What Physicians Should Know Before Partnering With Private Equity
Private equity continues to become more popular throughout the years. Physician practices are often prime targets for private equity investors. This can include anything from ophthalmology, orthopedics, and even primary care physicians. While there are many upsides to partnering with private equity firms, there are also tricky financial, ethical and legal considerations you must take into account.
The healthcare mergers and acquisitions attorneys at Daniels, Porco & Lusardi, LLP provide you with sound advice about partnering with private equity. Move forward with confidence with your transactions with help from our experienced attorneys.
The Private Equity Model: Learning More
Private equity firms like to invest in medical practices for several reasons. They like to scale operations, resell businesses for a profit, and increase profitability along the way. These practices commonly involve:
- Consolidating practices under a management services organization
- Putting cost controls in place
- Implementing productivity benchmarks
- Designing or modifying compensation models to focus on investor returns
Doctors have to understand the private equity firms usually prioritize their profit over other issues. This might affect your staffing, decision-making autonomy, and your long-term plan.
Consider the Financial Terms of the Agreement
Before you would sign any type of agreement, physicians should consult an attorney and consider all of the following:
- Purchase Price: Make sure you consider the fair market value of your practice and the offered purchase price. Consider whether it is fair, taking into account amortization, taxes, interest, deprivation, and more.
- Performance Incentives: Determine whether performance incentives are baked into the agreement, whether you can meet them, and whether they will detract from the patient experience.
- Debt Obligations: Determine whether your practice will have to assume any leveraged debt as part of the agreement.
Focusing on your practice is important, even when the dollar signs are in front of you. Make sure to understand the true value of your medical practice.
Regulatory Considerations When Working With Private Equity
Each private equity transaction must meet state and federal healthcare laws. These may include, but are not limited to:
- Corporate Practice of Medicine (CPOM): A lot of states forbid non-physician businesses from controlling any clinical decisions.
- Medical Licenses and Credentials: When ownership changes hands, this might trigger a look into credentialing with regulators or payers.
- HIPPA: Data privacy continues to be a major focus in the health care industry. Working with private equity firms may cause concerns over HIPPA violations if not structured correctly.
- Stark Law Concerns: The Stark Law and the Anti-Kickback Statute forbid improper inducements that might affect your transaction.
Knowing what to look for is difficult without experienced legal counsel at your side. Speak with a healthcare transaction attorney before partnering with private equity firms.
Private Equity Partnership Can Affect Your Practice’s Culture and Autonomy
Many doctors worry that they will lose their independence if they work with private equity. These firms may have strict rules that affect your clinical independence. As part of this, you should consider:
- Quality of Care Metrics: Does the PE firm dictate what quality of care metrics you have to follow? If so, do they meet your standards?
- Medical Practice Culture: Will this partnership negatively impact your workplace culture or obviate your values as a physician?
- Power Over Decisions: Who will get to control your staffing patterns, treatment protocols, and other critical decisions?
Learn More About Partnering With Private Equity
Working with private equity comes with many benefits, but you shouldn’t necessarily adopt a one-size-fits-all strategy. Consider the unique challenges and benefits of working with private equity before you move forward. Consult with the dedicated healthcare transaction attorneys at Daniels, Porco & Lusardi, LLP for help with your case. Contact us today for a consultation.