Non-hospital employed practicing physicians have now embraced private equity.

With the cost of EHR and expensive equipment, the not-so-deep pockets make it necessary to look for a partner. If a group wants to resist being employed and take orders, it can get a loan from a bank to fund their expansion. They could then hire a top-notch manager to handle their business operations and concentrate on their expertise: practicing medicine.

Or, try something that was already tried in the early 1990s: a management services organization (MSO).

Private equity firms looking for profit making opportunities are now approaching specialty practices, which deal with ambulatory patients and have large ticket ancillary services and opportunity to attract other smaller practices to join them. Orthopedics, gastroenterology, dermatology, urology and others are ideal for venture capital firms. Bloomberg Law estimates about 181 private equity deals last year.

In the example cited in the article in Modern Healthcare ( , the MSO is structured as partnership, with the VC paying the physician shareholders and the physicians may take a cut in compensation to own their shares. The group then pays the MSO a flat fee (not based upon profits) to run the business. The VC entity cannot ‘own’ the physician’s group in most if not all states. Ultimately, the end game is to make the group profitable and the VC sell their share for a profit. In order to make it profitable, the group must grow market share, curb expenses and be large enough for another entity to buy a good investment.

Conclusions: There are serious concerns. IF VC’s are looking for enormous profits within a short time (3-7 years), will the physicians be under undue pressure to generate ‘profits’? While the older physicians can do well with the initial cash, will they be invested in the entity? Will the younger physicians have the patience or bear the risk? Will the shareholders realize profits at the end?