More and more physicians are being wooed by private equity firms that want to buy their practices. The total value of private equity deals in health care in 2019 is estimated at about $120 billion, and it’s expected to grow over the coming years.
While the potential profit may seem alluring, physicians have mixed feelings as to whether this will be a boon or a disappointment.
Angelo Falcone, MD, a former emergency physician in Rockville, Md., found that a private equity investment transformed his career path.
For 19 years, Dr. Falcone was CEO of an emergency medicine group with 35 partners that staffed 10 emergency departments, mostly in Maryland. “We were a pretty small operation looking to get bigger, but to do that would require a substantial investment,” he said.
In 2015, after checking out all their options, the partners decided to sell to US Acute Care Solutions (USACS), a new private equity company founded by Welsh, Carson, Anderson & Stowe, an investment firm in New York. Private equity can be used to expand practices and pay for new equipment. Dr. Falcone, serving as a USACS board member and its operational president, helped spur the company’s astounding growth. Today, USACS has about 5,000 physicians and other clinicians operating in 30 states.
In 2019, Dr. Falcone stepped down from his management post at USACS, took training in integrative medicine, and 2 years later opened a solo integrative medicine practice in Rockville. The new practice, which operates on a concierge model, is not connected with USACS, but Dr, Falcone still sits on the USACS board.
“I had a great experience at USACS. I believe in the power of private equity to support our patients and physicians,” Dr. Falcone said. “Now, at age 58, I have a second career in integrative medicine.”
Private equity is still controversial
David Fleeger, MD, has a different opinion of private equity. “I get offers from private equity firms fairly often, but I’m not seriously interested,” said Dr. Fleeger, a surgeon with Central Texas Colon and Rectal Surgeons in Austin.
“We don’t want to sell to anybody; we want to control our destiny,” he said. “We don’t have to borrow money or repay loans, and we don’t expect to get a windfall for the practice. The profits in medicine are too narrow for that to be realistic. There is no free lunch.”
Some of the doctors who sign up for private equity deals become dissatisfied and want to end the arrangement, according to John Pinto, an ophthalmic practice management consultant in San Diego.
“I get calls about once a month from doctors who want to get out of a private equity deal or revise the terms,” he said. “Some complaints are that the PE firm was too tight with the budget, wouldn’t hire needed staff, mismanaged operations, or otherwise mishandled their investment in the practice.”
It’s difficult for disgruntled physicians to exit a private equity deal, Mr. Pinto said. They commonly have to give up part of the payment they had received for their practice if they leave prematurely, and depending on the jurisdiction, stiff noncompete clauses in their contract won’t allow them to practice nearby.
Disillusioned physicians – and even many physicians who had good experiences with private equity – usually don’t want to air their complaints in public. One reason most of these doctors keep silent is that they have signed nondisclosure and nondisparagement agreements that are part of most private equity deals.