Ray Keate, MD, assistant professor of medicine at VCU Health in Richmond, Va., spoke with Becker’s on June 14 to discuss the effects of private equity on gastroenterology.
Editor’s note: These responses were edited lightly for clarity and brevity.
Question: How is private equity impacting gastroenterology today?
Dr. Ray Keate: I think it’s a big uncertainty. The concern is that it’s a good thing if it works and provides more capital and higher reimbursement. But it’s a bad thing if the sale to private equity discourages younger people from joining those same groups. There’s a differential compensation or value in the people that have already sold out to private equity and the new people coming in.
Most of the private equity deals of which I’m aware of are seven-year deals. They come in and purchase a fraction of a GI group and they pay each of the shareholders a large amount of money. That large amount of money is then subject only to capital gains taxes, not taxed as ordinary income. So everybody gets a very hefty income bump that year. In exchange for that, they take a percentage of the revenue going forward but with promises to provide access to capital, better reimbursement, cost savings through share programs and other things. So if they do realize the cost savings and increase reimbursement, then that’s great. But if they don’t, then the whole group is saddled with that percentage payment forever. The owner-partners don’t mind because they got the big buyout and the younger people looking at it say, “Well that’s fine for them, but I’m not going to get the same buyout in five or seven years.”
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