Hospitals have higher turnover
It’s much easier to leave an organization when you don’t have an ownership stake. The annual physician turnover rate at hospitals is 28%, compared with 7% at medical groups, according to a 2019 report.
Mr. Belkin says changing jobs has become a way of life for many doctors. “Staying at a job for only a few years is no longer a red flag,” he says. “Physicians are exploring different options. They might try group practice and switch to hospitals or vice versa.”
Physicians are now part of a high-turnover culture: Once in a new job, many are already thinking about the next one. A 2018 survey found that 46% of doctors planned to leave their position within 3 years.
Private equity ownership of practice
Selling majority control of your practice to a private equity firm is a relatively new phenomenon and accounts for a small share of physicians – just 4% in 2020. This trend was originally limited to certain specialties, such as anesthesiology, emergency medicine, and dermatology, but now many others are courted.
The deals work like this: Physicians sell majority control of their practice to investors in return for shares in the private equity practice, and they become employees of that practice. The private equity firm then adds more physicians to the practice and invests in infrastructure with the intention of selling the practice at a large profit, which is then shared with the original physicians.
Pros of private equity
The original owners of the practice stand to make a substantial profit if they are willing to wait several years for the practice to be built up and sold. “If they are patient, they could earn a bonanza,” Mr. Belkin says.
Private equity investment helps the practice expand. “It’s an alternative to going to the bank and borrowing money,” Mr. Mertz says.
Cons of private equity
Physicians lose control of their practice. A client of Mr. Mertz’s briefly considered a private equity offer and turned it down. “The private equity firm would have veto power over what the doctors wanted to do,” he says.
Mr. Belkin says the selling physicians typically lose income after the sale. “Money they earned from ancillary services now goes to the practice,” Mr. Belkin says. The selling doctors could potentially take up to a 30% cut in their compensation, according to Coker Capital Advisors.
A version of this article first appeared on Medscape.com.