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    Alternatives to Private Equity for Ophthalmology Practices

    By Lori Baker-Schena, MBA, EdD, interviewing Julia Lee, JD, Gary I. Markowitz, MD, and Derek A. Preece, MBA

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    A growing number of ophthal­mology practices are weighing the pros and cons of selling to a private equity firm, and the benefits may be mixed (see November’s cover story, “Private Equity and Ophthalmol­ogy: Explore Your Options, Beware the Hazards”).

    Alternatives to Private Equity

    Physicians who don’t want to sell their practice to a private equity firm “may still see the need to consolidate as a way to compete in a changing market­place,” said Derek A. Preece, MBA, a consultant in Orem, Utah. “For these ophthalmology practices, there are some viable alternatives.”

    1. A merger of practices. In this model, two or more practices merge into one entity. Typically, the physicians who had been owners of the individual practices become owners of the com­bined group, said Mr. Preece.

    Economies of scale. Gary I. Markow­itz, MD, president and CEO of Super­Vision Advisors, said this alternative creates a working model that early- and mid-career ophthalmologists may find preferable to private equity because the new, combined practice can:

    • reduce operating costs, including those relating to human resources, such as payroll expenses;
    • negotiate better purchasing prices;
    • negotiate higher reimbursement from payers (where possible); and
    • free up physician time for clinical work that will generate more revenue.

    Must be willing to compromise. Mr. Preece cautioned that merging multi­ple practices can be difficult because practices operate differently and have different cultures and values. If the merger is going to be successful, some aspects of each participating practice may have to change, but the logistics of getting physicians to agree on all aspects of the merger can be “extremely arduous,” said Dr. Markowitz.

    Expect headaches. Mr. Preece cited a simple illustration: the merger of two practices that have different computer systems. “One of the two practices usually needs to adopt the software of the other, which can cause a lot of work and headaches for the practice that switches,” said Mr. Preece. “I do know of a practice that was able to find a way to allow the different merger partners to maintain their own computer systems by installing a software bridge, but that required a significant amount of work.”

    It can take time for the benefits to materialize. While efficiencies eventually can be realized with the merger model, it takes time to reach this stage and usually requires a long-term strategy to physically integrate on a more compre­hensive level, Dr. Markowitz added.

    One example of a successful merger is Vantage EyeCare.

    2. A merger, plus a third-party administrator. Multiple practices merge and hire a third-party administrator who runs the practice while the phy­sicians retain control. “This is a model we find in the plastic surgery field,” said Dr. Markowitz. “A third party sets up a turnkey operation for the newly merged entity.”

    3. Acquisition by another practice. “In this model, the owners of the ac­quired practice are often close to retire­ment and want to divest the practice,” said Mr. Preece.

    How is this different from a private equity buyout? Most private equity firms want to resell their acquired practices within three to five years. This means new owners and often new management of the company for whom the physicians are working. By contrast, if a physician-owned practice acquires your practice, there is more likely to be long-term continuity.

    On the other hand, physician-owned practices “don’t typically pay the high multiples of EBITDA [earnings before interest, taxes, depreciation and amor­tization] that a private equity firm will pay,” Mr. Preece noted.

    4. Acquisition by a hospital or aca­demic group. In this model, the owner becomes an employee, said Mr. Preece. “In most cases, the hospital purchases the practice at a price that is based on the value of the equipment and other hard assets only. They don’t pay for the cash flow, EBITDA, or good will. Consequently, the purchase price will be lower.”

    Physician wages may be based on collections or work RVUs. Dr. Markow­itz added that wages paid to physicians in this model are sometimes based upon collections, and the collection rate may be higher than in the physi­cian-owned practice, as hospitals often can negotiate better payment rates. In other situations, hospitals pay doctors based on the work RVUs (relative value units) they produce without regard to collections, said Mr. Preece.

    Avoid the headaches of running a practice. Dr. Markowitz said this model is particularly attractive to those who seek to deliver quality medicine but may not want the responsibility that comes with running a practice.

    You might like this option, but does this option like you? Interestingly, Mr. Preece added, while some ophthalmol­ogy practices have been sold to hospi­tals in the past five to 10 years, it is not as common as with other specialties because ophthalmologists “don’t put many patients in hospital beds.”

    5. Acquisition by a multispecialty physician firm. Dr. Markowitz noted that a buyout by a medium- to larger-sized multispecialty group can be com­pared to being acquired by a hospital and has similar advantages.

    “If you get into some of the smaller multispecialty entities, however, there may be the opportunity to have more control and maybe even get the oppor­tunity to establish an equity ownership position,” Dr. Markowitz said.

    6. Staying independent. “If the practice is doing well financially, satis­fying the needs of patients and phy­sicians, and there isn’t any imminent threat to the practice in the market­place, the owners may decide to remain independent,” said Mr. Preece.

    Consider your options. Before assuming that you must sell to private equity, consider the alternatives. What­ever the decision, said Dr. Markowitz, it is crucial to “do your research.” Rigor­ous due diligence is necessary to assess any of these alternatives.


    FURTHER READING.  Read the cover story, Private Equity and Ophthalmology, and the Practice Perfect, Considering a Private Equity Deal? Due Diligence Is Crucial, from the November 2019 issue of EyeNet. The AAOE also curates a select list of private equity articles at


    Ms. Lee is chief executive officer of Vantage Eye Care in the Philadelphia metropolitan area. Financial disclosures: Modernizing Medicine: C; Vantage EyeCare: E.

    Dr. Markowitz is director emeritus at Delaware Eye Center and Blue Hen Ambulatory Surgical Center in Dover, Del., and is president and CEO of SuperVision Advisors, which is based in Wilm­ington, Del. Financial disclosures: SuperVision Advisors: C,O.

    Mr. Preece is a principal and executive consultant with BSM Consulting, which is based in Orem, Utah. Financial disclosures: BSM consulting: E.

    See the disclosure key at

    Vantage EyeCare: A Physician-Owned Alternative to Private Equity

    Based in the Metro Philadelphia region, Vantage EyeCare is the largest private physician-owned ophthalmology group in the country, said its CEO, Julia Lee, JD.

    How it started. “In 2017, ophthalmologists from five practices came together to explore a collective sale to a private equity firm,” Ms. Lee recalled. “My group, Ophthal­mic Partners, was not part of the initial discussion as we had earlier decided private equity was not the optimal path for our multigenerational practice.

    “At the 11th hour,” she continued, “these five practices decided not to move forward with private equity as it would have changed their culture significantly.”

    A tight timeline. They then called a meeting with four additional groups, and the nine groups expressed a desire to integrate into a single practice—forming a steering committee in February 2017 with a very tight timeline: 11 months. In that time, the committee had to:

    • select a name and logo, trademark it, and incorporate the new entity;
    • draft all governing documents and approve a budget;
    • establish employee benefits and a 401K program;
    • get malpractice and corporate insurance policies;
    • select and implement a practice management bridge;
    • select and implement a payroll platform; and
    • engage a credentialing company and other key vendor partners.

    “We met every other Monday night to make these operational decisions,” Ms. Lee said. “It was a big commit­ment, but we all believed in what we were doing.”

    Launched in January 2018. Vantage EyeCare ultimate­ly launched with seven divisions (representing seven of the original practices) and 45 physicians. At the one-year mark, it had more than doubled in size. And it now has approximately 120 providers and 16 previously free­standing practices merged under a single Tax Identifier Number (TIN).

    The secret to this successful merger? Ms. Lee thought the following factors were key to the practice’s success:

    • Shared beliefs created a strong foundation. Former friendly competitors came together and were able to work collaboratively and intensely toward a common goal.
    • Doctors hired a CEO and chief operations officer (COO) who had run two of the larger practices that joined Vantage EyeCare, enabling efficient operationalization.
    • Physicians were willing to invest time and resources.
    • Physicians were willing to compromise on a variety of issues as the formation of the new group unfolded.

    The practice today. “We are now at the point that we don’t want to grow simply for the sake of becoming larger. Instead, we want our growth to be more strategic,” said Ms. Lee. “We launched, we grew, and now we have this scale that allows us to take advantage of initiatives including formal coordination with primary care networks. Unlike private equity firms, which invest in practices because they intend to extract or liquidate value at some point, we are interested in growing value for the sake of better patient care. This is our driver. It is the common goal that will make a difference five years from now.”