Hacker News Reader

> A doctor knows what his practice is worth and wants every cent he can get out of it - but the next generation of doctor is not going to be able to compete with debt financing what a PE cash-buyer can get.

In my opinion, the physician in this example is a monster. Profit maximization is a choice, not some kind of moral imperative. Am I supposed to have any respect for somebody selling out their employees and patients to vampires so they can retire to a beach or whatever?

The solution I'd want to see for situations like this is to find a way to sell to the people who have a continuing interest in how the business is run: employees and customers. The "exit" that does right by all interested parties would be something like having a newly formed employee coop gradually buy out the founder's ownership stake. To make a tech analogy, you don't have to sell your 0-day to foreign government just because they pay more than the bug bounty program! You don't have to sell out your community to vampires because they're the highest bidders! This is a choice that somebody is making.

Well, keep in mind that from the perspective of the rest of the healthcare industry, private practices are kind of dinosaurs at this point. They don't play well in our modern system, and the last 50 years of healthcare legislation has done everything short of outright banning them.

New doctors are not trained or expected to run businesses. Getting money from medicare or insurance is a nightmare. Patients want access to more services than ever before. The entire idea of a private practice is anathema to modern ideas of healthcare oversight and access equity. Even getting private malpractice insurance is almost impossible now.

There is a reason almost nobody is starting private practices anymore. So to give the doctors a bit of credit this is a chance to slip quietly into the night.

This explains quite a lot about why health care has been noticeably getting worse over the last several years -- for everybody.

In my part of the US, you can't even find a doctor that is taking new patients at all, private practice or otherwise. Talking with some doctors, it's clear that being a doctor these days is a very undesirable job. I know I wouldn't want to do it.

> Am I supposed to have any respect for somebody selling out their employees and patients to vampires so they can retire to a beach

Nobody else will buy it. The alternatives are shutting down the practice or forcing oneself to keep working. Particularly in medicine, the latter is dangerous.

> solution I'd want to see for situations like this is to find a way to sell to the people who have a continuing interest in how the business is run

Sounds like a buy-out strategy! Seriously. Berkshire Hathaway could negotiate good deal terms by making this promise.

> Nobody else will buy it. The alternatives are shutting down the practice or forcing oneself to keep working. Particularly in medicine, the latter is dangerous.

Can't you just hire a "CEO" who will take over all management responsibilities?

> Can't you just hire a "CEO" who will take over all management responsibilities

You, the retiring doctor, hire a manager whose job it is to hire another doctor? Do you not see why this works at scale but for one practice?

> In my opinion, the physician in this example is a monster. Profit maximization is a choice, not some kind of moral imperative.

They've had a career of treating patients. I think they've satisfied the moral imperative already. And selling to PE doesn't necessarily equate to "profit maximization". It could just mean "decent sale". As the OP said, often there simply isn't anyone available to buy it out at the timeline it needs to be bought out.

> The solution I'd want to see for situations like this is to find a way to sell to the people who have a continuing interest in how the business is run: employees and customers. The "exit" that does right by all interested parties would be something like having a newly formed employee coop gradually buy out the founder's ownership stake.

I don't doubt that this can work (it has for other businesses!). However, a given doctor wants to retire soon. Can you point him to a concrete plan to set this up? As in a firm that will have said plan ready, does all the legal work, and manages the terms with the existing employees/customers? The doctor already has his hands full treating patients and running the business.

If you cannot point him to such a resource, then do you see why he'd just sell to PE?

> They've had a career of treating patients. I think they've satisfied the moral imperative already.

No offense (really), but speaking from professional experience, I think this is naive and contributing to a lot of reasons why healthcare costs have started to spiral out of control. There are moral doctors, and immoral ones, and everything in between.

I'm not really sure why healthcare provision as an economic transaction is necessarily more moral than any other economic transaction that brings net benefit to the receiver of the service.

If there was such a cost to the physician overall, in terms of altruistic cost-benefit balances, they'd have trouble finding people wanting to go to medical school. I think the labor markets (in terms of medical school supply and demand) speak to the nature of that balance.

I don't want to demonize doctors (my family and myself fall into these categories) but I think it's dangerous to idolize them at the same time.

Also from experience, I think it's Baumol's cost disease really starting to show. Wages/practice costs for doctors have increased because everything around them is more expensive.

A family doctor in my hometown used to be able to afford a house in the nicest neighbourhood on their earnings. They didn't have to talk about money, and when they sold their practice they were happy to make sure it went into the right hands and sold it for a reasonable amount of money.

These days a family doctor can get a 2 bed condo or a townhouse near their practice, or they can have a long commute with something larger. After paying for office expenses, childcare (which also suffers from Baumol's cost disease) and their more expensive education, there's far less for retirement. You really have to maximize what you get out of your practice when you sell it.

I know there's a long history of it being "a calling" and expecting sacrifice. That's still expected, and yet the same rewards aren't there as in the past. Nobody in the past looked like a greedy asshole because they didn't have to ask for more money or really worry about anything. It was set up your practice and live your life on autopilot.

I want to demonize doctors.

The system and incentives the US voters have set up says "we want you to sell to the vampires, and will give you a huge financial bonus if you do".

Maybe if voters didn't want such system, they might vote different people into power, or vote to change the system.

POSIWID. https://en.wikipedia.org/wiki/The_purpose_of_a_system_is_wha...

"In addition, there is a problem specific to medical practices - you can't just hand them over to your kid!"

- Doctors partner with the person that will take over their practice for years before retiring. PE is destroying this system and the latest crop of doctors will lose out on mentorship and the opportunity to run a practice. Everything will become big corporate offices and everyone will suffer

> Doctors partner with the person that will take over their practice for years before retiring. PE is destroying this system and the latest crop of doctors will lose out on mentorship and the opportunity to run a practice. Everything will become big corporate offices and everyone will suffer

Of all the doctors I personally know, only one was interested in working in such a practice (let alone owning one). Where is the existing doctor going to find other doctors to partner with? Especially when they can get paid more to work elsewhere?

"there is no one else right now who would buy it."

You are missing a qualifier: "at the current market price."

If you prevent or disincentivize PE from buying these types of businesses, the price would drop to the level of its new adjusted demand.

Sure! But that cuts into the "keeping retiring doctors happy" piece. If your practice is worth $15 million but you only get 50c on the dollar because there is no buyer pool, you might be pretty grumpy.

To the broader picture though, this is a double edged sword if you want more private family practices. Less doctors are going to go through the work and cost of starting their own business if they have to take a haircut on its net worth at retirement.

If you remove the premium offered by people who just want to scrap the business for parts, and no prospective owners can afford it at your target price, is the business actually worth that much as a going concern?

It sounds to me like your hypothetical doctor might actually be upset that they can't get $2 on the dollar by selling to an unscrupulous party. You could view the PE premium as a way for the good doctor to benefit twice from all the tax benefits that they accrued over the years as incentives to keep their business around.

Then your practice isn’t worth $15-million.

I’m married to a physician in private practice, who owns their practice.

From the beginning, we’ve always been aware that when she retires in 15-25 years, we have literally no idea what if anything the sale of her practice might bring.

It could be essentially nothing (aka, the used value of the equipment, and it’s shocking how quickly even very expensive medical equipment depreciates on the used market).

It could be sustainability more, but that’d be a nice bonus, not something we can count on, or that any physician should count on for their retirement planning.

No retiring physician is owed anything for the “value” of their practice. And while on a personal level a PE buyout would be a nice bonus at the end of my spouse’s career, not getting it wouldn’t have affected either her decision to go into private practice, or her ability to.

Far and away the biggest factor preventing more privately owned physician practices is the fact that hospital-owned practices are often reimbursed around double for the same procedure as independent practices. This has shifted somewhat with the shift from “pay for service” to “value based care” models, but both put independent physician-owner practices at a tremendous disadvantage to large hospital systems.

And it’s a damn shame because private physician owned practices are a much more efficient way to care for patients.

> No retiring physician is owed anything for the “value” of their practice.

Not saying you are wrong, but this makes private practice different than any other small business. Pretty universally most businesses are evaluated by their capex. (If the medical industry is unique it's because there is no business to evaluate without a practitioner)

But 100% to everything else you said. Private practices are clearly superior in every regard except rent-seeking.

I think they meant more that you don't get some magic pass for years of service, kind of thing. If you have built up a paying customer base, odds are high that you can leverage that to another owner, no? No need for PE to get involved. Unless you are trying to maximize every penny you can get on that sale alone.

It’s more complicated than that.

TL;DR: To a larger degree than most businesses, the physician is the value in a medical practice.

Let’s say you’re a dermatologist in Lincoln, Nebraska. You want to live there because of family reasons or whatever. You build a great thriving practice. You’re clearing $1m in profit annually.

(A high, but doable number for a dermatologist with a good private practice)

Now it’s time to retire.

First of all, you can’t sell a patient. Patients go where they want to. You also can’t sell medical records. Because laws. Nor really would you want to.

All you can do is sell patient habits, and tangible assets.

But of course the biggest asset is the physician themselves. And they don’t come with the practice when they retire.

Now sure. There are ways of driving non-directly-physician-derived lines of revenue in a practice. Maybe you have a nurse that does aesthetics. Maybe you sell skin creams or whatever. But generally, those lines of revenue are still broadly dependent on the physician.

So what you need is a physician who wants to move to Lincoln, Nebraska at the same time you want to retire, and buy your practice.

But even if another dermatologist did want to practice in Lincoln at the right time, why should they pay a bunch of money to you for your practice? They could just start up next door.

Sure, they’d have to buy some equipment and hire and train staff, but there’s a good chance they’d have to do some of that even buying your practice.

And truth be told, they know you’re retiring anyway, so why not just wait it out?

Plus, medical specialists are in short supply. Especially those who want to move to Lincoln at that very moment. (I’m being hard on Lincoln. I went there once and it was nice. I just don’t imagine it’s a destination most highly qualified medical specialists dream of moving to.)

So probably the actual value of your practice is “the number that makes it less of a hassle to buy you out than for another specialist to start up their own practice.” Assuming there is a specialist who wants to move to where you’re selling.

And remember, if such a person already exists, they already own the most valuable asset of your practice: a qualified medical specialist.

So in a traditional medical practice sale scenario, your valuation almost certainly isn’t going to be a multiple of your revenue or profit like a more traditional business.

And the location can be a real challenge too. I know classmates of my spouse who turned down salary offers in the $800k range in the rural Midwest (with the potential to earn much more in the future through partnership/ownership) in order to make less than half that in the cities they wanted to live in.

Even if your practice is in a desirable location, most of these issues still apply. It’s just much more likely you’ll find someone to buy your practice for some value and not have to shut it down and sell it for parts.

This is painting physicians as more unique than they are. Carpenters, artists in general, electricians, plumbers, etc. are all in roughly the same boat. A lot of trust built into a reputation that someone built.

Now, sure, the modern world doesn't built up on reputations as much. But the general idea is the same. Such that, yeah, you may find you have nothing that you can sell without you in it, if that is what you built. I'm not clear how PE somehow changes this. They are literally preying on customers/clients that are not savvy enough to know that what they actually valued left?

No, I would actually agree that those can be very similar situations from a “selling your business” standpoint, with the difference that while some of their professions have been particularly scarce for a few years, medical specialties have been scarce in many parts of the country for decades, and the pathway to become a medical specialist is highly capacity constrained, while the pathway to becoming a tradesperson is typically more demand (for people wanting to go into the profession) constrained.

I agree with that. I also think, for better and worse, a lot of us that moved around to find a place to live don't value the "reputation" side of things. I hate how hard it is to find services local. So much easier to just hit up Home Depot and such. Medical is, sadly, "what does my insurance/job support?"

> If your practice is worth $15 million

What on Earth makes a single-doctor practice worth $15 million when that doctor leaves? Or even $5 million, or even $1 million?

The patient list? It's a zero-sum game! Are these patients just going to stop getting medical treatment when their doctor retires? Or are they just... Going to go to the next clinic over?

There's something rotten here, and it's not PE buying practices. It's that the practice is worth much beyond the value of the particular physician working in it! If you're wondering why medical costs are ballooning in this country, shit like this is one of the contributors!

> What on Earth makes a single-doctor practice worth $15 million when that doctor leaves? Or even $5 million, or even $1 million?

He just pulled a random number. But to answer your question for $1M - equipment for one thing...? The business likely has a fair amount of debt on the equipment.

They can get grumpy. Who cares? They can live with $7.5 million. I hope they will be able to recover from this crushing blow.

Agreed.

Had a family member receive an LOI at 10x EBITDA so they decided to sell (not sure where they closed).

They mentioned that if a doctor would have purchased the practice, it would be 1x or 2x at best.

Related: they would have been interested to scale up, but didn't know how and were afraid of the complexity of trying to manage a 3rd location.

Another thing to keep in mind is that it was a completely different regulatory environment when most of these private practices started. 50 years ago you could run a cash business with yourself, a receptionist, and a nurse. Incumbent practices could keep up with the times and add billing staff, but you would have to be insane to start a new practice today.

I'm all for healthcare reforms, but it's a pity that we didn't pursue a simple voucher or cash-based system over our insanely complex system.

Right.

Seems like there’s opportunity to be the backend operating system to scale these practices.

That’s what PE is supposed to be anyway, but they don’t run it like an owner-operator would.

The human body is an insanely complex system, hence the resulting complex system to discern fraud and waste. Really only a doctor or very educated person can evaluate another doctor’s determination.

> Even if you could find someone experienced enough and interested in running it - that person could not afford the business.

I mean, this must be a huge factor. Ignoring doctor's offices for a moment--even regular mom-n-pop small businesses. Few actual humans can afford one, so PE gobbles them all up. I'd love to own a small local business. Know why I don't buy one? I just can't afford any, it's that simple! Same reason fewer and fewer people can buy houses: They simply can't afford them. So PE swoops in and buys housing, too.

This seems to be one of the many ill effects of America being set up so there are fewer and fewer rich people, and those fewer own more and more of the pie. If wealth were distributed more evenly, maybe more Average Joes would be able to buy and run their own businesses. But our society doesn't encourage this broad base of wealth. It instead encourages a shrinking elite owning everything.

Part of what you're touching on is a general problem with rent-seeking, regulatory costs to entry, and monopolization in general, in the US at least. With physicians, this is kind of a consequence of a system their professional organizations have shaped: they kind of brought this ("this" being lack of buyers) on themselves to some extent by restricting supply.

But even outside of that, if you ignore that part of it, there's monopolization costs coming from other directions. Many physicians are getting squeezed by decreases in their options, as hospitals and clinics merge, which creates efficiencies that make it hard for small clinics to compete with, which in turn leads to fewer administrative options should a physician choose to try somsething else. My sense is it's even worse than that, because even if you still have a few large hospital systems to choose from, the administrators are being incentivized in the same ways across the chains, so it's one flavor of hyperprofitized healthcare corporation versus another flavor of hyperprofitized healthcare corporation. Basically, it's hard for small clinics to compete even if someone wants to, because healthcare has become a cuthroat profit-driven market, with lots of big money and plenty of opportunities for those in power to take advantage of advantages.

I guess what I'm saying is it's not just the debt for the young physician: it's a very risky thing to do, period, being a small clinic versus an oligopoly of large chains. "A doctor knows what his practice is worth and wants every cent he can get out of it" is one possibility, but another is that that seller is in a position of survivorship bias, and can't find buyers because they don't see it as a rational decision even outside of the debt question.

The reason why you don't see this with landscapers or plumbers or whatever is because those markets have far more competition, and they're not overregulated (at least to the same extent). Healthcare as a market is characterized by obstacles to competition everywhere: if you ignore the rationale for those obstacles, and just look at it for what it is, you're left with an infrastructure that's constituted largely of barriers and costs to entry and participation. Basically, the market has become too expensive even for practitioners to participate fully in, so the only thing left are financial heavyweights.

The partnership model exists for exactly this scenario and has thrived for centuries in every sector. If a doctor wants to retire they are obligated sell their share of the business to other partners, not outside entities. When a new partner is promoted they have to buy their way in. All of these problems are solved. If PE firms are getting involved it is due to either greed or mismanagement (or both), not some inherent flaw in the system.

It is systemic but it isn't really a flaw. It is the higher order effects of flooding the system with liquidity.

If you look at the richest people in America in 1985 and adjust their wealth for inflation no one even makes the top 100 in 2023.

If the richest person in America only has 5 billion in 2023 USD then systemically there is just not enough liquidity to think about the risk/reward of buying a vet.

We have basically diluted the price of all businesses and all assets. With the amount of liquidity in the system you can either have it pool and do nothing or buy business you would never have previously.

This is the price we pay for avoiding what probably would have been two depressions from the financial crisis and covid.

Everything in economics is a trade off. It is very hard to say if we would be better off or not. If we had spent the last 15 years of life dealing with two depressions who knows what society looks like now. It is a very different answer if you are 20 or 45 too I imagine.

Doctors are an exception and specifically because of the regulatory issues.

If you look at other boring "mom and pop" businesses out there, like laundromats, gas stations, car washes, liquor stores, mailbox stores, etc...there's a tons of "acquisitions" entrepreneurs out there buying these things up like crazy and tons of influencers out there (codie sanchez, etc) telling them to do so.

> there is no one else right now who would buy it

Their are firms that let you sell to your employees via an ESOP. One I know of (though a friend) is https://www.awcfund.com/

I don't know where you get the idea that private medical practices are unsellable... It is very common for retiring doctors to sell their client base/practice to other doctors in the same field.

sorry, thirty years ago I could have subscribed to "and keep retiring doctors happy" but now, no way Jose

why the change, out of curiosity?