Cardiovascular Summit Trending Takeaways: The Nuts and Bolts of Private Equity in Cardiology
News | Published: Monday, February 5, 2024
On the last day of sessions at the American College of Cardiology’s Cardiovascular Summit 2024, MedAxiom President and CEO Jerry Blackwell, MD, MBA, FACC; Joel Porter, JD, MBA; and moderator Howard T. Walpole, Jr., MD, MBA, FACC, joined attendees to break down the complex considerations of integrating private equity (PE) into cardiovascular care. These are the Trending Takeaways that you need to know:
- PE has been around for a long time, but what’s new is the acquisition of cardiovascular practices.
- There are different viewpoints on the role of PE in healthcare, and no viewpoint is inherently “good” or “bad.”
- Sophisticated investors with high net worth invest in a particular healthcare organization.
- Investors become the owners and managers to increase the value of the organization. The goal is to enhance the value of care and sell the entity for profit at a later time.
- Process: A bolus of money is invested in the organization on the front end. Income for the organization dips beneath the original value, and physician compensation makes up for the financial dip. Over time, the value of the organization increases. There is an anticipated flip in income, and the organization can be sold for a profit to a larger entity. Physician income stabilizes and either reaches the original value or increases if there is a buyout.
- The PE investor typically sets up a management services organization. Any investment in a rollover entity can be tax-deferred.
- Original vesting remains within the platform or is fully vested upfront if there is an intended buyout.
- A combination of cash and rollover equity fund the purchase price.
- There are different aspects of PE that make it appealing for physicians at different career levels:
- Physicians later in their careers have the potential to monetize an earlier retirement if there is a buyout.
- Early career physicians can focus on improving their clinical skills and practicing medicine rather than worrying about the business side of cardiology.
- Considerations:
- Large companies (Amazon, Walmart, Google, etc.) with big balance sheets are likely the only ones who can afford to acquire the organization after the value has increased.
- What will happen when the PE investor is no longer in the driver’s seat, creating value for the organization?
- There is no guarantee who the subsequent owners of the business will be.
- Models of dyad leadership can be beneficial in PE deals. Ideally, the investors don’t tell the physicians and providers what to do in terms of patient care, and it’s a collaborative decision-making process.
- The U.S. spends more on healthcare than any other country. There is a cost-efficiency spending issue in cardiovascular care that can be addressed by true value-based care and lower-cost sites of care (i.e., ambulatory surgery centers).
- With the inevitability of value-based care and site neutrality, choices of site of service can be significant in terms of finances, efficiency and access.
To learn more about PE, read the recent blog from Kevin Mair, MBA, vice president of Care Transformation Services at MedAxiom: Looking Into the Crystal Ball: What Does the Future Hold for PE and CV Care?
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