Private equity firms’ acquisition of physician practices has escalated in recent years, and urology practices are currently garnering great interest due to an increased demand for services from an aging population and a low supply of urologists.
Victor Houtz and E. Scot Davis shared their contrasting opinions on urologists teaming with private equity partners at the LUGPA annual meeting in Chicago, with a point/counterpoint debate. Houtz is chief operating officer of New Jersey Urology, which last year teamed with private equity firm J.W. Childs Associates and praises the benefits of the partnership. Davis, who is CEO of Arkansas Urology and has more than 20 years in physician practice management, is not completely in favor of private equity.
Usually in private equity cases, a urology practice will receive an upfront tax-advantaged payment associated with an ongoing salary reduction while yielding control of the business but not the medical aspect of the practice. And while that new capital can be used to improve the practice to compete with larger hospital systems, some argue that because the private equity firms are going to demand a much higher level of performance and higher level of organizational discipline, it might not be worth it.
Questions to consider
Houtz and Davis started by explaining some important questions need to be addressed before deciding to go the private equity route, including “Why are you doing it?” “What aren’t you doing it?” “What is the value to the practice?” and “How does it impact the culture?” Each answered these questions weighted by their particular opinion.
Davis, who was in a physician practice management company earlier in his career, said the private equity model today is similar to his previous experience in growing a practice, though there are some differences. He questioned whether private equity firms truly offer security and autonomy, which is what the private equity companies promise. In reality, he said, urologists probably lose control over their day-to-day operations.
Conversely, Houtz explained why losing some autonomy may be of the best interest to the practice group.