According to a recent study by Weill Cornell Medicine, PE investment in physician practices has “increased dramatically” over the past few years—reaching 102 deals in 2017. This trend is expected to continue as PE firms look for alternative health care sources to deploy dry powder.
If approached correctly, a partnership between a PE investor and physician practice can drive both financial and clinical success, although there are several key factors to consider before striking a deal.
Here are three questions to consider to ensure a successful partnership.
Is the partnership mutually beneficial?
For middle market PE firms that are most active in these deals, they’re looking for a practice with a dozen or more physicians and several site locations. Such practices, usually with an EBITDA of at least $10 million, demonstrate to PE firms that they have a proven platform that can be scaled, subsequently delivering the same or better quality care for lower costs across the continuum.
For physician practices, a PE investment provides an alternative for physicians who don’t want to become employees of a hospital, but still understand the need for a partner that can provide technology and capital. Physicians looking to enjoy the autonomy of a private practice along with the advantages of additional resourcing can benefit from exploring a relationship with a PE firm.
Understanding what the other wants from the arrangement is critical to ensuring investors and potential portfolio companies are on the same page, which is vital to long-term success.
Are value adds clearly defined?
The best PE-physician practice relationships emerge when both sides understand their expertise and role.
On one hand, PE firms are looking for high-quality clinical partners who have developed best practices, and physicians are seeking PE partners who bring a sophisticated understanding of how to streamline administrative work, scale purchasing and manage profitability.
Although it may not always seem intuitive, PE investors and physicians should seek ways to play off of each other’s strengths and expertise. That starts by recognizing what each brings to the table. Ultimately, with both partners embracing their unique role, patient care and high-quality service will be at the forefront of the practice, leading to more success and growth overall.
Is the long-term strategy clear?
Once a PE investment in a physician practice is made, the long-term growth strategy can take many forms.
Some PE firms, for instance, are primarily interested in physician leadership and physician directed growth. Others will choose to scale the platform leveraging their own best practices and lessons learned, preferring medical staff to adopt a traditional employee role.
Understanding the long-term vision before an investment is made, and what is expected of each party, ensures PE firms and physician practices see one-another as partners. In turn, everyone wins—most notably the patients, who now have increased access to the highest quality care.
