Ophthalmologists debate selling to private equity firms

Ophthalmologists face difficult decisions when approached by private equity firms, according to Ruth D. Williams, MD.

Selling to these firms has both advantages and disadvantages, said Dr. Williams, CEO of Wheaton Eye Clinic, Wheaton, IL.

Speaking at the Glaucoma 360 annual meeting of the Glaucoma Research Foundation, she gave an overview of the thinking of 12 ophthalmologist friends of hers in 8 states who are mulling over private equity buy-outs.

"There is a lot of money outside the stock market and not enough places to put it," she said.

Wealthy private investors, pension funds, and college endowments are among those entities hoping for a 20% return through private equity funds, she said.

Such investors have increasingly looked to physicians' practices, often hoping to slash the practice's costs, consolidate with other practices and resell the new practice at a profit, said Dr. Williams.

Private equity is rapidly spreading in medicine, she said.

Dermatology practices were among the first purchased and often the new investors often cut costs by replacing dermatologists with physician assistants.

About 26% of ophthalmologists are in solo practices, making them attractive targets for such investors, said Dr. Williams. The number of firms investing in ophthalmology increased from 1 in 2012 to 13 in 2017, she said. In 2018, 20 firms invested in ophthalmology by October.

The managers appointed by private equity firms value practices on the basis of earnings before interest, taxes, depreciation and amortization (EBITA). They are likely to put profits ahead of quality, she said.

But if that makes a private equity sale sound unattractive, ophthalmologists should think hard before ruling out the possibility, said Dr. Williams, who has herself received a offer of a private equity buy-out.

It can appeal to ophthalmologists who are concerned about getting cash out of their own practices, particularly when it comes time to retire.

"People want cash," she said. "They want a buy-out at the end of one's career."

Sometimes junior partners are not able or not willing to buy out the senior partners, or to invest in growth, she said.

Private equity can also appeal to ophthalmologists interested in growing their practices.

"The assumption we're making in today's healthcare environment is that bigger is better," said Dr. Williams.

Ophthalmologists may also want help from managers who can focus on the administrative side of the practice, allowing the ophthalmologists to focus on treating patients.

"I've been the machine behind this practice for nearly 30 years," one of Dr. Williams' friends told her. "I'm tired. Let someone else steer this ship."

But the ophthalmologists she surveyed also worry that the culture of their practices would change, and that new management would not treat long-time employees well. They worry also that partners will become less committed if they no longer own a stake, and that the practices will become less attractive to talented candidates.

Dr. Williams also asked her friends how younger partners are reacting to the possibility of a sale to private equity. The younger partners face a much bigger impact from these sales, she said, and they are also divided in their thinking.

They, too, are intrigued by the possibility of being able to focus on ophthalmology rather than management, especially as the health care environment becomes more complex, Dr. Williams' friends reported. But the junior partners also don't want to give up control or equity, and fear that the practice's core values won't be respected.

Anyone contemplating such an offer should study it closely and talk to multiple firms, Dr. Williams concluded.

"Once you start to drill down into these deals, they are all different," one of her friends told her.