Private equity deals can offer growth opportunities for spine practices, but there’s also concern about how these deals could affect long-term physician autonomy.
Three surgeons discuss the factors physicians should consider.
Ask Spine Surgeons is a weekly series of questions posed to spine surgeons around the country about clinical, business and policy issues affecting spine care. Becker’s invites all spine surgeon and specialist responses.
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Editor’s note: Responses were lightly edited for clarity.
Question: How should spine groups evaluate the trade-offs between liquidity, growth, capital and long-term autonomy when considering a private equity deal?
Tan Chen, MD. Geisinger Musculoskeletal Institute (Danville, Pa.): The devil’s in the details with private equity deals. There are significant trade-offs between liquidity, growth, capital, and long-term autonomy when evaluating a buyout. Liquidity is often attractive, providing immediate capital that can ease financial pressures and facilitate investments in technology or practice expansion. However, accepting PE funding often comes with pressures for rapid growth and profitability, which can shift focus away from patient care toward meeting short-term financial goals. Oftentimes, a buyout primarily benefits the senior partners of a group, and the junior/employed members must be recognizant of that fact. Each group must also consider how much autonomy they are willing to relinquish, as more and more groups are becoming 51% owned by PE and that may dictate decision-making that conflicts with the group’s values and vision.
Philip Louie, MD. Virginia Mason Franciscan Health, (Seattle): 1. Capital: Access to funding for technology, facilities, and leverage with payers, but this may come at the cost of equity dilution and oversight.
2. Autonomy: Although some governance can be preserved, there is a concern that clinical decisions will get nudged by financial priorities over time.
3. Culture: Ultimately, there is a risk of commoditization as the group identity may shift from physician-led to investor-led unless protections are negotiated.
4. Liquidity: Upfront payout (especially for senior partners) may provide initial gains, but younger surgeons may lose future upside.
5. Exit Horizon: PE firms often operate on a 3-7 year cycle; practices must ask if they’re comfortable being “flipped” to the next owner.
Christian Zimmerman, MD. St. Alphonsus Medical Group and SAHS Neuroscience Institute (Boise, Idaho): Private equity involvement is not a public entity but rather investiture and ultimately control of an asset with attached expectations and objectives. Typically, the term refers to takeovers of companies, which are then structured as limited partnerships. Private equity is also used as an umbrella term for investments such as leveraged buy outs, venture capital, and distressed investments. The explicit goal of private equity investing is usually to extract value from the target companies that others haven’t seen.
Simply stated, maintain operations control of operating rooms and patient management and mission. The converse becomes an indentured, miserable relationship mired in patient dismissal and employee acrimony.
