Eyes on Private Equity
Eyes on Private Equity
January 30, 2020
11 min read

Physician perspective: Decision-making in the private equity era

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The Open Your Eyes to Private Equity 2019 meeting hosted a panel of physicians who have chosen a private equity transaction and those who have not to discuss their decision-making process.

“Until recently, private equity hadn’t shown any interest in ophthalmology,” Richard L. Lindstrom, MD, moderator of the Pros and Cons of Partnering with a PE Firm panel, said. But now private equity “has done their homework and find us a very attractive practicing group.”

Ophthalmologists are not being wooed by local hospitals, but the specialty has meaningful growth and profitability with cash and non-cash pay opportunities, Lindstrom said.

“Private equity is very cash rich right now as venture capital tumbled a little bit the last few years. ... In addition, private equity can borrow money at almost nothing,” he added.

Physician panel members shared pros and cons, busted a few private equity myths, and discussed their decision-making processes. – by Joan-Marie Stiglich, ELS

Jeffrey Martin, MD, chose private equity

For me, it was about the opportunity to participate in the consolidation of ophthalmology. All other fields have consolidated, and we saw that it was now our turn. We wanted to participate early as there is great value in that. Though others speak of lack of control in PE-backed platforms, I felt I had no control in our larger private practice. I couldn’t control what I was being paid for my procedures. I couldn’t control the increasing costs of staffing.

Jeffrey Martin, MD
Jeffrey Martin

I felt more control in a larger, more professionalized company. It was important to me to professionalize the company and take it to the next level, which was essential for our continued success.

Physicians’ actions can be counterproductive to the growth of the business. For example, each physician in our practice had a specific process for booking appointments. Our call center was taking too long to book any one appointment. Too much individualization makes a practice hard to administer. After PE, we limited the number of things each of us could say was our personal want. To be successful in these larger platforms, you need to simplify your process and, in the end, it’s better for everybody.

I do believe the PE platform gives value back to the physicians. We are valued less and less by reimbursement stature. This brings significant value back to us as physicians.

John Berdahl, MD, chose independence

For me, really, it boils down to I like Monday too much the way that it is. I love going to work on Monday. I’m adequately compensated. I was scared it might change. That is the biggest reason, but there are others. I enjoy making business decisions in addition to the clinical care. Our practice is growing rapidly and organically. It’s possibly not as fast as if we had a capital infusion. But we are working hard to create a sustainable succession plan and exit strategy.

John Berdahl, MD
John Berdahl

We did consider it out of fear that we might get boxed out by a bigger platform in our area. We also considered what it might mean for our senior partners. How do we as our junior partners value our senior partners fairly?

Ultimately, the optionality has value. The fact that we have the choice to know we can choose private equity is nice to have at this moment.

John Sheppard, MD, chose private equity

Frankly, having researched and done due diligence for 3 years, I was somewhat shocked by the resistance of our non-partners when we put this plan on the table for them. It was critical that all the junior partners not only buy in, but enthusiastically carry it forward for future provider recruits. The program should be set in stone for exactly what happens to existing and to potential junior owners when they sign their new contracts. They will know what they would get and that’s why they were told in advance of contract negotiations.

John Sheppard, MD
John Sheppard

There was nevertheless a huge education process. When it all fell into place and with a lot of help from our management team, from our CPAs, our attorneys and even from doctors’ parents, these younger doctors were as excited as we were and they were able to come into this huge practice with tremendous amounts of interactivity and comradery that we enjoy to this day. But I was pretty worried at some points when key providers said, ‘I didn’t expect this. I may think about going somewhere else.’ It’s the 90/10 rule where you spend a lot of time with them to ensure they are satisfied and content that they got a fair deal – and they did. Neither large practice in our new group lost any doctors in the transitions.


Eric D. Donnenfeld, MD, chose private equity

The key to deciding which partner to choose is to first establish what your practice is looking for in a partner. Private Equity is a partnership, but in most cases the PE firm is taking the role of, “Lead Partner,” which can alter how the organization makes decisions, so you want to make certain you chose a like-minded partner who has common goals. In our practice, we all had the same goals: to provide the highest care imaginable; to have the opportunity for growth so that we could take the model we created and grow it regionally; and to monetize a lifetime of hard work for all of our doctors – senior and junior. We did not want to be at the mercy of hospitals or health care systems. We had to grow. If you are not at the table, you are probably for dinner. We wanted to be at the table to discuss the future of health care in our area. But we only decided after years of discussion and speaking to dozens of PE firms to find the right fit for us.

Eric D. Donnenfeld, MD
Eric D. Donnenfeld

Obviously, things have changed for us. Decisions in the past were made on what we thought would be good to try. Now, we take a more data-driven approach. There’s a scientific method to the evaluation of technology. It’s not one individual’s discretion now. We challenge ourselves to objectively evaluate the cost-benefit of making changes based on our clinical experiences and good data to support our position.

Private equity is not for everyone. The goal of PE is to partner with your group, help to infuse not only capital but also perspective, through leadership, and a high level of accountability when it comes to achieving clinical and financial success. When you partner with PE you should understand that there are personal and financial responsibilities to achieving goals, such as budgets, organic expansion, and even added partnerships through acquisitions. The PE firm has made an investment into our collective future success, which is driven by growth and well executed operations. This investment and our collective goal to grow can cultivate a situation in which changes are made to the structure of your practice, some of which can initially feel unnatural. When you are accustomed to running your group one way for many years, it can take some time to get comfortable with a new perspective. It is healthy in many ways, but it is disruptive, as it challenges the status quo and forces us all to look at how we have run our group in the past.

Some PE groups are hands-on, involved in the day-to-day and truly a partner to the group. Others are more procedural and distant, offering less support and more financial oversight. An important part of evaluating whether or not your group is ready to partner with PE is to determine if everyone in your group is aligned and understands that your group is being valued based upon how you have performed and therefore there is clear expectation that you all continue to perform and excel after the PE event. When or if some of the partners chose to slow or reduce their efforts as a byproduct of the event, they place pressure on others within the group to work more or reduce costs to compensate for others’ lack of continued effort. It’s important that all the partners who make the commitment to PE as that commitment means your group has to work together and make a continued effort.

I’m fairly certain consolidation is inevitable. We in ophthalmology will have to choose, if you want to maintain even a modicum of control of your practice. I made the decision to trust PE more than I trust hospitals and insurance companies. That’s why it was my personal decision to go with PE. I want to have some control over the way I practice, quality and access to patients moving forward.


John Hovanesian, MD, chose independence

To go ahead with a PE deal, you have to consider the size of the liquidity event, the time horizon and perspective of the decision makers and how comfortable are you ceding some level of control to an outside entity.

John Hovanesian, MD
John Hovanesian

We were aligned as a group that we needed to grow, and we liked the idea of using outside capital to do it. Considering PE made us step back and look at our practice. If you’re smart, you will do that as well so you can see what the investor sees. We hired a consultant, who was transformative. She helped us make a number of changes that we knew needed to happen but weren’t able to catalyze ourselves.

We realized our best value to ourselves and to our patients was to grow strategically, but we came to realize that, for now at least, we can do that better than anybody else. We have previously had companies come in and run segments of our practice – optical, LASIK, hearing, etc. All those failed. We found that we can manage our practice better than anybody outside if we spent just a little bit of effort doing so.

So we decided to grow on our own before seeking outside capital. If we do sell our practice in the future, our liquidity will be better this way, and we will strategically be better positioned in our market.

As a mid-career ophthalmologist, I’m enjoying having control over our practice. I do like the idea of a liquidity event to fund my retirement, but I have enough time left to work that I still care about my work environment. Early career ophthalmologists understandably have the longest time horizon and are most worried about the work environment. They, too, understand that PE can represent equity without responsibility and a mitigation of risk. They, too, can fund their retirement this early in their careers, but a non-compete would mean if they chose to leave their practice, they would have to move out of the area.

The takeaway for me and hopefully for most of you is there is an interesting opportunity whether your practice is small or large. For most of our careers, we have been stifled in our creativity by high margins. The future in ophthalmology is shrinking margins. We are already beginning to see them. Whether we go with private equity or not, we need to think how to make our practices stronger. Whether you hire a consultant or have friends or other resources that can help you do it, this is something every one of us in practice should be doing in the next few years.

Cynthia Matossian, MD, chose private equity

Cynthia Matossian, MD
Cynthia Matossian

This is not a decision one makes in haste. It has to be a calculated plan. First, you have to find the right broker or banker. Then outline the process with your chosen advisory group. I was willing to invest the necessary time to look for the right consulting broker since, as an ophthalmologist, I did not have the skill set to navigate the merger and acquisition waters of a PE-backed organization.

With the help of my broker, we positioned my practice in as attractive and accurate a picture as possible. Through their connections, they pitched my practice to potential ‘suitors.’ It’s a process of comparison, elimination, and a lot of discussion about alignment, culture, and what life will be like after the deal.

Allow time for every step. The consolidation process does not happen quickly. Make sure to find the “right” broker for your needs. Find an attorney who specializes in practice acquisitions. Identify your team of advisors. The whole process may take few years from the initial kernel of thought that you might want to consolidate with a larger entity to when the deal is signed.

I was the founder and sole owner of a 16-physicican practice and needed a transition plan for my retirement and exit. I had hoped for the traditional approach where physicians on partnership track would buy into the practice. With the exception of one doctor, none of the physicians in my practice had an interest in becoming business owners. They did not want to take time away from their families nor from their clinical schedules to strategize for continued practice growth. Consequently, affiliation with a larger entity has allowed me the opportunity to continue to provide excellent patient care, without the concern about my future. There’s been a quality of life change for me: the burden of ownership and the responsibility for a staff of 87 no longer rest on my shoulders.

Another advantage to the conglomeration is that our practice needed capital investment in equipment for continued growth. We needed a new phone system, a new EMR, and a new EPM. Our original plan was to stagger one project per year over a 3-year period. Once we sold, the larger entity had the bandwidth and money to undertake all three projects at the same time. The downside of assimilating three new processes concurrently is the pressure my staff is feeling due to so much change all at once. The upside is that we are poised for growth a lot faster. We will get there in 6 months as opposed to 3 years.


Brett Katzen, MD, chose private equity

Brett Katzen, MD
Brett Katzen

You are going to lose control if you are running your business and you choose private equity because you are giving it over to experts. In your mind, you are the best, but you are the best in a minor league. Now they are bringing in major league players. In my practice, I had my own CEO, but they brought in a new CEO.

The new CEO after the transition was not the most open minded, and not always receptive to the old guard. You’re giving up that control, but you’re trading it for equity, less risk, infusion of capital and all the things that will grow your business that you couldn’t do alone. But at the end of the day, they have the trump card; that’s the painful part.

There’s always change and challenges, but now I am not the focus of those changes. The doctors and many others in the industry said this wasn’t going to work. After our recapitalization, we showed it does work, and the doctors who invested along with me realized a significant return on their investment, and many new doctors invested along with us for the third go around.

Richard L. Lindstrom, MD, chose private equity

Minnesota Eye Consultants was a pretty successful 30-year-old practice I built from me – one doctor – and six employees to 30 doctors and 300 employees. We were growing but saw more opportunity for growth and were having a hard time trying to capitalize on it. I had young partners who had debt greater than their net worth so even they felt the burden.

Richard L. Lindstrom, MD
Richard L. Lindstrom

We chose private equity to access capital and accelerate our growth. That has definitely occurred, and it’s been a positive. We have acquired other practices, built new offices that are successful and growing, added physicians at a rapid rate.

When we were introduced to PE, it was good timing. There is a window right now if you are the right practice to get a better opportunity financially now than in 5 to 10 years. When our partners, young and old, looked at the opportunity to have zero bank debt and a meaningful amount of money, it was a win. We all consulted our financial planners who recommended to take the offer. We were a 10-0 vote in favor. That offer may not be there in the future.

But it does change your practice. We now have a really smart MBA – several, in fact – sitting at the table with us. They talk more about return on investment than we ever did before. We used to buy equipment because ‘it would be fun to try it out.’ That doesn’t work anymore. We used to do clinical trials for free because of relationships, but that no longer happens.

It is making us more astute business-wise, but it has changed us.