Optometry Podcast: Private Equity with Dr. Brian Chou

There’s no doubt that private equity is becoming a major force in the optometric landscape. But why has there been such a large influx of private equity money in our field? We sat down with Dr. Brian Chou to review the optometric landscape and his insights gleaned from a year’s worth of research behind the publication of “Private Equity and The Investment Effect” in Review of Optometric Business.

It’s not just optometry that’s being affected by private equity consolidation.  Dr. Chou reports that dentistry, veterinary care, and medical specialties like dermatology are all targets for private equity today.  The appeal in eyecare is due to the fact that optometry practices are highly fragmented – we all do things differently in our individual practices.  Private equity owners see this type of fragmentation as ripe for bringing in business systems to streamline productivity and financial return.

For many owner doctors, it’s meant their practices are suddenly worth a lot more money. Practices are valued on EBIDTA: earnings before interest, depreciation, taxes, and amortization. Traditionally a doctor’s office would sell for roughly 2 times EBIDTA when a doctor sells a practice. In today’s marketplace, private equity groups are routinely paying 6-10 times EBIDTA for desirable practices, making it an extremely appealing option for doctors looking to retire in the next 5 years.  Dr. Chou explains the end is nowhere in sight – there were roughly 30 big private equity players in eyecare at the time he wrote his article, but new groups are joining the marketplace all the time. He estimates there are billions of private equity dollars out there looking to be invested into eyecare practices in the coming years.

This is not the first time private equity has been interested in eyecare, however.  In the early 90s, PPMC (physician practice management companies) were buying up optometric and ophthalmology practices at a fast clip to better compete for HMO insurance contracts. This model largely crashed by the early 2000s due to changing insurance landscapes that left consolidators in debt with little option for quick profit returns. Today’s private equity buyers do face similar challenges. Consolidators are tasked to not only put in systems for billing, human resources, and distribution, but they also have to create a uniform culture across their acquisitions.  Changing culture at offices that are often so individually different is no easy task, and the success of the private equity company at being able to accomplish this uniformity of culture is essential to their success.

If you want to sell your office to private equity, it may not be as simple as it sounds. Not all offices are attractive to private equity consolidators. Dr. Chou reports that many offices don’t have positive EBIDTA.  The doctor, staff, and associate doctor’s salaries all have to be subtracted out of the EBIDTA value, which leaves many offices at break even or even negative in value. Private equity groups are only interested in offices with positive EBIDTA.  The offices that a private equity firm would want to acquire also need to be within a geographic area that works for consolidation. Typically a private equity company will buy a larger group of offices, often with an OD/MD model, and establish this larger group as the central site or hub.  Acquisitions will then spread out to smaller offices within the geographic area of the hub designed to build referrals to the main central location (the spokes on this hub and spoke model).

For students graduating from school, Dr. Chou predicts that private equity affiliated groups will become an increasingly larger employer for new graduates. Sometimes it may not even be obvious to young doctors that the office they are applying to is backed by private equity.  Offices that come under new ownership don’t necessarily change their name or branding. He recommends for all new doctors applying to jobs to ask during the interview process specifically who are the owners of the practice so there is clear visibility about the nature of the practice from the start.

What are some of the impacts that private equity could have on scope of practice? Dr. Chou feels that optometry is in a state of change, moving away from a refractive/mercantile focus to a service-based model where medical care is a stronger component.  Private equity groups see medical eye services as an undervalued aspect of the role of optometrists, especially in comparison to ophthalmologists. Encouraging and incentivizing employed optometrists to provide full scope care and increase referrals to specialists and ophthalmologists within the private equity group helps grow the profitability of the company.  

How will private equity shape or disrupt buying groups like Vision Source, PECAA, or IDOC? What are the long-term impacts on staff retention and turnover as management becomes more removed? Are some of the private equity groups in eyecare becoming too big to find a buyer from an even larger consolidator?  (Hint: there’s over 70 billion dollars in healthcare going into practice consolidations, so there’s ALWAYS a bigger fish interested in a large bundle of offices). We discuss all this and more on this podcast!

Following the private-equity acquisition of his group optometric practice in 2017, Dr. Chou has returned to practice ownership.  He now directs a keratoconus clinic in San Diego.

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