The introduction of private equity into orthopedics has created a fine balance for physicians and practices.
A successful partnership between an orthopedic practice and a private equity firm can lead to valuable additions at the practice, but finding the right partner is crucial.
Alexander Meininger, MD, an orthopedic surgeon and sports medicine specialist at Steamboat Springs, Colo.-based Steamboat Orthopaedic and Spine Institute, advised physicians to find a partner that is in your best interest, not the other way around.
Dr. Meininger recently connected with Becker’s to talk about the way that private equity has altered the industry and its benefits and drawbacks for surgeons.
Note: Responses were lightly edited for clarity and length.
Question: What has been the result of the influx of private equity dollars into the orthopedic space?
Dr. Alexander Meininger: It’s interesting because medicine is a for profit industry in this country. There are nonprofit hospitals, there are for-profit health systems and there are for-profit investment groups like private equity that want to be involved in healthcare. Obviously, their motivation is that they can make investments and get a return on their investments. So if they want to invest in healthcare or physicians, that either means they want to see more patients or they want to see the same patients more efficiently and make changes in the systems’ processes. To some degree, physicians don’t have that background, so private equity can bring some experience, and the right partnerships can work great. The private equity groups can help to streamline or use economies of scale to systemize electronic medical records. They can help with a capital infusion to make developments such as adding ancillary revenue streams, like an MRI machine or an ASC, which can be to everyone’s benefit.
However, if the bankers or private equity firms are less inclined in investing and more inclined to draw profits from the group, then that may be negative in the overall relationship. It can go both ways. If the outside firm is investing in the group, it can be beneficial, but if they are drawing money from the equation or treating patients as though they’re dollars, that’s when it can turn sour. What you fear is that this doesn’t become a house of cards. We can’t expect perpetual return on investments that are in the double digits and that each step in the private equity acquisition environment is a positive step. We want to have continued growth and success, but we don’t want to end up a house of cards that collapses either.
Q: How can physicians find that right partner?
AM: Unfortunately, as physicians, we don’t have that education, that background or maybe even that interest to know how to make these decisions, or to become self educated in this decision making process. Intermediaries, advisors, accountants, lawyers or investment banking firms can kind of help navigate. Again, it’s about finding the right partner that’s in your best interest, not in their best interest.
If we can use some private equity money to build on ancillary streams or to capture possible outreach that the practice is not currently capable of, then that’s a serious value add. If I could have a second or third MRI machine or build another ASC, I think patients are looking for that experience. They’re commuting for that experience. And if you can continue to provide it more locally. For instance, Winter Park, Colo., is about 100 miles from us, and our partnership there with Middle Park Health has in the potential future forecast the development of an ASC. That could be an opportunity where a private equity firm, partnership with a private practice and a hospital system can all work together to build something from the ground up.
