Associate Ophthalmologist Buy-In Reluctance: Private Equity Firms Solve the Problem
These days, many ophthalmology practices are faced with the challenge of securing their next generation of physician partners. Historically, practices brought in ophthalmology associates soon after residency or fellowship, and these associates immediately set their sights on the path to partnership. Although partnership was never guaranteed, it was expected to both reward physician loyalty and, more importantly, ensure practice continuity.
But what happens when that system breaks down? Today, time and time again, we hear from senior physician partners who are struggling to convince their younger ophthalmologists to buy-in as a partner. What factors are influencing this flipped view of partnership?
EDUCATION DEBT ACTS AS A DETERRENT
The most obvious answer is the rising cost of education. Most physicians are aware of this growing problem, but let’s review the numbers. According to the AAMC reports for 2017-2018, one year at a public medical school was $35,952 for in-state students and $60,543 for out-of-state students, while private school averages were about $58,000. For historical perspective, just 20 years ago, in 1997-1998, one year at a public medical school was $10,211 for in-state students and $22,829 for out-of-state students, while private school averages were about $25,000.
These ballooning education costs are leaving new physicians with an unprecedented amount of debt. According to a StatNews report, medical students are now graduating with an average of $190,000 of debt. Furthermore, subsequent residencies and fellowships required to specialize in ophthalmology won’t produce high enough salaries to begin paying down their debt. At the end of the day, we have a graduating physician cohort who will carry education debt into their late thirties and beyond. It’s no wonder that the next generation of physicians is hesitant about buying-in for partnership stakes.
EMPLOYMENT MODEL STABILITY GAINS FAVOR OVER OPHTHALMOLOGY PRACTICE MANAGEMENT
Another growing belief is that these younger physicians simply prefer the stability of the employment model. They prefer practicing as an employed physician, in a 9-5 lifestyle, focused on a fixed schedule of patients, without interest in practice ownership. For the time being, they will forgo partnership to avoid the responsibilities of handling HR, supplies, and general day-to-day management. To each their own, but this new mindset poses a problem as senior ophthalmologists approach retirement age and practice continuity lies in the balance.
SOLUTION: PRIVATE EQUITY’S NEW APPROACH TO INVESTMENTS IN OPHTHALMOLOGY
Through private equity transactions, current physician partners are receiving the high valuation multiples while simultaneously solving ownership continuity problems. By being acquired, senior physicians are essentially finding new partners that are eager to take over the pesky administrative functions and grow the practice while allowing their associate physicians to stay focused on patients. But, importantly, they’re not depriving the younger physicians of partnership opportunities down the road. Private equity acquirers are finding unique ways to provide important and attractive partnership opportunities to younger ophthalmologists when they’re ready.
For more information on selling your ophthalmology practice and Physicians First's investment banking solution, download our current report here.
This post is for informational purposes only and does not constitute an offer, invitation, solicitation, or recommendation to buy, sell, subscribe for, or issue any securities. While the information provided herein is believed to be accurate and reliable, 127 Capital, LLC (“Physicians First”) and Ashland Securities, LLC make no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person. Certain Principals of Physicians First are registered representatives of Ashland Securities, LLC Member FINRA, SIPC. Physicians First and Ashland Securities, LLC are separate and unaffiliated entities. Securities and Investment Banking Services are offered through Ashland Securities, LLC.