There are two main reasons PE targets specialty clinics in their pursuit of happiness.

It’s hard as shoot buckets to delivery care these days in a highly complex regulatory environment, not to mention individual and population dynamics, and trying to figure out how to get paid through value-based contracts

Reimbursement suuuuuuuuucks. Sorry, not sorry. CMS isn’t paying doctors enough. The end. And to boot, commercial plans don’t care about your 3 physician practice being out of network so they are going to go ahead and cut your payments 40%. Because.

That’s also why a PE buyout is appealing to docs. Not only do those headaches go away (don’t worry, new ones are right behind them), you also get a nice payout which is better than riding into the sunset with a satchel full of thank you notes.

The play for private equity in any of their acquisitions is to maximize EBITDA for a sale at a higher multiple in 3-5 years.

Here’s the real thorn in everyone’s side. When a PE firm buys a physician practice, they can’t employ the doctor directly. That would violate Corporate Practice of Medicine laws. And although hospitals do it all the time, Brighton’s dad’s firm isn’t allowed to.

What you can do is setup a management service organization (MSO) that has a master service agreement (MSA) with the practice you just bought. Then the MSO does everything except tell the doctor how to practice medicine… sort of.

And here’s The Big Strategy: Buy practices in the same specialty and put them onto a single platform. The PE firm reaches economies of scale in the new business, has a net higher EBITDA to drive a higher multiple, and how more leverage across all it’s contracts.