VOLUME 2, ISSUE 4: Rethinking Private Equity


Consolidation in Ophthalmology: Viewing Private Equity in a Different Light

The driving forces behind consolidation in ophthalmology and the common concerns surrounding it.

Steven Madreperla, MD, PHD

At A Glance
  • Practices interested in consolidation should carefully evaluate the mission and vision of the investing entity.
  • Consolidation can allow businesses to improve their services and more effectively compete in their markets.
  • Risk is unavoidable. Risk exists in both choosing a consolidation partner, as one may choose an underperforming firm, and in choosing not to consolidate, particularly for practices in competitive markets.

There is a lot of discussion lately about private equity (PE) investment in ophthalmology. The wider issue that more accurately captures the motivation behind this phenomenon currently occurring in ophthalmology, other subspecialties, and primary health care, is consolidation.

Consolidation is happening in many nonphysician vertical markets as well, including the insurance industry, pharmacy benefit management organizations, pharmacies, and hospital systems. Motivations for consolidation in these sectors may vary, but the underlying reasoning is that consolidation allows businesses to improve their services and more effectively compete in their markets. The same is true in ophthalmology.

Consolidation of businesses requires access to capital and expertise. This is where PE investment enters the picture. Generally, it is not PE that is driving the process of consolidation; rather, it is practice owners who see that PE-supported consolidation offers them a way to continue to have access to patients while being part of an organization that can compete with others in their markets.

Fortunately for ophthalmology, PE firms have been supporting this kind of activity in other multisite medical specialties for years, and many PE firms are both interested and experienced in providing the expertise required to facilitate consolidation in ophthalmology.


Ophthalmologists choose consolidation for myriad reasons. Many practice owners are observing consolidation among primary care providers and hospital systems in their own markets and are concerned about access to patients. Without scale or payer negotiation teams in their practices, these owners have no seat at the table when larger entities meet with payers. Decisions that affect their access to patients, delivery of care, and reimbursement may therefore be negotiated without their input. Consolidation with a larger entity allows optimization of practice functions in numerous ways, such as the ones enumerated below.

Streamlined Management

Human resource management is a difficult and time-consuming process that can be improved upon and streamlined in a consolidated entity. Increased scale allows standardization of training and compliance testing, and it can improve scheduling and availability of backup staff. Large consolidated entities can optimize back-office functions such as billing and collections, facility operations, and supply chain management. To the extent that physicians were previously involved in managing those functions, delegating these tasks to professional management teams frees the physicians to direct that energy and time to patient care.

Information technology and software management takes additional time, energy, and resources from physician owners, and the expertise and staff required to take advantage of modern data analytics exceeds the capacity of most clinical practices. Consolidated entities with dedicated resources and expertise can provide data-driven analytics and solutions for a range of problems, from minimizing patient wait time to understanding geographic disease burden so that the practice can optimally deploy its resources to serve the community.

Many ophthalmologists now practicing in multiphysician entities have watched their practices grow over the years and have experienced the benefits and challenges that come with a larger organization. As these practices grew, the tasks previously performed by doctors were shifted to managers who helped to optimize certain aspects of the practice.

Optimized Compliance

Medical practices are subject to intense and increasing regulatory requirements, the challenges of meeting performance goals for government programs, and a landscape of changing laws that apply to practice activities. Maintaining adequate compliance and optimizing government program performance are increasingly difficult tasks for small practices, whereas larger entities are able to employ teams dedicated to compliance and the optimization of program performance.


With any new venture, there are bound to be concerns. Some of the most frequently expressed concerns are those addressed below.

Loss of Control

Physicians worry that joining a consolidated entity will result in loss of control of their practice. Increased scale always coincides with loss of control to some extent. Many ophthalmologists have already experienced this as their clinical practices grew and more doctors became involved in decision-making. Although increased scale is associated with an increase in meetings and organizational bureaucracy, most doctors would probably agree that their practices have improved as they’ve grown.

The problem is that growing by adding one, two, or even five doctors per year, as was sufficient in the past, is unlikely to create the scale necessary to thrive in today’s competitive health care markets. What is required is an organizational structure that can grow by consolidation of existing practices, with the ability to build the infrastructure and scale at sufficient pace.

Inferior Patient Care

Will the entrance of PE into ophthalmology (or medicine in general) influence medical decision-making and somehow lead to inferior patient care in the name of profitability? This is a noble and not unwarranted concern, but a careful consideration of facts and circumstances can offer significant reassurance.

It is important to note that most states prohibit direct ownership of a medical practice by a nonphysician. Therefore, PE involvement is generally limited to an ownership interest in an administrative service organization (ASO) that provides nonclinical services to a medical practice or practices. Because of this limitation, PE firms and their associated ASOs do not control the clinical decision-making of the physicians in the practice. A properly designed organizational structure segregates clinical decision-making and related matters to boards or committees of physicians within the medical practice.

Additionally, like any doctor-owner, a good PE firm is interested in building a great business. The firm understands that what defines a great business is the service it provides. Thus, PE firms should have no interest in investing in an organization that provides poor care.

Furthermore, most PE sponsors in our space do not directly perform operational functions in the ASO; rather, they play a supportive role in building the organization and allow the management team to run the day-to-day business. In a properly designed structure, physicians in the medical practice help guide the management team to set priorities and goals.

PE-Backed Transactions

When people raise concern about PE-backed transactions, they are referring to the need of the PE firm to sell its interest in the ASO, on average, within 5 years after the initial investment. The concern is that, at the time of the second transaction, the doctor in the practice will have no say in who buys the practice, and the buyer could be an undesirable partner. In reality, in a properly structured organization, physicians have significant representation on the board of the ASO—granted, often not majority representation—and will have significant influence in determining the buyer.

In many cases, the buyer is another PE firm, investing from a larger fund with a mandate to invest in larger companies. Most likely, these larger PE firms are interested in having an ownership position in the entity because the firm believes in the mission of that practice. The PE firm often intends for the same management team to continue to execute the same plan that existed prior to the transaction.

Nobody’s Perfect

Questions have been raised regarding the operations of some PE-backed ASOs that appear to promote medical activities that emphasize profitability over patient care. However, these same types of behaviors have been seen in doctor-owned medical practices without the involvement of a PE partner.

Any practice that is looking to affiliate with a PE group, a PE-backed ASO, or any consolidated entity should carefully evaluate the mission and vision of the group and confirm those impressions with significant due diligence.


Some physicians may not understand how value is created in the consolidation of medical practices. This misunderstanding can foster the concern that a PE partner would push a profit-first approach that leads to inferior patient care. In fact, the simple act of one small group joining a larger group creates inherent value greater than the sum of both unaffiliated entities.

In a consolidated entity, earnings are less likely to be disrupted if, for instance, one physician is suddenly unable to practice. In an unaffiliated practice, revenue would decrease immediately and would likely take significant time to recover, whereas in a group of 100 doctors, it would be relatively easy to provide coverage for the absent doctor until a replacement could be secured. Revenue would not be affected. More important, patient care would not be interrupted.

Consolidation creates value for all stakeholders, and that value increases along with the quality and availability of care. It is not likely to be the business plan of a PE-backed ASO to have its associated physicians work more hours than they did in the past or adopt clinically inferior practices to increase profits. PE firms will generally want to exit their investment in the ASO at some point, and they will want the clinical practice and ASO to be highly regarded at that time.

PE firms and physicians are generally aligned in the desire to provide excellent clinical care. The value that these entities can return to their investors is created by many features of the consolidation process and is enhanced by the reputation that the organization garners for providing excellent care.


For ophthalmology practices today, some risk is unavoidable. Risk exists both in choosing a consolidation partner, as one may choose an underperforming firm, and in choosing not to consolidate, as one may lose out in a competitive market.

Loss of control is relative. Maintaining control of a practice does not mean much if remaining independent leads to a negative outcome for the practice, such as losing access to patients.

Fortunately, PE firms are willing to invest their capital to partner with ophthalmology practices that have determined consolidation to be their best opportunity to remain competitive in their markets, enjoy continued access to patients, and focus on providing great care for those patients.