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  • Private Equity, Part 1: A Young Ophthalmologist’s Guide to Private-Equity Acquisitions

    Private Equity, Part 1

    Private equity firms that are interested in investing in health care have been consolidating ophthalmology practices at an unprecedented rate.

    But what do private equity acquisitions mean for medical groups and their owners? Many practices are still owned by individual physicians or groups of physicians. When owners wants to sell their stake or ownership of their practices to a private equity firm, it will mean changes for both physicians and their staff.

    Instead of owners running the medical practice, private equity firms – typically nonphysicians – take over the practice’s management. Physicians become employees of the firm, and some retain ownership shares.

    Today, there are upwards of 30 firms acquiring ophthalmology practices, and this wave of acquisitions in ophthalmology has created fairly straightforward opportunities for older physician-owners looking for a lucrative exit strategy.

    However, for early and mid-career doctors, it represents a far more complex climate. In a field that is often chosen for its career stability, many young doctors face questions about what consolidation means for them: What are their options moving forward? What factors should they consider?

    After speaking to several young doctors about their concerns with this new climate, we did our best to shed some light on the goals of acquiring companies and their management models.

    A Brief History of Consolidation

    The original firms acquiring ophthalmology practices since 2014 consisted mostly of private-equity companies that consolidated them after acquisition. Physician-owners were generally paid in cash and stock by the management company that was formed to run the practices.

    The original goal of private-equity companies was to acquire practices for single-digit multiples of earnings and, after consolidation, to sell them for double-digit multiples.

    More recently, publicly traded companies as well as family offices have entered into the mix of acquiring firms. For many, the model is the same as for private equity, but others have vastly different models.

    This means there is substantial diversity in the options for doctors selling their practices, including the ability to profit from the earnings and growth of the individual practice after the sale, in addition to the initial payout.

    Doctors need to do their due diligence to find the best model to fit their individual goals. We’ve laid out three broad management models that most acquiring companies are implementing. Note that in all models, physicians have reduced income in return for cash paid at the close of the transaction. Familiarizing yourself with the acquiring firms and their management models will help you make educated decisions about the future of your career.


    A completely centralized model moves the optical lab, billing, accounts payable and all higher-order administrative functions out of the practice. All acquired practices implement the same electronic medical record (EMR) system. The centralized model seeks to maximize profit in the short- and medium-term, making the combined practices more attractive to future buyers.

    Physician-owners generally hand over complete control of management of the nonclinical aspects of the practice in exchange for a payout in cash, note and/or stock in the management company.

    The management company operates as a mutual fund as additional practices are acquired and consolidated. Essentially, the future stock value of shares reflects the combined earnings of all consolidated practices.


    The decentralized structure is one management companies implement most frequently. The firm sets up a management corporation with a leaner administrative team. Although there is some variation depending on the company, generally the sale does not heavily impact day-to-day functions, since central corporate services are limited and most of the control remains in the hands of the practice.

    Like the centralized model, the physician-owner is paid in cash, note and/or stock. As in the centralized model, the stock value reflects the combined earnings of the acquired practices. With this model, as in the centralized model, the original acquiring firm will likely pursue a future sale.

    Extreme Decentralized

    This rarer management plan is the antithesis of the centralized model. In this model – which is usually privately funded and does not utilize investor money – there are no centralized services or administrative team.

    Here, there are no plans to sell the company, and the firm funnels money back to the physician-owner to fund the growth of the practice. Instead of receiving stock in a mutual fund of acquired practices, physician-owners get equity ownership – or an arrangement that mimics equity ownership – in their original practice.

    In addition to cash and/or note at closing, physician-owners then profit from the growth of the individual practice in the years following the sale.

    Coming in April 2019

    Members in training can learn more about the state of private equity acquisitions during the L.E.A.P. Forward session for Advocacy Ambassador Program participants at Mid-Year Forum 2019.

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    By Gary I. Markowitz, MD, Thomas S. Harbin, MD, MBA, and Jillian Markowitz