Private equity in ophthalmology and optometry: a time series analysis from 2012 to 2021

Abstract

Purpose

To identify temporal and geographic trends in private equity (PE)–backed acquisitions of ophthalmology and optometry practices in the United States from 2012 to 2021.

Methods

In this cross-sectional time series, acquisition data from 10/21/2019 to 9/1/2021 and previously published data from 1/1/2012 to 10/20/2019 were analyzed. Acquisition data were compiled from 6 financial databases, 5 industry news outlets, and publicly available press releases. Linear regression models were used to compare rates of acquisition. Outcomes included number of total acquisitions, practice type, locations, provider details, and geographic footprint.

Results

A total of 245 practices associated with 614 clinical locations and 948 ophthalmologists or optometrists were acquired by 30 PE-backed platform companies between 10/21/2019 and 9/1/2021. Of 30 platform companies, 18 were new vis-à-vis our prior study. Of these acquisitions, 127 were comprehensive practices, 29 were retina practices, and 89 were optometry practices. From 2012 to 2021, monthly acquisitions increased by 0.947 acquisitions per year (P < 0.001*). Texas, Florida, Michigan, and New Jersey were the states with the greatest number of PE acquisitions, with 55, 48, 29, and 28 clinic acquisitions, respectively. Average monthly PE acquisitions were 5.71 per month from 1/1/2019 to 2/29/2020 (pre-COVID), 5.30 per month from 3/1/2020 to 12/31/2020 (COVID pre-vaccine [P = 0.81]), and 8.78 per month from 1/1/2021 to 9/1/2021 (COVID post-vaccine [P = 0.20]).

Conclusions

PE acquisitions increased during the period 2012-2021 as companies continue to utilize regionally focused strategies for acquisitions.

Introduction

Private equity (PE) investment is a major driving force in healthcare today, offering consolidation and the ability to scale up independent practices to compete in a dynamic market. Nie et al1 found that more than 25% of urologists in Maryland and New Jersey were employed by a PE-backed platform company. Recent trends in PE-backed consolidation in ophthalmology and the healthcare system as a whole continue to raise concerns regarding patient care, physician autonomy, and overall health system costs.2,3 In the typical PE model, firms invest into an ophthalmic management group or platform company, which provides streamlined operational efficiency, revenue enhancement, and increased market share.4 Subsequently, there is an anticipated return on investment within 3–6 years through recapitalization. PE continues to affect practices in many subspecialities, including radiology, dermatology, gastroenterology, and others as PE-backed platform companies continue to expand their presence.2,5,6

We previously reported on the rapid increase in PE investment within the field of ophthalmology and optometry from 2012 through much of 2019 as well as the recapitalization of some of those platform companies.7 Ophthalmology remains lucrative for the private investment model for several reasons. First, there is a defined referral path through which the role and scope of the ophthalmologist is clearly delineated.8 Second, high procedure volume with numerous patients and an aging population with heavy demand for ophthalmic care creates an ideal market for business growth. Third, ophthalmologic clinics have lucrative cash-pay procedures (eg, cosmetic injections or premium intraocular lenses).9 PE investment provides an attractive alternative to hospital-physician alignment, and many specialties have seen a recent rise in PE-driven establishment of consolidated platform companies.

COVID-19 has had a dramatic impact on healthcare operations in the outpatient setting, with some studies noting ophthalmology had the highest drop in outpatient volume.10 To prepare for the influx of infected persons, health care facilities largely rescheduled elective or less urgent health care procedures.11 Given reduced revenue in the setting of the pandemic, there have been furloughs, salary reductions, and loss of benefits for health care workers.12 On one hand, this loss of revenue may make PE acquisitions slow as the return on investment (ROI) could potentially be less than previously expected. However, the financial pressure on physicians and clinics may also lead to easier acquisition of newly distressed assets. Further, the economic policy of low interest rates since the pandemic began would allow highly capitalized PE firms to more easily obtain financing and expand their footprint.13 Researchers have speculated that the PE investment model, which mitigates physicians’ personal risk, would be an enticing prospect for health care institutions wishing to protect themselves from economic downfall.14 Anecdotally, physicians in practice have noted a desire to use PE as a lucrative exit from the burdensome tasks of administering their own practices and focusing solely on patient care, although they must incorporate employees with limited to no operational control.8 The objective of this study was to assess rates and geographic trends of PE acquisitions of ophthalmology and optometry practices in the United States over the last decade.

Methods

This study received approval from the Institutional Review Board of Yale University and complied with the tenets of the Declaration of Helsinki.

Identification of Private Equity–Backed Acquisitions

Data from January 1, 2012, to October 20, 2019, was previously published by our group.7 We chose to include these data to provide context and details about PE over the last decade in the United States. We also characterize PE-acquired practices, including a description of clinical locations, providers, and presence of ancillary services, such as optical shops. Within the time frame October 21, 2019, to September 1, 2021, there were several subdivisions of interest that guided our analysis. On March 11, 2020, the World Health Organization declared the novel coronavirus a global pandemic.15 Thus, we compared the periods just prior to the COVID-19 pandemic to the height of the COVID-19 pandemic before vaccinations, or until December 31, 2020. We also compared the period after COVID-19 vaccines were made available to American adults (officially December 14, 2020), and we estimated that this would not have had a sizeable effect until January 2021.16

Methods for identification and inclusion of PE-backed acquisitions have been described elsewhere.7 In brief, capital is invested to create or acquire a preexisting platform company or practice group, which then acquires additional individual practices. We sought to identify and characterize these acquisitions as well as the creation of platform companies. Financial databases were searched for acquisitions between October 21, 2019, and September 1, 2021. Acquisitions were excluded from this study if the acquisition was of a biotechnology or pharmaceutical company and if the acquired practice had provided services for multiple medical specialties. Transactions involving bankruptcy of the acquired practice or with no identifiable buyer were also excluded. From each acquisition, we collected the following characteristics: name, number of clinical locations, addresses of clinic locations, number of providers, number of optical shops, and number of practice-owned surgical centers.

Clinical sites were defined as all practice locations with at least 1 ophthalmologist or optometrist providing clinical care that were not surgical centers, vision rehabilitation centers, or optical shops. A surgical center was defined as any practice location capable of performing laser refractive, cataract, or retinal surgery procedures. Surgical centers also included dedicated ambulatory surgery centers owned by the practice. To capture the data most accurately at time of acquisition, we used information from press releases and web archives dated closest to the transaction closure date. For certain acquisitions, if we were unable to specify the exact locations of acquired practices, they were not included in the geographic map or used to calculate totals by state. However, we did include these details in the number of total practices.

We identified the platform company, investing PE firm, and date of initial PE investment for each platform. For platform company formations associated with multiple acquired practices, each practice was counted as a separate acquisition. In cases where the transaction closure date was unavailable, the date of the earliest report of the acquisition was used as a surrogate. If the explicit formation of a platform company was not evident, we defined the first investment of a PE firm in an eye care practice or previous eye care management group as the formation of a platform. We also stratified each acquisition into three primary practice specialties: comprehensive, optometry, or retina, depending on the services provided within the practice. Descriptive data of platform companies were reported with means, medians, ranges, and standard deviations.

Platform Financing

For all platform companies in this study, we identified PE investment information from the following databases: Capital IQ (https://www.capitaliq.com), CB Insights (https://www.cbinsights.com), Thomson ONE (https://www.thomsonone.com), and PitchBook (https://pitchbook.com). We recorded all PE investors when available, although some were unable to be located or were kept private because of nondisclosure agreements. Companies providing debt refinancing were not reported as investors.

Geographic Acquisition Trends

We identified the addresses of all clinical locations associated with acquisitions through press releases and web archives of practice websites immediately before the date of acquisition. Addresses were used to create a geographic map in GraphPad Prism software version 8 (GraphPad Software, San Diego, CA).

Rate of Clinic Acquisition Analyses

The mean number of acquisitions per month were compared using two-tailed unpaired t tests. We specified a linear regression model of time series data with robust standard errors, including data from our previously published study, from January 1, 2012, to September 1, 2021. We created a graph of acquisitions for the entire data set after calculating a 3-month average number of clinics acquired. Three months was chosen to control for variance in month-to-month data. P values of <0.05 were considered statistically significant.

Results

An estimated total of 245 practices associated with 614 clinical locations and 948 ophthalmologists or optometrists were acquired by 30 PE-backed platform companies (Table 1). Among acquisitions of ophthalmology practices, 23 platform companies acquired 156 practices associated with 510 clinical locations, 548 ophthalmologists, and 243 optometrists. The median number (and interquartile range) of ophthalmologists and optometrists associated with each ophthalmology acquisition was 3 (IQR, 0–34) and 1 (IQR, 0–25) respectively. Each practice was associated with a median of 2 (IQR, 1–42) clinical locations, 0 (IQR, 0–3) surgical centers and 0 (IQR, 0–4) optical shops.

Table 1.

Characteristics of platform companies acquiring ophthalmology and optometry practices between 2019 and 2021

Seven platform companies acquired 89 optometry practices associated with 104 clinical locations, 10 ophthalmologists, and 147 optometrists. Each practice acquisition was associated with a median of 1 (IQR, 1–28) clinical location, 0 surgical centers, and 1 (IQR, 0–1) optical shop.

Acquisition Trends

From 2012 to 2021, on average, monthly acquisitions increased by 0.95/year (P < 0.001*). During the period 3/1/2020–12/31/2020 (COVID pre-vaccine), acquisitions decreased by 1.29/month (P = 0.30). During the period 1/1/2021–9/1/2021 (post-vaccine, the period following introduction of the COVID19 vaccine), acquisitions increased by 2.53/month (P = 0.09). The absolute number of monthly acquisitions increased from 2012 to 2021, with a decline in the absolute number of acquisitions in 2020 and subsequent increase in 2021 (Figure 1).

Figure 1.

PE practice acquisitions (transactions) per month, 2012–2021.

The average number of acquisitions per month from 1/1/2019 to 2/29/2020 (pre-COVID) and 1/1/2021–9/1/2021 (post-vaccine) were 5.71/month and 8.78/month (P = 0.20), respectively. Average monthly acquisitions from 3/1/2020 to 12/31/2020 (pre-vaccine) were 5.30/month, similar to that from 1/1/2019 to 2/29/2020, at 5.71/month (pre-COVID) (P = 0.81).

Financing Status of Platform Companies

One platform company, Quigley Eye Specialists, was recapitalized during this time frame by New Harbor Capital in 2020.

Geographic Distribution

Over the last decade, certain large platform companies with geographic footholds utilized add-on acquisitions to expand preexisting large groups of practices (Figure 2). Texas, Florida, Michigan, and New Jersey were the top areas of acquisitions with : 55, 48, 29, 28 clinic acquisitions, respectively. Of note, these geographic totals do not include practices for which publicly available information on the clinics acquired could not be found, including AEG Vision (50 practices in multiple locations) and Keplr Vision (43 practices in multiple locations).

Figure 2.

Map showing geographic footprint of ophthalmology and optometry acquisition clinical locations by platform company from January 2012 through December 2016, January 2017 to September 2021, and January 2012 to September 2021.

Discussion

This study’s findings demonstrate sustained growth of PE-backed acquisitions of ophthalmology and optometry practices in recent years throughout the United States, clustered in geographic areas. To characterize this trend, we captured PE acquisitions of ophthalmology, optometry, and mixed practices from the period 10/21/2019–9/1/2021 and compared them to prior data from the period 1/1/2012–10/20/2019. We found that from 2012 to 2021, on average, monthly acquisitions increased by 0.95 acquisitions per year (P < 0.001*).

As has been seen in other fields of medicine, PE acquisitions continue to increase, with certain platform companies serving as hubs in geographic areas (ie, Midwest Vision Partners (Chicago, IL), EyeSouth Partners (Atlanta, GA). Given the nature of ophthalmology as a field of many independent practitioners, we anticipated that the PE model would specifically target high-value ―platform practices‖ and then work to scale up by acquiring add-on practices.17 We found that practices with a median of 3 ophthalmologists were acquired by PE in this time frame.

The ever-increasing presence of PE in healthcare remains an ethically ambiguous question, which will require rigorous discussion and research to fully understand the effects on patients, physicians, and the economy at large. Consolidation of independent practices in ophthalmology, which largely consist of small, independent practices, allows diverse groups to be represented by economically savvy and robust financial organizations. PE firms use capital from investors with the goal to return a profit by adding value or decreasing overhead. This can be accomplished through tactics aimed at consolidation and efficiency, such as outsourcing billing, layoffs, and increasing prices and patient volume.18 The PE model introduces the possibility of implementing best practices in a large network of clinics and surgical sites but still allows some autonomy for individual practitioners, in that physicians can continue to be heavily involved with the logistical operations of their own practice.19

Various elements make the environment ripe for PE consolidation. Physicians may be drawn to buyouts from PE in the form of large upfront payments from sales of their practice. The large payouts may be taxed at lower capital gains rates rather than income tax rates, making the transaction particularly appealing.18 Declining reimbursements for ophthalmologists may also make the large payouts from PE firms appealing. Additionally, the demand for ophthalmology remains high, and it is predicted to be the surgical subspeciality with the greatest predicted workforce shortage by 2025.20 Physicians may opt to merge with PE so they can share responsibility for financial burdens, including the price of expensive equipment.8 Further, large PE groups are able to have greater stakes and power during negotiations with insurance companies, which may mitigate the trend of declining reimbursements.8 Other economic climate factors such as record cash reserves, sophisticated investors, and low interest rates have facilitated a PE-driven marketplace.

In the setting of COVID-19, it was unclear how ophthalmology practices would recover after the necessary curtailing of ophthalmic visits and procedures in light of the Academy of Ophthalmology’s recommendations to professionals.21 We found that although PE-backed acquisitions slowed during the initial phases of the pandemic, the difference was not statistically significant when comparing the mean number of acquisitions during the COVID-19 pandemic with acquisitions before the pandemic (ie, 1/1/2019–2/29/2020 compared with 3/1/2020–12/31 2020 (P = 0.81). Further, when comparing 1/1/2019–2/29/2020 with 1/1/2021–9/1/2021, or the time before the start of the COVID-19 pandemic, with the time period after introduction of the vaccine (P = 0.20), rates were not statistically different, indicating that the introduction of the vaccine may have facilitated sustained growth. The field of ophthalmology has certainly shifted, with a greater emphasis on telemedicine and a keener interest in professional liability insurance and disaster-associated professional services.22 Given the uncertainty of the state of world affairs and concerns about lockdown orders, PE consolidation could be attractive to practices with less financial leverage.23

Despite research indicating that hospitals acquired by PE were associated with larger increase in net income and charges, the results remain heterogenous as far as patient outcomes.24 A recent report found that PE investment in nursing homes was associated with increased ambulatory care-sensitive condition emergency department visits, increased hospitalizations, and higher Medicare costs.25 Further, academic institutions will face new challenges in the setting of PE expansion, because there will be increased financial strain on centers that traditionally rely on nonaligned general practitioners for subspecialty referrals. This financial strain may have deleterious consequences in terms of the capacity for these academic centers to conduct much of the basic and translational research needed to push the field forward and to adequately train future residents.

Ophthalmologists will have to brace for the fact that there will be no mechanism to control their practice, and financial compensation will likely be less, with a future revenue stream discounted.26 Anecdotally, several physicians have written that granular encroachment is not something they have experienced at the practice management level; however, acquisitions are relatively recent, and conflicts of interest may emerge, with physicians reluctant to criticize their employers publicly.27

Further concerns regarding PE companies creating local monopolies may also affect both patient and physician choice when seeking care, employment, or referral centers. Previous work outlines a trend of platform companies creating geographic strongholds in certain parts of the United States, which continues to be a trend in this new data.7 It has been documented that a sizeable number of patients will chose to go to a local hospital independent of decreased mortality risk, higher survival benefit, or revision risk compared with a regional hospital. Other studies have shown that patients do not wish to travel more than 4 hours to obtain the care they need.28–30 Given that patients will not typically travel large distances for care, it is important to consider that these PE firms are creating localized monopolies such that patients are limited in the type and location of care they receive. Concerns over PE creating miniature monopolies has led to calls for antitrust policymakers from the Federal Trade Commission to take action.31 We have already seen these concerns in urology, where more than a quarter of urologists in Maryland and New Jersey are employed by PE-backed companies. In the current study, New Jersey was one of the states with the largest acquisitions, with presence in two major metro areas of New York City and Philadelphia.

There are limitations to this study. Two acquisitions were very large and impossible to add to our geographic depiction of acquisitions. This was Keplr Vision’s acquisition of 43 optometry practices and AEG Vision’s acquisition of 50 comprehensive or multispecialty practices. We anticipate that these large, multipractice acquisitions would further support our finding that PE acquisitions are growing with add-on practices in certain geographic strongholds. For some practices, if information was not available on the nature of the practice or staff through web archives at the time of acquisition, we opted to use information from the date closest to the acquisition. It is also important to note that the finances of the acquisitions are not reported in this study, and that the true valuation and construct of the acquisitions varies by organization and may be a point of study for future research.

Acquisitions via PE decreased during the initial phases of the COVID-19 pandemic but overall remained stable in the pre-vaccine period and continued during the post-vaccine period. Ophthalmology has experienced an increased and sustained continuation of PE acquisitions despite the economic ramifications of COVID-19. In the current economic climate, with a rise in interest rates and steep rise in inflation, we speculate that PE investment will increase, given the lower-risk financial decision on the part of the PE firm compared with the PE-backed practice. Indeed, we have found that fluctuations in the market have overall not deincentivized PE investment and that consolidation of practices has remained steady despite fluctuations in the market. The continual growth of PE during times of hardship to ophthalmology practices raises concerns of patient outcomes, healthcare costs, physician referral choice, and physician employment choice.