The cases for, against private equity in orthopedics and spine

Practice Management

Private equity investments have grown in the spine and orthopedic space, with many physicians taking advantage of the opportunities it offers. However, there are also concerns among experts about the long-term viability of taking outside capital.

Three observations supporting private equity:

1. Private equity allows physicians to focus on care. Private equity investment gives practices a hand with business operations.

"I think private equity is good for the specialty because it allows physicians to really focus on what's important — practicing medicine and giving our patients the best care possible," Eric Wieser, MD, of Dallas-based Arlington Orthopedic Associates, said. "Private equity gives us the advantage of having access to the capital that we need to expand and having people with business training take care of running our groups efficiently and growing the business."

2. The right group can advance a practice's growth and business. Alex Bateman, CEO of Atlanta-based Resurgens Orthopedics, took private equity at the end of 2021 and said finding a strong partner can bring value to a practice.

"It's one thing to participate in a private equity transaction, but the most important thing is to find a partner that can drive value to the practice going forward, whether that be through value-based care, new revenue strategies, cost takeouts, synergies and health system alignment," Mr. Bateman said.

3. Private equity lets practices scale. As corporations such as Walmart and Amazon creep into healthcare, spine and orthopedic practices may consider private equity to expand, Usman Zahir, MD, of Dulles, Va.-based ScopeSpine, said.

"It is only a matter of time before companies expand into surgical services or continue to link their patients with high-quality health systems for surgical services," Dr. Zahir said. "Size and scale do matter, and within this growth and interest, private equity is one way for spine surgeons to stay nimble in this dynamic environment by offering alternative cost-effective and efficient care. Over the next two to three years, this trend will continue." 

Three observations against private equity:

1. Private equity investors might not understand an individual practice. Eric Freeman, DO, of Union, N.J.-based Redefine Healthcare, has had discussions with private equity groups but has decided to skip investments for now.

"When it came down to it, some private equity groups didn't really understand the nuances of what it took to be successful," Dr. Freeman said. "So the physicians may get lost in the structure of some type of financial enhancement to the practice, but it's either not used appropriately or they get bloated in administrative costs, and all the equity that was supposed to be infused back into the practice gets lost."

2. Orthopedic practices can raise equity without private equity. Michael Longley, MD, of Omaha-based Nebraska Spine and Pain Center, said he does not see any potential benefit with private equity. He pointed to hospital consolidation and the patterns that could arise among orthopedic practices.

"We have seen a lot of consolidation in hospital systems," Dr. Longley said. "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."

3. Private equity may not help younger surgeons. Dr. Longley also said private equity investment could leave pain points for surgeons early in their careers.

"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," he said. "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." 

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