Some independent spine and orthopedic practices have turned to private equity deals to stay afloat amid financial headwinds and scale in recent years. And private equity continues to grow in the specialties.
However, not all private equity partners are equal, and there are some misconceptions to be aware of before signing a deal.
Five spine surgeons shared the elements physicians should be mindful of.
Note: Responses were lightly edited for clarity.
Question: What do spine and orthopedic surgeons misunderstand most about valuation, earn-outs, and equity rollovers when they enter a private equity deal?
Vamsi Kancherla, MD. Specialty Orthopedics (Gainesville, Ga.): From my experience and understanding, the three most common and costly misunderstandings I see are:
1. Confusing “headline valuation multiple” with actual dollars in your pocket. Surgeons often fixate on the advertised EBITDA multiple (e.g., “We got 14×!”) without realizing that aggressive add-backs, working-capital pegs, debt assumptions, and transaction fees frequently reduce the true cash-at-close multiple by 20% to 40%. I’ve seen groups celebrate a “record-breaking” multiple only to discover on closing day that the effective cash multiple was closer to eight to nine times after all adjustments.
2. Underestimating how earn-outs actually work and how much control they cede, many surgeons believe the earn-out is “just another bonus” for hitting reasonable growth targets. In reality, most modern PE structures make 30%–50% (or more) of total proceeds contingent on future performance over three to seven years, with targets frequently tied to platform-level (not practice-level) EBITDA. Once the deal closes, the private-equity partner controls staffing ratios, ancillary expansion, payer contracting, and even whether your ASC stays open — all variables that directly affect whether you ever see that earn-out. Physicians often give up governance rights they assume they are retaining.
3. Misunderstanding the true economics and illiquidity of the equity rollover, surgeons frequently roll 20%–40% of their proceeds into the new entity believing they are “keeping skin in the game for the second bite of the apple.” What is rarely communicated clearly is that this rollover equity is typically preferred equity or common units with no dividends, no voting rights, highly restrictive transfer provisions, and a second exit that is entirely at the sponsor’s discretion (often 5-8 years later, if ever). The second bite can be bigger, but it is far from guaranteed, and the vast majority of the rollover is effectively locked up with the same downside risk as the sponsor but with dramatically less control.
In short, surgeons tend to evaluate the first check and the headline multiple, while private-equity firms are pricing the total enterprise value based on a seven to 10-year horizon with multiple expansion events fully under their control. The physician’s remaining economics are almost entirely aligned with the sponsor’s second or third exit, not the practice’s near-term performance. Understanding that asymmetry upfront is the difference between a great outcome and a disappointing one.
Morgan Lorio, MD. ISASS past president and chair emeritus of the Coding & Reimbursement Task Force: Orthopedic surgeons often assume PE deals operate like medical partnerships, when in reality they are financial instruments with timelines and priorities very different from clinical intuition. The most common misunderstanding is believing that a surgeon’s own utilization or reputation meaningfully drives valuation. In PE-backed ventures, whether hyaluronic acid platforms, biologics, implants, robotics, or navigation systems, valuation hinges on regulatory milestones, reimbursement durability, scalability, and exit timing, not individual surgeon performance.
Many surgeons also underestimate how different PE valuation is from traditional medical logic. They anchor on ego, past productivity, or historical earnings, not realizing PE is buying future performance under a new operational and financial structure, often at a discounted present value. The misunderstanding begins when surgeons assume they are “selling a practice”; in reality, they are entering a financial partnership where future performance, under new operational constraints, is being purchased at a discount today.
Earn-outs are structured to protect the buyer, not the surgeon, and are tied to enterprise milestones outside the surgeon’s control.
In reality, surgeons often overestimate the likelihood and magnitude of returns from equity rollovers, not recognizing how the capital stack and future fundraising rounds can dilute their position. I’ve learned firsthand to accept failure; the learning curve requires resilience, and humility goes a long way.
Philip Louie, MD. Virginia Mason Franciscan Health (Seattle): Valuation is not the payout! Ultimately, valuation is just a projection built on assumptions that may or may not hold once operations change. Earn-outs and equity rollovers are frequently perceived as “upside,” but in reality they shift future performance risk onto the surgeons, often tying compensation to metrics (growth, EBITDA, cost-reduction) that might conflict with clinical priorities.
John Pryor, MD. Proliance Surgeons (Seattle): Surgeons entering private-equity transactions often misunderstand how valuation translates into actual cash proceeds. The headline multiple, “10–12x EBITDA,”is rarely the number that ends up in a surgeon’s bank account. Adjusted EBITDA, working-capital true-ups, debt, and transaction expenses all narrow the equity value. In addition, “earn-outs” shift meaningful risk back onto physicians. Many surgeons view earn-outs as deferred compensation rather than contingent, performance-based payments tied to platform-level EBITDA, an outcome that becomes less predictable once surgeons yield their oversight of allocating shared services, central overhead, and other costs. Compounding the confusion is a fundamental point: PE is buying the future cash flow that surgeons will continue to generate, not the past performance of the practice.
Surgeons similarly overestimate the certainty and liquidity of rollover equity. Post-close equity is minority, illiquid, and dependent on platform-wide performance, so the “second bite at the apple” is far from guaranteed (to date, most docs would say rare). Because private equity’s thesis relies on capturing and scaling the future earnings of the physicians, post-transaction compensation structures are intentionally designed to reset downward, which aligns value creation for the sponsor rather than the individual surgeon.
Many physicians anchor to optimistic valuations and projected equity upside without fully appreciating how deal structure, governance rights, and the future cash-flow expectations embedded in the model will shape their real long-term economics. In short, there are structural ways that PE-backed and publicly traded platforms capture value before surgeons see it…you simply can’t outrun the scrape.
Lali Sekhon, MD, PhD. Spine Surgeon at Reno (Nev.) Orthopedic Center: The long-term implications on recruitment. Reduced salaries for future associates who have a dictate for having ‘missed the boat’. Selling to PE may give an immediate financial boon to current partners but at the expense of compromising future recruitment.
