Orthopedic surgeons are split on the benefits and drawbacks of private equity as it grows in the specialty. Two surgeons told Becker's their thoughts on the trend.
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Editor's note: Responses were lightly edited for clarity and length.
Question: Is private equity doing more good or harm to orthopedic practices?
Jeff Almand, MD. Mississippi Sports Medicine (Jackson): Private equity is the best of all worlds when it comes to consolidation. The new private equity partnership models cover it all. You are able to monetize your practice, maintain your autonomy, remain invested in your practice, have access to capital for future growth and take advantage of vertical integration.
Michael Longley, MD. Nebraska Spine and Pain Center (Omaha): In my opinion, private equity investment in orthopedic practices has no potential for benefit.
We have seen a lot of consolidation in hospital systems. Frequently it results from a buyout of a hospital biologic system. This buyout is clearly funded by future profits from the hospital that is bought. As a result, any profits from the purchased hospital simply end up paying off bonds and not being reinvested into the hospital. The bond holders end up being the beneficiaries in this situation.
Orthopedic groups potentially fall into exactly the same problem. There is no reason why orthopedic practices are unable to efficiently raise equity with their own investment guarantees. As a result, any need to enhance facilities such as building an ASC, developing an imaging center or other such development can easily be financed at competitive rates by a well established orthopedic group.
The strategy of buyout by a private equity group is usually occasioned by an older set of orthopedic surgeons in a large group seeking to take potential capital or profit off the table. It seldom leaves the younger orthopedic surgeons in a good situation. It will usually leave them with a future revenue tax, and in the long-term any divorce from private equity will be very painful.