Eyeworld

September 2017 • Ophthalmology Business 17 retirement and getting a return on their practice investment. The practice perspective A variety of factors led Brett Katzen, MD, president, Katzen Eye Group, Baltimore, to partner with a private equity firm. Varsity Healthcare Part- ners acquired Katzen Eye Group in May 2014 to form EyeCare Services Partners, and in May 2017, a majority share was purchased by Harvest Part- ners. Dr. Katzen had built a large plat- form that encompassed all subspecial- ties in ophthalmology. Business was growing, but it started to get squeezed financially due to various factors, including the economic climate, unexpected loss of a major contract, and electronic medical record compli- ance. Dr. Katzen experienced his bank changing its covenants, therefore making it more difficult for him to borrow money and grow his business. Wanting to continue the prac- tice's projected growth, Dr. Katzen said he looked at several strategies and partnerships that he felt could sustain the business. It took 2 years and meeting with at least 15 private equity companies to find a company that he felt aligned with his goals. Brent Wilde, president, Minne- sota Eye Consultants, Minneapolis/ St. Paul, said his group's primary goal in partnering with private equity was to grow and to get more business- focused minds at the table. Richard Lindstrom, MD, Min- nesota Eye Consultants, Minneapolis, said as moderator of the OIS@ASCRS session that as a senior partner at the practice, private equity was also attractive as a monetization opportu- nity. The traditional succession plan involves selling shares to a younger associate, but this is often at a low value for the "tremendous value" the senior partner has built. "Private equity allows us to gain some fairer value," he said. "Because of the aging popula- tion, we have an increased preva- lence of eye disease, whether you're talking about cataract, glaucoma, or retina, so from an outsider's per- spective, the changing demographic landscape equals an opportunity," Mr. Maller said, adding that the increased complexity of the regula- tory environment and changes in the payer landscape are leading to "a tremendous amount of consol- idation. Whether from mergers or acquisitions, our bigger practices are interested in strengthening their footprints. As such, there is a tremen- dous amount of transactional activity taking place in many markets across the country." Where private equity comes into play, Mr. Maller continued, is they can facilitate market consolidation by providing a source of capital for these transactions. "From the standpoint of a pri- vate equity investor, they're looking to align with high quality individuals who share common values and who have the desire to build a great busi- ness. They're looking for a business with an operating platform that can be scaled up. … They're also looking for strong physician leadership that is committed to building a great busi- ness," he said. Mr. Kothari said private equity is showing interest in ophthalmology because unlike other specialties, there are many different revenue channels that can be built and grown from combining ophthalmic practices with ambulatory surgery centers, optomet- ric practices, retail, or any combina- tion thereof. His firm advised on a transaction involving a private equity firm and Grand Rapids Ophthalmolo- gy in Michigan earlier in 2017. From the physician's perspective, private equity helps provide finan- cial backing for current and future practice infrastructure, as well as ex- pertise in business efficiency. It also provides new succession plan options for doctors as they start considering T he business side of oph- thalmology is changing. Twenty years ago, health- care in gener- al was not the business that it has evolved into to- day; healthcare was solely about the delivery of care, said Rajesh Kothari, mergers and acquisitions (M&A) specialist and managing director, Cascade Partners, a growth capital investment banking and private eq- uity investment firm with offices in Michigan, Illinois, and Ohio. While medicine's primary focus is still, of course, patient care, various factors have physicians thinking about how to manage and grow their practice. On the flip side, investors are looking at the healthcare practice space, including ophthalmology, as never before. "Healthcare has become a busi- ness, and people think about it and run healthcare like a business. As a result, that's created a lot broader interest in a bigger group of players in the healthcare industry, such as private equity and corporations," Mr. Kothari said. "In ophthalmology, this is a much newer phenomenon. If you go back 4 to 5 years, there was no real private equity in this market. Today, there are nearly a dozen major market participants, and that number is accelerating faster than I've seen it in any other sector in the healthcare space." The topic of private equity partnership and "mega-practices" was discussed at the Ophthalmology Innovation Summit before the 2017 ASCRS•ASOA Symposium & Congress (OIS@ASCRS) in Los Angeles. Bruce Maller, president and CEO, BSM Consulting, Incline Village, Nevada, said at the meeting that "no less than 20 to 25 private equity investment firms are seriously interested in the ophthalmic space, and it begs the question, why?" continued on page 18

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