Anesthesia Services: Private Equity Investment is Bad or Maybe Not
Concerning private equity investment in anesthesia, there is:
- Plenty of information, but it's fragmented and often misunderstood,
- An abundance of concerns by anesthesia professionals,
- A degree of naiveté by facility administrators and governing boards, and
- Possible advantages and disadvantages for all parties
So, depending on who you are and what your perspective is, private equity investment is bad or maybe not.
Private equity money flows to anesthesia groups in two basic pathways:
- To sound anesthesia business entities with the potential for growth with additional resources (1), and
- To anesthesia management companies ("AMCs") and physician practice management companies ("PPMCs") who then use the funds to acquire new contracts, and to hopefully eventually improve low performing anesthesia groups. (2)
It is important to remember what is not on this list:
- The groups paralyzed by fear of the current business environment and hope the change will pass them by…..with their heads buried firmly in the sand.
- The anesthesia service that are black holes, able to suck the energy, and the resources, out of any organization.
- Independent groups supported by management service organizations ("MSO") able to compete on price and expertise.
The critical question is what does private equity bring to an anesthesia organization? If it's money, just money, and the desired return is money, just money, there can be real problems. The margins in anesthesia services today are razor thin or in many cases negative. Since the majority of an anesthesia groups costs are staff costs, the ability to reduce costs may eventually come to a point that desirable anesthesia professionals will leave. The addition of valueless overhead to provide returns for investors can cause problems for the facility, the anesthesia group, and eventually the investors themselves. But, if private equity brings practical financial, operational, and management expertise to an anesthesia group as well as financial resources, there is potential for significant growth.
Take Home Points:
- The addition of valueless overhead to an anesthesia group in order to provide returns for investors can cause problems for the facility, the anesthesia group, and eventually the investors themselves.
- If private equity brings practical financial, operational, and management expertise to an anesthesia group, there is potential for significant growth.
- Independent groups can survive if supported by a MSO
