Current Trends and Data Regarding Private Equity in Ophthalmology

Author: Megan Elizabeth Paul, BS, MS4 | Icahn School of Medicine Mount Sinai

Private Equity and Ophthalmology Practices

Ophthalmology practice acquisitions by private equity (PE) have significantly increased within the past decade. [1,2] Typically, PE firms create an ophthalmic management group or platform company, which is ultimately responsible for coordinating and operating the practices. [2] For example, Partners Group, a PE firm based out of Switzerland, runs the prominent EyeCare Partners company, which has practices across 18 different US states. [3] These firms also tend to target certain geographic areas and acquire high-performing practices in specific regions, resulting in a surge of widespread PE activity. [2]

Emergence of Physician Practice Management Companies

Prior to the onset of PE acquisitions, a different kind of model emerged in the 1990s: physician practice management companies (PPMCs). PPMCs were backed by venture capital or Wall Street via Initial Public Offerings (IPOs) or secondary offerings. These companies managed the administrative work for practices, provided capital, and delivered expertise for physicians who may not have been as familiar with running a successful practice. [4] At their peak, there were 25 public PPMCs valued at over $11 billion and 125 private PPMCs. [4,5] In ophthalmology specifically, the largest PPMC, Physicians Resource Group (PRG), was created in 1995 and accounted for 431 ophthalmologists while being valued at $450 million. However, unable to generate consistent revenue growth, PRG, like many of the PPMCs, went bankrupt in 2000 as the market moved on. [4]

Acquisition Trends Over Time

Corporate interest reemerged by the early 2010s as PE firms invested in ophthalmology networks like EyeCare Partners. [1,4] To this end, Chen et al. found that there were 228 acquisitions between 2012 and 2019 that were associated with over 2,400 ophthalmologists and optometrists. [1] Additionally, there was a linear trend in the growth of ophthalmology practice acquisitions between 2012 and 2017. However, starting in 2018, there was a surge in acquisitions, mainly attributed to retina practices. [1] These acquired practices tended to be in metropolitan areas with a higher proportion of patients with private insurance compared to the overall US population. Moreover, acquired practices had a lower ratio of ophthalmologists to optometrists than average, suggesting that ophthalmologists in these practices are focused more on procedural volume. [1]

In a recent update to this study, the same research group found that there were 245 practices acquired between 2019 and 2021 that were associated with 948 ophthalmologists and optometrists.2 Of the 245 transactions, 127 were comprehensive practices, 29 were retina practices, and 89 were optometry practices. The 156 ophthalmology practices accounted for 510 clinical locations and 548 ophthalmologists. Further, Texas, Florida, Michigan, and New Jersey had the greatest number of PE acquisitions over the time period with 55, 48, 29, and 28 clinic acquisitions, respectively. The median number of ophthalmologists per acquisition was 3 compared to 1 optometrist, and the median number of locations per acquisition was 2. [2]

Researchers found that the average monthly acquisitions grew by a statistically significant 0.95 per year between 2012 and 2019 but decreased by 1.29 per month during the height of the COVID pandemic, prior to the vaccine.2 However, between 1/1/2021 and 9/1/2021, acquisitions grew by 2.53 per month, though this was not statistically significant. Prior to COVID, between January 2019 and February 2020,  the average number of acquisitions was 5.71 per month whereas between January and September 2021, the average number was 8.78 per month (P = 0.20). [2]

Private Equity Versus Physician Practice Management Company Models

As of 2022, there were about 1400 ophthalmologists affiliated with one of over 30 PE-controlled entities. Currently, the PE model differs from the PPMCs seen in the past in both the financial structure and the length of ownership. For example, PE firms will undergo an extensive due diligence process with the involvement of lawyers and consultants to ensure the acquisition is sound. Firms will also typically pay in cash and are not dependent on IPOs or secondary offerings like the PPMCs. Moreover, PE firms tend to hold onto companies longer, with the average time to exit being around 4.5 years vs. around 2 years for the PPMCs. [4] This not only provides a sense of reassurance to physicians, but it also gives the acquired companies time to generate more revenue.

Perhaps the most drastic difference, however, is that physicians are in charge of patient care and all that comes with it in the PE model compared to the tight control of the PPMCs in the 1990s. Physicians are often involved in leadership now and are even offered to sit on Medical Executive Boards or serve as Chief Medical Officers (CMOs). [4] Still, in the long term, it will be interesting to see how the conflict between patient care and short-term financial gain plays out.

References

1.         Chen EM, Cox JT, Begaj T, Armstrong GW, Khurana RN, Parikh R. Private Equity in Ophthalmology and Optometry: Analysis of Acquisitions from 2012 through 2019 in the United States. Ophthalmology. Apr 2020;127(4):445-455. doi:10.1016/j.ophtha.2020.01.007

2.         Patil SA, Vail DG, Cox JT, et al. Private equity in ophthalmology and optometry: a time series analysis from 2012 to 2021. Digit J Ophthalmol. 2023;29(1):6-13. doi:10.5693/djo.01.2022.10.004

3.         EyeCare Partners. https://www.eyecare-partners.com. (2023).

4.         Ruby AJ, Williams GA. Private equity in ophthalmology: differences between present versus past. Curr Opin Ophthalmol. Sep 1 2022;33(5):342-346. doi:10.1097/icu.0000000000000875

5.         Carlson RP. Physician practice management companies: too good to be true? Fam Pract Manag. Apr 1998;5(4):45-6, 49-51, 55-6.