If you’re in an orthopedic practice, you’ve likely been following the recent trend in selling to private equity investment firms. This has been a viable option for other specialties in healthcare for some time. Those types of specialties were primarily elective in nature, like dermatology, or were part of a larger hospital organization.
For orthopedic physicians, this model offers some interesting benefits. As with any large-scale decision, there are pros and cons you’ll need to fully address before making a firm commitment.
How Does the Private Equity Model Work in Orthopedic Practices?
One of the medical profession’s primary goals is to further innovation in healthcare. Private equity has a pretty clear base motivation of profitability. These two distinct goals can be paired to work well together, as orthopedic practices can benefit from the infusion of funds to grow and advance their work.
Orthopedic practices were traditionally among the most reticent to merge with other business entities. In the past few years, many practices in other specialties have sold to larger entities or partnered with hospitals and healthcare organizations. These choices were made largely to remain solvent in a changing landscape. Orthopedic practices were often able to remain financially viable because they offered other services, helping to stabilize their revenue cycle management model. Many orthopedic practices, whether a single physician or larger physician groups, opted to maintain independence.
Private equity firms operate in healthcare similar to other industries. The equity firm is looking for an investment that will ideally reap a significant profit. For the orthopedic practice, this means that the infusion of funds received from the equity firm needs to be invested directly into improved services and increased profitability.
What Else Should I Know about Private Equity?
Selling to private equity investors can be an excellent option for orthopedic practices, but it does change the fundamental organization. Like any business deal, there is no right answer. Selling to a private equity firm may be right for some physicians and practices, but not for others.
Here are some things for you to consider before partnering with any private equity firm:
- Private Equity Control. When a private equity firm partners with your orthopedic practice, they always perform due diligence. They research exactly what the current profitability is, and estimate how big their return will be based on previous history combined with increased profitability from changes made after the monetary investment. In return for the investment of funds, there will be a stipulation on how much control or oversight the private equity firm has over the practice.
- Your Physicians’ Opinions. If your practice is made up of partners or multiple physicians, it’s important to consider each partner’s opinion on the option to work with an outside entity. This may take some time, depending on the number of physicians in your practice, but ideally, you don’t want to force anyone’s hand either way because it could damage the working relationship going forward.
- Your Vision For The Future. If you want your orthopedic practice to become one of the largest in the area or to employ state-of-the-art techniques, the infusion of funds from private equity can help you achieve your goals. If you’re happy with your performance and don’t anticipate fast growth or massive updates in your practice’s future, private equity may not be the best option for you.
Orthopedic practices and private equity firms can mutually benefit one another as long as both parties have considered how their goals align before pursuing a partnership.