Growing without private equity

December 16, 2019
Todd Shryock
Todd Shryock

Todd Shryock, contributing author

There are ways to fund the growth of a practice beyond a private equity investment.

Orthopedic practices were some of the early targets of both private equity firms and hospitals looking to expand their reach. Nicholas Grosso, MD, an orthopedic surgeon and president of The Centers for Advanced Orthopaedics in Bethesda, Md., didn’t want to give up private practice because he believed that it was the best way to deliver quality care, but knew something had to change to survive.

“We had to get bigger for a lot of reasons,” says Grosso. “Reimbursement rates were falling, we had no negotiating power and costs were going up. That’s why a lot of practices were being sold.”

He began to search for a business model that would help his practice survive a rapidly consolidating healthcare market and found one that would allow participating practices a high level of autonomy. It also provided the support and negotiating leverage they needed to survive.

Practices in the group function under the same tax ID number, and what started as 24 practices is now up to 160, with each practice allowed a great deal of autonomy. The advantage lies in leveraging the scale of the group to negotiate better reimbursements and vendor prices.

“We have also been able to save a lot of money on malpractice insurance, and we’ve gone self-insured for our own health insurance,” says Grosso. “With our volume, we’ve also done well with purchasing basic stuff, like exam paper and supplies.”

As the group has grown, its members have opted to consolidate to one EHR. Corporate employees have been added for compliance, data analysis, human resources and a comptroller, as finances allow, taking these burdens off individual practices.

Physicians pay dues based on their investment level and each owner gets one vote with their ownership share. Grosso says keeping their autonomy and financial control of their practices has been attractive to members. “When you sell to private equity, eventually the private equity firm is in charge,” he says.

“Most private equity firms want to name a CEO or negotiate the rights so they are calling the shots. We didn’t want to avoid being owned by a hospital only to end up owned by Wall Street,” Grosso adds.

Grosso says physicians need to research the private equity firm interested in their practice and make sure they understand what they are giving up for the money. “Most sound good up front, but you are giving away a portion of your income going forward,” he says. “The income recovery has rarely materialized the way they said it would.”

He says creating a larger group  may not work for everyone, but says it’s one way to avoid losing control of your practice. “There are different people out there with different models, but it has to be good for everyone,” he says. “It has to be a win for everyone. No one is joining to take a big cut in salary and to give up complete control.”