream. Luis Benavides, MD, is part of a seven-physician family medicine practice that treats many low-income patients in Laredo, Tex. “There is a lot of poverty here,” he said. This March, the group sold to a large private equity company, whose name Dr. Benavides preferred not to reveal. One reason they made the new arrangement, Dr. Benavides said, was to qualify for ACO REACH, a new Medicare payment program that is mostly used in underserved areas and that allows more distribution of shared savings payments. “Our goal has always been better care,” he said. “We want to know how we can best serve our community.”
Dr. Benavides acknowledges that he has less independence in the new arrangement, but “I already lost my independence when I went from solo practice to a group,” he said. “The upside of a larger organization is that other people may have better ideas than you have.”
Private equity firms often set up governance structures to give physicians some measure of control. Dr. Lindstrom said the governing board of his former practice is solely made up of physicians and deals with local issues such as what office doctors will work in and how many patients they will see. Waud Capital has control of the Unifeye board of directors, but it mainly deals with larger issues, such as acquisition of more practices, he said.
In rare instances, private equity gives doctors control. Dr. Falcone said that from the start of USACS, doctors owned 65% of the company, and in 2020, the physician partners bought out Welsh Carson. “Then we engaged the private equity firm Apollo Global Management, which lent us money for the buyout and became our capital partner, with the doctors now owning 98% of the company,” he said.
On the other hand, some private equity arrangements reportedly have little regard for doctors’ well-being, especially if they are new doctors who didn’t participate in the deal and don’t have equity in it. Dr. Zhu recalled that a new physician was recruited by a practice and was promised a partnership track, but she wasn’t told that the partners were negotiating a private equity deal. “She didn’t find out until the practice was sold months later,” Dr. Zhu said. “The chances of her getting any equity now are unclear.”
Making sure that you pick a company that has your interests at heart requires a lot of digging. Dr. Lindstrom said he and his partners took 3 years to make a decision. They hired a broker to pick the 10 best private equity firms. Then they met with those companies and hired a law firm and an accounting firm to assess them. As the partners inched toward a deal, they voted on each of five critical steps in the decision-making process, he said. He noted that each vote was unanimous.