All right, y'all, good morning. Thank you all for being here at this lovely hour of 645 after fellowship dinners last night. We're going to talk about private equity today and implications and then go through what each of our practices decided to do and why and our thought processes behind our decisions surrounding private equity. Thank you to all my presenters here as well. A special thanks to Dr. Viola, who's subbing in here at the last minute. I'm going to talk about some brief sort of intro to private equity first and then we'll go through Dr. Ward, who's going to talk about how he's approaching considering a private equity deal. Dr. Donovan, whose group decided not to sign a private equity deal. I'm going to talk about why our group did decide to sign a private equity deal. And then Dr. Viola is going to talk about what it's been like three or four years in after a private equity deal. I was going to tell you to go to the app to put in questions and answers, although we did not get a password for it today. So just come on up to the mic like we normally do for question and answers. So I'm going to start us out just going through what is private equity, the basics of the structure of a private equity deal, and some quick sort of things to consider, and then we'll get into that in more detail. So at its most fundamental, a private equity deal is a moneymaking scheme, right? The whole entire goal is to make money for the private equity firm. The firm takes investments from wealthy individuals, pension funds, university endowments, and their goal is to beat the stock market and make this money grow faster than traditional investments. They do that by flipping and or consolidating assets and companies. So they either buy a struggling company and make it more efficient and more profitable, or they buy a bunch of smaller companies and roll them up into a bigger entity that they can then sell for a profit, usually within about three to five years. So they are not, they don't want to manage your company long-term, this is a short-term deal for them. Over the past five to ten years, there's been a lot of interest among private equity firms in healthcare. We spend a lot of money in healthcare in this country, as we all know. This has already advanced pretty far in dermatology, ophthalmology, GI, urology, dentistry, some of those fields are already pretty deep into this private equity experience. Orthopedic practices are very attractive to private equity firms. We have an aging population, there's a lot of income and job security in that for us, and also our access to ancillaries is almost unparalleled among specialties, between imaging, PT, OT, and especially inventory surgery centers, and as more procedures shift to ASCs, particularly joints and spines and some of the higher money-making procedures, ASCs have become much more profitable and much more interesting for private equity ownership. The basic structure of a private equity deal would be that the private equity firm is going to buy your practice for a certain dollar amount, or your buy-in. After that purchase, going forward, you then give a percentage of your collections to the private equity firm, so you are essentially getting an advance on your income, right? They're going to pay you more of your income up front that you can then invest and make grow for you, so you get it sooner, which is advantageous, but it's really an advance on your income. The way that purchase amount is typically calculated is as a multiple of your EBITDA. Your EBITDA is your earnings before interest, taxes, and amortization. You essentially can think of this as your practice's profits, so it would be your collections minus your overhead, give or take. A pretty good multiple would be around 6 to 8 for your purchase price. That would be sort of an average good multiple. Sometimes some practices will be offered lower multiples, depending on their practice structure. Some practice may get higher, but 6 to 8 is a pretty decent multiple. This is usually given to you as a mixture of cash and equity. Again, these are all typical numbers, not necessarily everyone is the same, but a typical mix would be 70 percent cash and 30 percent equity, and that equity would be in the form of stock in the company, and that becomes important later. The scrape or the amount of income that you then give to the private equity firm going forward is typically around 30 percent, so you're getting this money up front, and then you're typically giving about 30 percent of your income to the private equity firm in perpetuity, right, forever. This does not stop when you've kind of recouped your investment, right, it's forever. All of this is negotiable, so that number on the multiple is negotiable. The percentage of cash versus stock that you get is negotiable. If you feel really good about this company, you're really confident in a good second bite, which we'll talk about, you might want to take more stock and less cash up front, and vice versa. The scrape, of course, is negotiable. You may say, look, I want more money up front, I'm willing to accept a higher scrape going forward. Those numbers are all negotiable with these deals. The other important things that are negotiable relate to control and control of the practice. Do you have a seat on the board of sort of the management organization, if there is one? Do you maintain rights to your name or your brand? Who is responsible for hiring and firing staff? Who can hire and fire physicians? And all of those things are negotiable and things that can be written into these contracts. Same thing with future ancillaries. If your practice is going to go develop an ASC, do you have to do that with a private equity firm? Can you do it on your own? Do they have right of first refusal? All of these things are things to consider in your contract. Because of all of this negotiation and contracts, this sort of goes without saying, but you need a lawyer. This is going to be expensive, but it's worth it. It's absolutely necessary. I mentioned a management services organization. Some P.E. deals are done with a private equity firm directly. I think more of them, and at least going forward, more of them will be with a management services organization, which is then owned by the private equity company. And what that does is it shields you from some issues. So our contracts and our P.E. deal are with a company called U.S. Orthopedic Partners, which is a management services organization. And that means that when we get resold in three to five years, our contracts stay the same because U.S. Orthopedic Partners is what gets sold, and our contracts with them are not altered. So it gives you sort of a layer of protection between you and the private equity group. I mentioned this second byte. This happens when the P.E. company sells your firm or your practice in three to five years, or ideally in three to five years. That's their goal. You then get a second payout, right, because you own stock in that company. So you get a second sort of chunk of money at that time. Again, that's the goal. How much you get depends on how much equity you have and the value of that equity or that stock. A good multiple at a second byte would be around three to four. So you hope that your stock price has gone up by about three to four times. Again, that would be a good number. Some are not that good, but that would be what you aim for. And again, you're going to get this second chunk of money in about a 70-30 split. So you're going to have still 30 percent in stock in the company for a potential third byte. Now, you can imagine these returns start to go down, right? So you're not going to be getting a three to four multiple on an eighth byte. So at some point, the value of that stock is going to be less valuable. You hope for a couple, at least a second byte, where you get a second payout, maybe a third. I'm going to talk later about sort of some advantages of private equity deals and why our company decided to do this. Briefly, you have a partner with DeepPockets. Our company right now is trying to develop more ancillaries. We're trying to develop an ASC. It's helpful for us to have a partner with DeepPockets to help us invest in some of that capital. Marketing, sort of market share. You can consolidate services and increase operational efficiencies. Billing, coding, outcomes tracking, all of that can be consolidated amongst multiple practices. You have better purchasing power and contract negotiation power when you're a bigger, more consolidated group. And typically with private equity deals, as compared to selling to a hospital, you usually maintain your name and the brand that you've worked hard to build. When you're acquired by a hospital, most will require you to then be under their umbrella, whereas in a private equity deal, most of the time you will keep your brand. The disadvantages, of course, is it doesn't always work like that, right? Not all PE companies and partners are going to be helpful and make you more efficient. You might be run by a company that is really good at running Starbucks, but not very good at running an orthopedic group, right? These are very different considerations. You will lose at least some control of your practice, even if your contract is great, right? So there's at least some degree of control loss. And if you lose too much control, that can really disrupt your daily work life, disrupt your ability to run your practice. This was a post on a Facebook group that I'm a part of, where someone asked about people's experiences with private equity, and you can imagine there were some strong reactions. I think some of them are potentially more informed than others, but particularly, like, on the right, someone said, it just happened in our practice. It's been terrible. It's been a mess. She goes on to say that she hasn't gotten paid in three months, and it's really been a problem. There's a recent webinar that, in the HandP, the new website about practice management, is on there. Dr. Abdo Batchour was on there, and he had a really bad experience in a group that had been sold to private equity, and he, on that podcast, does a very good job of going through sort of what happened in their group. There was a lot of micromanaging. A lot of their key staff was fired, and it was a really big mess, and he ended up leaving. So certainly, there's some disadvantages. Other disadvantages include that every partner benefits differently, and this can be very divisive in a practice. People closer to retirement with mature practices often get a bigger payout with a lot less risk, right? They don't have any risk about future going forward. They have less time to be paying off that scrape. Younger partners do have longer before retirement, so getting an upfront chunk of money, you have longer to invest it and let it grow, but you have a little bit more risk going forward in terms of what happens in the future. It can also be harder to hire new partners, and this is important to consider, and we've done some mechanisms in our deal to try to account for this, but if you hire somebody new after a private equity acquisition, they are going to be subject to the scrape. They're subject to that loss of control and that sort of questionable future, but they don't get the advantage of that big upfront payout, so you can imagine that they are not often excited about that. I think, in my mind at least, the biggest disadvantage of a private equity acquisition is that we don't really know where this is going to end up. This is fairly new in the healthcare realm. We think we're going to get a second bite, maybe we'll get a third bite. We have no idea what's going to happen after that. We don't know who's going to own us, where this sort of endgame is. I don't think anybody knows that, and it'll be interesting to see what happens. This is some of the vocabulary I've gone through real quick. I think we've mentioned most of this. The equity events would be the first and second bites, or you'll hear people call it the second bite of the apple. Roll-up would be rolling up multiple small practices. Companies of scale would be those operational efficiencies and contract negotiations. Then the fund cycle is interesting to consider. I think you were mentioning this earlier, a minute ago. These funds are typically 10 to 15-year funds, and then they're going to give their investors their money back. If you enter at the end of a fund, there's going to be a lot more urgency for them to sell you quickly, so it's important to understand where you are in that fund cycle. Next up, we have Dr. Ward. Thank you, Kathleen. There may be some similarities to both of our talks, since I'm going to go over some of the basics at the beginning. My name is Abner Ward. I'm from North Central California, the Merced and Modesto area. I have no conflicts of interest to report. Current trends in orthopedics, we have a large number of people that are leaving private practice. These are old numbers from a study from AOS now, that 48% of orthopedic surgeons are in private practice, but after COVID, I've heard the numbers have dropped, so I'm still waiting for the official numbers. Approximately 12% are in solo practice, 36% are in some type of group, so I'm in a private practice, and I'm very concerned about how things are changing. Surgeons are experiencing increasingly negative income pressures because of third-party reimbursements, and then COVID has nothing but exasperated this, and government regulatory mandates are nothing but worrisome and hurting more. So obviously, the things that Kathleen mentioned, growth, security, desire to scale, are leading to this consolidation across the country, especially in markets like North Carolina, Georgia, the Southeast. Where I'm at in California, hospitals can't actually purchase physician groups, and physician groups can't be owned by the hospital, so it's kept the consolidation that's going on in other states from hitting us quite as hard. So the Affordable Care Act favors large hospital-based systems, once again, talking about other states. Practices are looking for more and increasingly innovative revenue streams and ways to expand, but without the loss of autonomy, as Kathleen mentioned. Practices have to ask, what are consolidation goals? What are the strategies they want to go forth with? And geographical limitations. If you're in California, can you expand in Nevada? Can you expand in Oregon? Can you expand in Washington? Not everybody's a Kaiser. So some of the private equity mergers and acquisitions that were just mentioned also, anesthesia is big, emergency medicine, dermatology, gastroenterology, but I'd also like to mention dentistry, oral surgery. The private equity in orthopedics really started around 2017, continued to go up, had a little blip around 2020. Basically PE brings capital and business acumen into practices that potentially didn't have that before or didn't know how to maximize their environment. So these are things just about the management service organization. They own the non-clinical assets of the practice. MSO is owned by the PE group, and you partner with them to provide the services. The percentage ownership can vary based on the MSO, depending on what you work out. So EBITDA, this is the actual calculation. So for earnings before interest, tax depreciation. So basically think of it as revenue versus cost. Revenue minus cost, and that's how you get your EBITDA. There's obviously operating expenses, salaries, rent, amortization. So the group maintains branding, essentially what it is except for billing collections. The revenue cycle management, that's what the PE firm and the MSO is taking over. Valuation is before the EBITDA, and they use the multiple, as mentioned. So they develop a valuation. You get a certain buyout amount, 15 to 40 percent of the practice valuation, and usually that number is more like 25 to 30 percent, and of that amount that you get, it's in cash and in the MSO. So they want you to have some skin in the game still. So they don't want you just to take the money and potentially run. They want you to still be invested in this MSO and for it to succeed before you have the second, third bites, which we'll talk about also. And the scrape is a big thing because you're foregoing 30 percent of your future income and in perpetuity. So it's not going to stop, and that's a big concern when you're a younger physician, but if you're in the process of retirement, it doesn't matter because you're probably also scaling back. And then one of the big things is if you do take that buyout, it's at capital gains rates as opposed to ordinary income. So you're looking at a 20 percent tax rate versus potentially your higher income tax rate, and in California it could be over 50 percent. So the big concerns, which were also touched on, is the loss of the autonomy and control in your practice, the income reduction, and then the changes in ownership. And obviously when you're creating one of these deals, you need to maintain some type of control, and that's what I'll mention also about a board of directors spot where you can actually be at the table when they're negotiating and making the next decisions. Cost-cutting maneuvers, what they're going to do, how are they going to squeeze the stone for added money. If you've been running an efficient practice, how can they cut it? Is it in benefits? Is it in salary to employees? Are they not going to bring in more people? You have to look at what happens after you've been acquired, are you going to be a bonus versus salary model? And then they're probably going to sell around five years to another P&ED, and that's going to be their second bite, which was talked about. So what's going to happen then? So talking about my practice, started in 2017. So we're not exactly an old practice by any means, but we have a pretty large market share, which is bigger than the Bay Area. So we have five offices, eight physicians, pre-diversified payer mix, and minimal competition. So we're in orthopedics and general surgery, and we're bringing primary care on right now. So this is the heart of the matter, why this P&ED could be attractive to us as we're looking at it, and it's access to capital at a cheaper rate to increase the growth in the area. So instead of going to the bank for money, you know, P&ED can negotiate a better rate on that money or what we're going to get. Depend where you're at, propelling growth in numbers of certain staff and locations, so especially if you're like in Atlanta area and there's a mega group of 100 providers, how you're going to compete with that, how you're going to take over other locations. Where I'm at is a little bit more geographically separated, so it's not as easy to take over multiple other practices. You can use the money from P&ED to add ancillary service lines, orthopedic urgent care, ASCs, along that lines, PTOT, depending. And then depending where the group is at, gaining management experience. So what they may know is a New York private equity group might be different than what somebody knows in Louisville, Kentucky, or X, Y, and Z. They may be a little sharper on different things, and that could add some added impetus to the practice. And then the big thing is also if you're going to actually get a partner, and that's one of the things that was mentioned, some PE groups are better than others, and some are more vested and more interested in long-term growth, and if you have a similar partner type as opposed to someone just looking for getting out as soon as possible, just recouping whatever money they made, that's going to be a different situation. And as was alluded, one of the people on that hand, P, had a particularly bad experience with P, but then some other people have had good experiences. So that's what I'm trying to talk about is developing a partner. So you're trying to, what you're also looking at is mentioning leveraging size. Now if you're like LT's group and you have hundreds of some doctors, you already had great contracts. So, but if you're a smaller group or a mid-sized group, you're trying to get those better contract rates and you're trying to have more leverage when you're doing your contracts and negotiating the future and getting your GPO rates, getting rates at like the hospital. So other things that they may bring some experience or management expertise is as they improve, as the regulatory environment changes with MIPS accounting, value-based care, which is also known as time-driven activity-based costing. That's actually the new term for it for like spine, hip and knee. And then patient report outcome measures, that's becoming another big measure. And that's like the DASH score or the UCLA score. Those are now being implemented. They're going from research methodology to being used in clinical environments and the government's looking at that and reimbursing based on PROMs. So, and that's very subjective because how a patient feels about their experience. If they don't feel that you've done a great job, you might not get it potentially as high a score and that could have negative repercussions for the practice and how you deal with it. Same thing like Google ads or similar. So, and then there's a big advantage of taxation at the lower capital gains rate over your ordinary income. So like if you're getting taxed on that one-time buyout of 20% versus you've been practicing and like I said, in the California area, you're getting taxed close to 50% and you're gonna take that large sum of money you could save in the longterm, just depending how it works out. The other concern is why you may wanna take the money up front is if a single payer health system ever was adopted and then that would drastically reduce our incomes. So, if you're going from making 3X to 1X and that's in the longterm, it might be better to take the money out when you're making 3X. So, ways that we've been working to foster a PE deal is we're developing ambulatory surgery center right now, incorporating PTOT, bringing in orthopedic urgent care to our practice. We're looking at different ways to improve our business efficiency models. So, I work with many of the classmates I had from business school and I'll actually ask them to review my practice and what they may think is more beneficial, especially ones in healthcare. Ways to increase our EBITDA is increasing the revenue and decreasing expenses. If you can, even with this time of hyperinflation. So, that's become more challenging. Everything across the board is becoming more and more expensive. The other things you can do is, we're looking at is engage a consultant or an investment banker. So, not only just one, but potentially both to evaluate the company before you even go to private equity and seeing what our value is because they may say our value is 2X, but we want 5X and you need something that's objective to back you up when you're trying to say we're worth X, Y, and Z. So, the consultant would come up with a quality of earnings report that we would look at and then different ways to increase our EBITDA. So, where are we at right now? We have been contacted by various PE companies. Some actually worked with me at UCLA in the past. So, we're fostering organic growth. So, we don't necessarily need that huge cash infusion. We're able to do everything organically and in-house. So, we're implementing the PROMS as a marketing measure to verify the quality we provide. So, we have that objective data when we do go to PE down the road. The autonomy is a big concern. And like I said, some groups are better than others, but we don't want to end up in a situation where we're a widget and in a HMO type employed model where we don't have control of what we may want to use or not, or the staffing. So, ways to negate that would be a spot on the board of directors, as was mentioned. So, also weighing the benefit of the capital gains, which is huge. So, also the concern is the culture, pretty easygoing culture, work pretty hard. And if that was to change, it would be more difficult to retain staff, retain other doctors, and also recruit potentially in the future. Our age, I'm in my mid-40s. So, if I have a long-term period where I'm taking 25 to 30% off my income, that would be more of a concern than if I was nearing retirement. So, we have a younger mix, and that may be a little bit more difficult or more harder to sell and swallow. So, and then also the questions would be, what's gonna happen at the second, third bite? If the first bite is great, but then the second bite is a rotten apple, how do you go from there? And then where we've actually come to full circle is to potentially create our own MSO or use an existing one out of Southern California. So, instead of using the PE's MSO, we just make our own, and then we take over other practices. Thank you. And then, I think Dr. Donovan, you're up next. I'm gonna talk about why your group decided to go away from private equity. So, basically, just sitting here, it reminded me of two things. How many here are orthopedic surgeons? Metal on metal hips, right? Sounds great, it's the best thing in the world. Next thing is timeshares. Second bite, third bite, you get that timeshare thing. You see those commercials, why help you get out of timeshares? Forever, you get paid for that stuff forever. That's great, that's gonna kill you. I never really thought about that much. So, anyway, let me just give you an idea of our background. So, I'm from St. Paul, Minnesota, and we really started this in 2017 is when we looked at this. And Kathleen kind of breezed over this, saying it's expensive. We spent over half a million dollars looking at this, so it ain't cheap, all right? So, first off, our group, we have 60 physicians, 30 of which are partners or shareholders. We got 40 surgeons. We have five service centers. Three of these own outright. One, we have a co-management, 80-20 percentage of us, and a new one we took on just recently, co-management is a minority partner, but that's gonna continue to increase as we manage it. We did 7,000 procedures, 950 employees. Our revenue is $200 million, our EBITDA in 2017 was 50 million. Well, that's pretty good. We got EBITDA, that's a new thing. It's like, how much do you bench press? Oh, what's your EBITDA? What's your EBITDA, you know? Anyway, so as Abner talked about, say no to private equity, this is the battle of the ages. In our group, you got a third or close to retirement, B, January 1, right? One third mid-career, one third early career. Well, when you see those numbers, okay, we talk about how much you might get. For us old folks, man, that looks pretty darn good. Well, what we'd have to do is we'd have a two-thirds majority in order to approve this type of plan, which would be almost impossible given our age discrepancies. And again, back in 2017, this was relatively new for orthopedics, and we talked about this minority sale, majority sale, you know, the more percentage you give up, the higher the interest is in the PE world. Also, the higher percentage you give up, the higher the rate's gonna be gonna get back. And at that time, the multiplier was 10 to 12, right? So take that into consideration. A 10X multiplier, 50 million EBITDA, that's $500 million. That's like nine or $10 million per partner. That sounds pretty darn good, okay? So the big thing, as we talked about now, it really comes into play when you see this thing we call the scrape, is, okay, you may partner with a great group for the first bite, but you have no control over the second bite, third bite, fourth bite, fifth bite. And also, as other presenters said, one of the problems we saw was, how are we gonna get new partners to come in, you know? It's kind of an unknown world, and you're giving up that share of your income, and yeah, as Admiral pointed out, it's taxed at capital gains, and your whole goal is, okay, I'm gonna take that money now, I'm gonna put it in some sort of investment, and I'm gonna have to make up that 30% that I give up every year has to come out of that. And so you have to do the calculation to really see, is that feasible or not, okay? Our younger surgeons felt like, you know what, hey, we can make as much money as it is, because we are in a rapid expansion phase, you know? We just wanna keep things the way it is. And they say, yeah, we're gonna maintain total control. Well, okay, yeah, well, the government, the hospitals, everything else, you won't have total control, but at least your day-to-day practices, you can control that. One of the things that came up with dermatology especially is the PEs were really trying to ratchet up how many procedures they would do, in-house referrals, selling products, you know? And they was kind of like working for a company again, and so they would put a lot of pressure on you to try and generate revenue, whereas if it's your own company, you eat what you kill, all right? The big thing that we talked about is this reduction in income. Well, that's okay in the beginning stage. Imagine what it was like during COVID when all of a sudden everything dropped, and now you've already got this other 20 or 30% drop in your income. That was a big deal at that time. A couple of resources you're gonna look at. Go to the AOS website, and under Practice Management, do a search for private equity. They've got two or three AOS Now articles that are very good, that explain kind of how the private equity purchase or process works, you know? And so as we talked about, and some groups are larger that have the ability to expand, some groups are smaller and don't, so they're trying to use this money to expand their practice. The way we looked at it is the old guys, hey, that's my retirement fund. I want that money now, whereas if you're an expanding group like Abner, say, you know what? Use that money to increase. I want to go out and build an ASC. When it costs you more than $400 a square foot to build an ASC, you know, you can use that money to leverage that. Also, if you want to buy another practice, that was another thing you could do, is use that and be your own PE firm, so to speak, and go out and buy a practice to bring in so that you can increase your revenue. Ultimately, the goal is be more efficient, you know? Whether you do it yourself, and sometimes you do what's called recapitalization, where you can be your own PE firm, you know, just go out and get a loan, you know, recapitalize everything you have, keep getting your money, keep trying to expand, but you have to look at what are your goals, and the questions that are asked, I usually say, okay, are you as busy as you want to be? And really, I always tell people, you know, that's a good question, but the better question is, are you as busy as you want to be? You know, it's like with orthopedic surgeon, I want every person walking in the door needing a surgery, not that I want to see a thousand patients a day, but I want every single patient to need a surgery, so when you look at your practice, do I need to expand, do I need that money, and what are you gonna use it for? So just be careful, like I said, we spent over half a million dollars studying this, and initially, I was in the boat, hey, I want the money now. Now, after looking at all this, we made the right decision for our group. All right, great, thank you. Thank you. Thank you. I'm gonna go through the converse, and say why we, after spending our half a million dollars, decided to go ahead and go with our private equity partner. Our practice, I'm at the Andrews Sports Medicine Group in Birmingham, Alabama. We are a single specialty orthopedic private practice with a heavy sports focus. We do have a PSA with our hospital, but are essentially eat what you kill. We have 14 orthopedic surgeons, about half of whom are sports. We also have nine non-operative sports medicine physicians. We have five locations around Birmingham. We have a significant regional market share, which we feel good about, and then we also have an academic arm, which is where we run our fellowships through. As Dr. Ward mentioned, we had some concerns about the future and going forward, and the picture of healthcare in the country in the next five to 10 years. Reimbursements are definitely not going to increase, or certainly not with the inflation, or not to keep pace with inflation, so reimbursements are going down. And then there's increased requirements on practice. I think as Dr. Ward also mentioned, increased outcomes reporting and regulatory compliance issues. Although we have a significant market share, we're not huge, we're 14 surgeons. We don't have a lot of contract negotiating power because of that, and we don't have a lot of contract negotiating power with our insurance companies. Our health insurance is very expensive. We have about 100 employees, but it's not a huge amount, and our costs are going up in that area as well. We also need to grow our ancillary stream, so we have traditionally not had a lot of ancillaries, which we would like to change in the next five years. So we considered a couple different options. We considered continuing as we were, as Dr. Donovan's group did. That was certainly a consideration. We considered consolidating with some other groups in our state under a single tax ID, and there's some models to do that. That typically costs money, right? So you're paying for that service, essentially, and you hope that you recoup it with these economies of scale, but that's something you're not getting money up front for. We considered partnering with our hospital. We did not consider that all that seriously because we thought that would be the biggest loss of autonomy and loss of our brand that we could have, so we kind of put that to the wayside fairly early, and then we considered private equity. Private equity partnership made some sense for a lot of these concerns, right? So it's not going to change decreasing reimbursement, but again, as Dr. Ward mentioned, you get some of that money up front and it's based on your current reimbursement rates, right? So really, you should end up on the positive side of that deal if you're getting money up front. In terms of increasing requirements, private equity allows you to centralize a lot of that, right? You could also do that in a consolidation deal, but anytime you centralize with more practices, you can run billing, you can run outcomes reporting, and you can run those kind of things through a more central database or fewer staff, and that's always helpful. Private equity consolidation, again, as non-private equity consolidation would do, would increase your negotiating power with both insurance companies, insurance contracts, benefits, and purchasing. And then, of course, in terms of growing ancillary, as we said, it really brings a lot of serious capital to your project should you need it. I mentioned our concern about the uncertainty of healthcare in the next five to 10 years. As I mentioned, there's still a lot of uncertainty about private equity in the next five to 10 years, right? So I think there's really uncertainty either direction, but at least with a private equity deal, you're getting money up front, right? So it's uncertain, but at least you have that chunk of cash that you have protected and you can let grow for you. This was an interesting article that Chuck Goldfarb sent me last week. It is the best sort of objective scientific paper that I've seen about private equity, and they looked at 578 practices that were acquired by private equity between 2016 and 2020. These were not orthopedic practices, so maybe there won't be complete application, but dermatology, GI, and ophthalmology. They compared them to a lot of matched controls, about five matched controls per practice. They held constant the physicians at each practice before and after acquisitions, so the differences that they saw were not based on new physician recruitment. They saw that after private equity acquisition, the allowed amount per claim went up pretty significantly. I think this is a percentage actually on the left, so it went up by about 50% over time. So per patient encounter, these groups were getting paid more. Now, whether that's because they're being forced to do more procedures in office, right, or sell more product, or is that because of better billing, more aggressive billing, better insurance contracts, or a combination of all of those, right? This paper doesn't flush out the reasons for these changes, but these companies were getting paid more per patient encounter. They were also seeing more patients, right? So both more new patients and more unique patient encounters. And again, whether that's because they expanded hours, they made doctors work longer, they made them see more patients, or whether it's because of better referral networks and better marketing, or again, some combination of all of those, we don't know, but people were getting paid more per patient and seeing more patients. So this may be objective evidence that PE is going to make your practice more efficient, right, I mean, that would be the goal. We would hope that a PE partnership could make you efficient enough that you then recoup your 30% scrape, right? That would be great. And so maybe it does work that way. And we hope that we see some of these efficiencies and some of these improvements as part of our partnership. The other thing we thought is it's really now or never. So, PE is very hot in orthopedics right now. The deals are not going to get better. These multiples are not going to go up, right? They're going to go down. And the earlier you get in on a PE company when the stock price is low, the better your second bite is going to be, right? So, there's a lot of advantages of doing, if you're going to do it, do it as soon as you can. So, we felt like it was really now or never. It was either we took this deal or we didn't. We were also able to do some favorable negotiations, right? We were able to negotiate a lot of control over our day-to-day operations. We have a seat on the board of the MSO, which was important to us. We maintain the ability to hire and fire physicians. So, the PE company cannot do that in our practice, which was very important to us. And we're able to develop future ancillaries either with or without our PE company. So, it allowed us to sort of see how our partnership was going and if we wanted to continue that partnership with some of our ancillary projects. And then we got good multiples and good scrape numbers and those kind of things. So, I guess we all have our price ultimately. And next, we're going to have Dr. Viola talk to us about what it's been like in the last couple years. Good morning. Let's see here. Actually, we had some trouble loading this yesterday. There we go. Okay, thanks. So, I practice in a multi-specialty orthopedic group in Colorado and I was absolutely 100% dead set against this. I've been in practice 23 years now. So, at 20 years, this came along and I was 100% dead set against it. And so, I really had to dive in to understand it. But, you know, in looking at it, I think one thing that swayed me was the tax advantages. You know, as we all pay 50% to Washington or Washington and our state combined, we pay as orthopedists at least 50% or close to right around 50% just to keep the numbers round. If someone is paying you up front and you're getting your income at long-term capital gains, you're now paying 30%. So, in the case of LT's group, in his next 10 years, their group is going to have an EBIT of or they're going to have an EBIT of $500 million over 10 years. Instead of paying $250 million in taxes, you're paying more like $100 million less. And so, in my mind, this is a tax strategy more than anything else. So, after the deal, three years in, I've got a pretty good feel of what it's going to be like to work for private equity. And it's just a different animal. It's a different strategy for income. When I travel around the world quite a bit with the U.S. Ski Team, I found the most influential thing I could take is a good old U.S. dollar, U.S. $100 bill. There's my Portland. One day, it vanished. I was getting ready to go to China, and there's my puppy. I couldn't figure out where the money went. And that's the most important thing in these deals. When you sign up for these deals, you have to understand where the money is going to go. You have to spend a tremendous amount of time understanding that, or, more importantly, delegate it to someone who is going to understand it, and then spend days of your life understanding the deal. Because, as Kathleen pointed out, you can negotiate. This is all variable. You can negotiate anything you want. You can negotiate, for example, you can negotiate veto power for the second transaction. Everything is negotiable. So, what I did is I took a slide show, a presentation from my CEO, who's a very savvy, good savvy, business savvy CEO, and he put together a list of the most important thing, put together a list of the 10 most important things you want to consider when doing a P.E. deal. And now that we're three years after, I'm going to look at the backside of that. I only have my slide showed up here. But, basically, a P.E., a medical practice will do one to two P.E. transactions in its life. You know, these P.E. firms, that's all they do. They crunch numbers. They figure out how to make money. And so, if you're going to do this, you hire a team to do it. There are teams out there. They do a phenomenal job. They'll represent your interest. And so, after the transaction, you want to maintain a relationship with that law firm and those financial professionals, because it's going to come at you again. Once you're in this, you're not going to get out. It's a shift, and you're in it forever. I haven't heard of any practices actually leaving private equity firms. Before you go in, make sure you don't have any lawsuits. Make sure that the house is clean. Make sure there are no sexual harassment claims. When the private equity firm comes in, they're going to know more about your practice than you do. And so you want to make sure that everything's tight and cleaned up. And that goes after the fact. Department of Justice comes in to look at your billing. Somebody has a lawsuit. If there are any problems in the practice, that is going to have a tremendous effect on the second transaction. So you need to police your practice. You need to maintain your contracts and maintain compliance. But on the other side of this, your private equity partner has more interest in that than you do. We all practice. And we all see things, whether it's building or coding or inappropriate language in the workplace. All these little things can get you in a lot of trouble. Now, when you're working for private equity, the stakes are even higher. So your private equity firm and your management will make sure that everyone is squeaky clean, which is a good thing. So develop a credible strategic growth plan so private equity firms understand plans to grow footprint, revenue, and profitability. So your PE fund, they want to make money. And so do you. But you want to maintain regular meetings with them. When we started, our private equity partner was somewhat out there. And we didn't see from them. We didn't really hear from them, which is kind of nice. But at the same time, when there are opportunities to come along, they have ideas to create revenue streams. You have ideas. And you need to sit down at the table with them once a quarter, at least a couple of times a year, and maintain that relationship. You know, I think the most important thing that I've learned from this process is everything's negotiable. And these private equity firms are not all alike. They are radically different. You've got micromanagers. You've got other people that are hands off. So when you're going through this process, you want to talk to a lot of toads. But after you make this jump and you're into the process, you realize that you've got another process coming along. And you've got to, how do you want to put this? You've got control over who is your next owner. And so you've got to do this again in three to five years. Practice independence. This is what everybody worries about. Are they going to tell me I can only have one PA? Are they going to tell me that I have to be there at 8 and go home at 6? No, that's not how this works. You can negotiate that and negotiate how much or how little control that you want to give up or maintain. And so you've got to do this again in three to five years. And I think this is critical. You've got firms that want to nanomanage your practice. And that's just incredibly disruptive. You want to avoid that. You've got to do your due diligence, like hire a new partner. You've got to call around, call the docs that work for the private equity firm, find out what their strategy is, understand how they're going to manage you. I think most investing, most financial people are fans of Warren Buffett. And like he says, you purchase a good asset, you sit back, and you look at it every quarter. And it goes up and it goes down. But your best management strategy is patience. And you've got to engage the private equity firm that's going to let you do what you do. IP. These firms all want to, they all want the IP. If you develop a product, they want some chunk of that. If you can carve it out, that's in your best interest. And that goes for everything else. Ancillaries, surgical center shares, everything you do is negotiable. And then when you're looking at that second transaction, you can make changes in all this. So our thought was, don't give up everything first time around, because there may be something that the second, maybe something you can give up in the second transaction to make it more attractive. And this is the other part. The PE is going to come, the firm is going to come in, and they're going to assume they get everything. They get 50% or 30% of the surgical center, the practice, the ancillaries. You have to be very clear up front. This is what's for sale. It's kind of like real estate. If you're selling a development, you don't sell your best lots first, you sell your best lots last. So as you are negotiating through this process, you're going to have to make sure that you're So as you are negotiating through this process, ancillaries are something you may want to give up 50%. You can negotiate through it. But again, it's all negotiable. Productivity guarantees. I think that's an enormous red flag. If you have a productivity guarantee, the great example is COVID, and we can talk about that again. But if there were productivity guarantees in these contracts, we'd all been crushed during COVID. But you want to just say no to productivity guarantees right up front. Don't even entertain it. During the contracting process, consider the big picture environmental circumstances alongside the details. Again, productivity guarantees, what they call clawbacks. They're just an insurance mechanism for the private equity group. Just don't even entertain it. I guess the way our CEO put it is, prepare for the worst, hope for the best. So each physician needs a thoughtful analysis from longstanding partners, newly hired employee physicians. And again, I think LT put this really well. This is a whole different animal. If you're new in practice, if you're in the mid portion of your practice, and if you're end of your practice. I was 23 years in. I'm on the backside of that curve. So it's more favorable for people who are later in their careers. It is tough. It is a tough process to sit down with everybody and make this appealing. But it can be done. The second bullet point I have there is partners versus employee physicians can be a challenge. And I don't have an answer for that. I think the one really important take home, though, is that every physician going into this should have a prepared financial statement to look at how it's going to affect them short term and long term. However, once you make this transition and you're in the private equity world, you realize the only thing that really matters in terms of finances is EBITDA. Because you're going to be able to make because you're going to get paid on the EBITDA of the practice. Yes, you're doing procedures. You're taking home income. But the EBITDA of the practice is what matters, because a large proportion of your income is going to come from these transactions. And I think the whole panel here has really beaten this home. The most important part is choose the right partner. And again, you can negotiate whatever you wish. So when you choose a PE firm, choose the right partner for your medical practice. The group must be aligned with your priorities and interests. It's the medical practice's responsibility to do due diligence and thoroughly investigate other practices that have done deals with the firm. You want to understand who you're signing up with. Well, price is important in the future of your practice on the line. It can't be the only factor you consider. Everyone, having gone through this process, everyone just looks at that number, the multiple, how much money you're going to get. But I would strongly encourage you to look at the other factors. Maintaining control, how much they get of the ancillaries. And is this just a good partner? Is this a good fit? Is this someone who's going to come in, do my contracting, help me, help build the practice, protect my interests? Or is this someone who's just going to write me a check and then try to squeeze as much money out of this as we can? And you're going to meet all sorts of people when you go through this process. So really, we'll get to the most important aspects, which are, I've done this for three years, what's changed? Incomes less. I first remember, we did this and then everybody starts getting their first paychecks. In the first few months, everyone's like, oh my god, I'm not, where's all my money gone? And just reminds me of a Will Ferrell movie where he just, I forget which silly movie it was, but he just says, math is so hard. Well, you signed up for 50%, so you're going to take a 50% pay cut. And now you're getting after-tax dollars, so what you really get is 25%. Everyone's flabbergasted. Well, you knew that beforehand. But you're getting after-tax dollars. You're an employee now, so you're going to see about 25% of your paycheck, what you're accustomed to seeing. The other thing I alluded to earlier is that processes are really closely scrutinized. If someone makes a silly comment in the OR about someone's legs or some other anatomy, sorry, but this just doesn't work in this world anymore. And you're putting you and your partners in your group at risk because we're all a team now. And so it has become more corporate. But I think that's a good thing. Patient satisfaction has also surprisingly gone up. I thought it would go down. But it's gone up. And one reason for that is physician waiting lists have been eliminated. I was the only hand guy in bail for a long, long time. And I had this big backlog. And I could come and go. And there were always patients there. Well, now when you work in the corporate America, if someone calls up and they need a carpal tunnel release and they've got to wait four months, that's not going to happen. They're going to go somewhere else. They'll drive down to Denver or see someone else. So now when you call our office, you're going to see a physician. You're going to see him soon. And if you really want to wait for one of my partners to do something, you want a specific doc, yeah, you can wait. But we have processes, systems and processes in place now where you call our office. You're going to see somebody. You're going to see him soon. They're going to call you back. There's going to be direct interaction. Somebody's going to send you an email. You're going to get information. And you're treated. There's a customer service element that we've never had. And that has been basically put on us by our private equity partner. And so we're seeing many, many more patients. And as Kathleen alluded to, I haven't even talked about collection and billing, but they've taken a corporate approach to that. So that is, as a hand guy, I don't bill what they bill for a hip scope or a shoulder scope. But everyone has seen a very significant bump in reimbursement. I'm doing the same work. I'm just getting paid more for it. It's kind of nice. So waiting lists are gone. You call our office, you're going to get service. The other thing that I've realized is the majority of the income is going to come from private equity transactions, which occur every three to five years. And this becomes the little kid in the back seat. Are we there yet? Are we there yet? When are we going to do this transaction? Are we there yet? So someone makes mention. Someone stops in the hallway and hears mention that our group has engaged a bank. When's it going to happen? And so there's that phenomenon of, when are you going to sell? When are you going to get your next big paycheck? And that is very frustrating to me, because investing and financial matters are time versus pressure. It's just patience. And so you really don't know when that's going to happen. It depends on market conditions, which I bumped into a few people in the hall yesterday. They said, oh, it's terrible. You're never going to be able to sell. Well, I'm not sure we are. Because if you look at the rest of the world, it's a mess. But health care just kind of keeps churning along. US-based, fairly stable. Physician groups may be attractive to private equity right now. But there is this phenomenon as when you're going to get your next check. And lastly, I think over the last, it's taken a couple of years to get there. But people have realized that their practices are less important than the practice as a whole. Because again, if your practice is X and you're making X dollars per year when these transactions occur, you're going to see 3X. So your income stream is altered. And just to get back to that $500 million that LT's practice is going to make, you're going to just give away $250 million of that to private practice. Or you can give, or if it's paid in long-term gains. And the math isn't quite this simple. But if you're paid in long-term gains, you're going to give them $150 million. So it's only, for this practice, $100 million you're giving up. But I understand also why they don't raise it, why they didn't do it. But it also, at a certain point, it does bring the practice together a little bit. We're all extremely competitive. We're all type A. We're all interested in our practice. We all have patients that come in and tell us how great we are. But at the end of the day, once you're in a private equity situation, if you're with the right partner, it's the practice success that drives income, not the individual success. So when this first came up, my response was not no. It was bleep, bleep, bleep, bleep, bleep, no. And now that we're three years in, it's actually working pretty well. But I think the key for us was we spent over a million managing this process. We're able to negotiate things like being able to choose who our subsequent transaction partners are. I won't go into the details of that. But if you do do this, the key is getting in with the right group, getting the right terms, and really understanding it. And so it really hasn't changed my practice a whole lot. And in fact, it's been favorable. But it is a completely different animal than being in private practice. So I'll stop there. Thank you. Or even the employed physicians who are about to be partner, but they're not going to be partner when the deal goes. Right. So what we did in our group, we did two things. So for the first issue for our younger guys, we actually negotiated where we proforma'd them. So we proforma'd where they would be in three to five years based on other physicians who did similar procedures. And then we paid their upfront bite based on their proforma. Now their scrape is also based on their proforma, right. So their scrape's a little higher than 30% right now. But the idea would be that they are not getting a really small buyout. So we tried to compensate a little bit for that. Oh, I'm sorry. So we looked at where their practice would be in three to five years or estimated it, right. So we did a proforma estimate of what their practice would look like in three to five years and what their income would look like in three to five years. And then based their payout on that income rather than their current income. So we allowed for some practice growth and calculated practice growth in there. Essentially, yeah. We did a multiple based on a proforma of like, okay, your practice in five years, you should be making this much. We'll pay you your buyout based on that number rather than the number you're making second year of practice. And so that I think helped them feel like it was a little bit more equitable. And then in terms of recruiting new physicians, we have saved some of our stock equity for our new physician hires. So then when they come in and they become partners, we will give them some of that stock equity. So at least they'll benefit from the second bite. And then our hope would be as we grow our ancillary streams that some of that passive income will make up for the scrape going forward for further hires. We'll see how that works out. I don't know if you guys had any other. Well, I think there's one comment in that. That is, you know, when you add a new partner, if you can find a hardworking partner, that adds EBITDA. And so you can structure with, as Kathleen said, you can structure it any way you want. And, you know, so at first we thought it was going to be very difficult to get new partners. But you leave it to the PE firm to work with the individual. And it can be structured lots of different ways to make it very easy. Well, you can give them surgical center shares, you can give them ancillaries, you can give them, you know, at five years, you can give them, you know, X percentage ownership in the company, so many different shares. But they don't participate in the PE part of things until I become a partner. Correct. So basically when they come on board, you're still going to pay them like they're like a new person coming in, you give them a salary, maybe productivity bonus, you know, that they're basically considered an employee. They really don't have any factor to do in the PE part of things other than increasing your EBITDA because you're going to be busy. Then once it's time to become partner, now you have to address, okay, how does that come into play in the PE part? And so that's that far. That was one concern we had is how to attract new partners. You have to remember, first off, this is all new, right? If you're coming in and you're trying, it's like when we, the buy-in in our group was so expensive that we tried to show them, here's how we're going to structure this for you. You know, you come in and tell someone, it's only going to cost you $1.6 million to become a partner. They're going, holy, you know? So you have to show them, this is how it works, this is going to be to your advantage. Same way with PE. PE is just brand new for all of us, you know? And now you start to hear Randy talk about this, and you know, that sounds pretty good, you know? Again, it's all about the right partner who you're going to get to do it. I'm a little confused in, our world is the, one of the most regulated things in the world. Why is this, like where's the money coming from? Why is this attractive? And then, okay, you answer that question, if it's a good thing, why are they selling out of five years? Why not keep the investment? That's the way PE works. Yeah, that's the whole point. That's their goal. Because they have a timeline of their fund. Right. They've got to go on to the next thing. Exactly. So if someone said, I'm going to make 15% a year, I'll take that for the rest of my life. Well, the private equity investors actually want their money back also from that purchase. Okay. So they're recouping their money also with interest. Now it may be that the- And I wait 20 years. Sorry. They also may have financial responsibilities. For example, I don't know, if they're a pension fund, they're paying money back. Right. So you can't just, you know, it's not like, I don't know, owning, you know, it's not like your personal finances where you just accumulate wealth and collect rent. Right. They have obligations they need to meet. And timelines. And to have timelines. So their goal is to, they have to, they have payouts, they have to- And it may be that at the end of all this, we're all owned by Optum, who doesn't want to manage it, right? I mean, we don't know. That may be the end point of all this. And this is the first time I heard the word scrape. It appears to me that's just, we're going to say, this is our guarantee. We're taking 30%, like that's where we're starting. That's the timeshare part. Yeah. And it's failed. You guys chose 50%. Wow. It's, I'm not sure what the exact percentage is, but somewhere between 40 and 50%. But again, everything's negotiable. Is that how you guys look at the scrape, or just like right off the top, boom? Well, it's, you're looking at the scrape, but remember, you got that money up front. You know, you got a multiple of- But that's how they manage their risk, with a scrape. And their gamble is that your income will go up, right? So that they will get, when they take 30% of a higher income, they're actually getting more than they- That comes back to one, he kind of, Randy kind of talked about, and I tell my partners, I'm just a poor old country boy. I don't quite understand all this stuff. But the two things you might expand on are productivity guarantees and the clawback. In other words, if you don't meet your productivity, you know, then they come back and get the money back from you, right? We, there, you can negotiate that. You don't have to- I mean, that's what they're- That's what some places are talking about, though, in the contracts. If you don't, if you don't meet your guarantee, in other words, you have to produce X number of dollars per month, quarter, year, whatever it is, and if you don't, if you don't meet that, then they come back and get money back from you. Right. The other part that is kind of astounding to see, I think both of you guys talked about that wherever you are before PE, your contract numbers and what you made with the same number of IRBUs all went up significantly, not a little bit, but a lot, right? You said- It went up significantly. I can't give you an exact number. Can you explain why, again? I think, you know, when I started at our clinic, we were four guys, and it was, there was someone down the hall that just did building and collections, and there she was on her phone. And now, we're working with a, 20 years later, we're working with a very sophisticated medical collections and billing company that is just managing claims much better. And these PE companies are going to go find those. They have the bandwidth to go find the best company to manage your billing and collection and making sure you're actually getting compensated. I mean, back in the day when I started, you know, say you did a skier's thumb and nobody paid for it. Well, they didn't return a couple phone calls on to the next. You just didn't get paid. And now, it's a very tightly well-run, well-oiled machine. Let me ask you one question here. Who here checks their billings themselves? In other words, you check from the billing department and say, did I get paid for this case? Did I get paid for this case? You know, our problem is we make too much money, ah, I don't care. That's not worth it. One of my partners is so anal, he's got a spreadsheet, and he goes back and looks at everything that he does. And every year, he collects an additional $30,000 to $40,000, not just in billings, but in collections. When he goes, hey, look, you guys didn't collect this. You didn't collect this. So, that's what he's talking about. You got someone who's a little more sophisticated who's going to check everything, you know, and make sure you get top dollar for a collection. Yeah, go ahead. Questions primarily for Dr. McKeon, Dr. Beal, or people that are in it. I mean this sort of as a yes or no question. Are you happy that you signed on for PE? And my secondary question is, are your younger, youngest partners happy that they signed in for PE? Yeah, we're about 10 months in. So, so far, yeah. I mean, I think no one's, it was a unanimous yes vote on ours. I don't know if we would have done it otherwise. And I think so far, fingers and toes crossed, it's been fine. We haven't noticed much difference day to day. You know, stay tuned in five years, I guess, but. Yeah, it really hasn't affected us a whole lot in terms of day to day operations and function. I think the senior, the people who are involved in the transaction, you know, people who were partners three years ago, they're happier than the younger partners. Because I think there's a, I wouldn't say the younger partners are dissatisfied. I think they just have a less clear understanding of how it's going to affect them in the future. And, but at the same time, they all, the senior partners are, you know, we got money up front. We're all taken care of. And for the junior partners, they still have a long career in front of them. And so there's this, how do you want to put this, there's a sort of subtle apprehension about who our next owner will be, who our next partner will be. Whereas right now, we have a partner who is fairly, is very supportive and fairly hands off. So there's just that, there's that unknown. But again, we're very lucky because we have control over, you know, we can say who our next partner is going to be. I've never heard that. The what? Oh yeah, so yeah, you can negotiate that. Everything's negotiable. And they spend a million dollars. It's, you know, you've got lawyers. And if you're going to do this, you've got to, it's a, it's a sophisticated. I can't think of, well, timeshare is the simplest. But it's a sophisticated, in my mind, it's a sophisticated strategy for mitigating tax risk. We all pay 50%. And Jeff Bezos is paying what, 8%? And Warren Buffett's paying 3%. We need a strategy. And that's, that's the thinking that brought me around to say if I can pay 30% of my income, if I can pay 30% on my income as opposed to 50%, well, I'll split that 20% with private equity. Because, and then you take your money and think about how much more. You're really making more than 10%. You're, you know, you're making, you're increasing your take home dollars by 20 to 30% if you do this. And then with the processes, if you're with the right partner, and they streamline your processes, they improve your practice, they improve your collection and billing, you've got increased money. The key is that contract that allows you to take some, some, some, take home some of those assets. Because your private equity partner is going to be more sophisticated than you and look to take home more than 50% of that piece of the pie. Does that make sense? Now, they, they give you all this money up front, right? So now, what you have to decide, and again, see, when you look at your group, you have to decide, what am I going to do with that money? You can look at it for short-term gains. I'm going to take that money now and keep it and help offset my 50% scrape. Or you can say, we're going to, we're going to take 30% of the money and we'll take the rest of the money and expand so we can increase our EBITDA so that down the road, delayed gratification, we get a bigger EBITDA, we get a bigger amount of money. We get three to five years down the road. But you have to realize, when you get this money, you, it's the, it's the advantage of time. You're going to take this money, you're going to invest it, and the money you invest, the money you get back from that, it's going to be taxed at a lower rate. So there's a lot of advantages to, to doing what Randy's talked about. And you just have to look at it. And like I say, we spent over half a million dollars, and we said no. And he spent a million bucks and said yes. So, you know, you have to really look at each, each person's a different animal. Each person's, you know, has different requirements, what their group requires, things like that. So it's just something that's new to us. But yes, you need to investigate it. And I'd recommend just always keep an open mind and talk to people. Like, I'd call Stedman up, clinic guys, and say, hey, what'd you guys do? How'd you do this? Because like he said, when we did it in 2017, that's for kind of the very first year, they're really looking at a lot of orthopedic groups, is that there was none of this talk about negotiating the production guarantee or a clawback. It was just one of those things that, this is the way it is, that if you don't meet your, if you don't meet your productivity level, then we're coming back to get some of that money back. I don't know that we're there yet because we're only 10 months in and we're still in the process of rolling up other practices in the state to then be able to go as a consolidated group to negotiate. So I don't think we've reached that point quite yet in our deal. I'm going to say I'm going to say that that's a sign if they provided significant support. I can't give you an exact number you know I can't say you know Blue Cross Blue Shield pays is X percent of Medicare. But from what I know that the numbers are significant but more importantly it's not my headache anymore and I know that they are going to do a better job than perhaps in what our in-house people would have done. I wanted to circle back to you back to the question about young partners of apprehension and I think that's probably the biggest concern that our group had is that sort of uncertainty of the future and I'm eight years into practice so we all practice another 20. So and I think what kind of got me around that headspace was there's a lot of uncertainty in five to 10 years with or without P. Right I mean there's a lot of changes going on right now. I said reimbursements are absolutely going down not up. So I think there's uncertainty either way and I think junior partners are right to be apprehensive about the future regardless and at least with a P.E. deal you've got that bird in the hand. The one thing we haven't talked about is the P.E. companies they're also taking some risk you know in Colorado for example there's a single payer proposal on the ballot and if that happens that will change if that happens to all of us that will change our reimbursement dramatically probably for the worst and almost certainly for the worst. And so you know there is some they are taking risk in doing these deals but at the same time we're pretty predictable we pretty much come to work day after day. They're not a whole lot of fluctuations. What's happening overseas doesn't affect us too much. We're fairly insulated from the economy and so it's a it's a while there is risk it's a very attractive business model for private equity firms. I heard recently that a private equity group bought a hospital orthopedic department is that a new target for these companies. What's so positive for the employed physicians heard anything I'm not sure what you're referring to most in most of the deals that I've looked at involve percentage ownership of surgical centers. Well basically you know it's more comment that they private equity firm bought an employee physician department from a big hospital. I guess you're going for everybody. Yeah I mean I think just like tenant or Ascension I mean those are you know there's no reason those couldn't be private equity based I guess I mean it just private equity is creative. I mean there's they're always looking for new things to do but I don't have any experience with that. Not really. So one thing we did negotiate was that our academic center in town is outside of our non-compete. So I guess, in theory, we could all go to the university for two years and then be out of our non-compete. Now, that would be unpleasant and messy, and no one would like that very much. But that was sort of our, like, OK, at least we would have an option. I think our non-compete is 50 miles, which is not awful, but again, would be unpleasant and messy to all have to practice 50 miles outside of Birmingham. So I mean, not really. And I think that was one of our issues, too, is that with the consolidation model, where we would pay to then be within a consolidation, there was sort of an official unwind where you could get out of that with sort of a formal mechanism, which there's not in this deal. Did you have to enroll three students? Did they know private equities well? I don't think so. Well, theirs is a little different. We are financially independent from the Pensacola group, so I don't know all the details of their deal. And do you know of an example of any orthopedic group that's gotten a second bite that's been decapitalized? Randy, do you know of any second bite? I thought that, because I knew your group had been talking about the second bite. Has there been a second bite in the orthopedic realm? I don't know. Sorry, I can't answer that question. I haven't heard anybody yet. Again, like I said, it's still a relatively new group. I think your group was the closest, I think, and then. We looked at it, and we were in a situation where we were adding a number of groups who were joining our PE fund. And so we decided to hold off, put it off a year or two. We meaning the PE company. That's where the are we there yet, are we there yet, are we there yet comes from. Because that is a situation where the PE, my understanding is the PE group is going to determine when that happens, when market conditions are favorable or when offers are, good offers are coming along. So yeah, I'm not aware of any companies done the second sale. You're not going to be consulting them not so long, are you? Because they're not going to be doing these sort of things. Well, and what would make sense to me is consolidation. You start looking at these groups. I actually spoke with one of the guys to help write the Obamacare bill not too long after it was written. And he said it was designed to push us all into an employed situation to contain costs. And so just like every little business, just like you don't have your mom and pop coffee shop anymore, you got Starbucks. So in my mind, there's going to be consolidation with these PE groups over the next three to five years. And if not with PE, then with hospitals or whatever else. We don't know that either, right? So I think there was some PE activity in the 90s in healthcare, and it sort of fizzled, and people just sort of got their practice back for pennies on the dollar. So I don't think anyone, that's sort of that, no one knows the sort of end point. Even if we underperform, they still make money. True. Just not as much. Because of that delta we talked about, because of that 20%. So, you know, say, say I do, you know, a hundred less cases than I'm supposed to do next year. They're still going to make money. They're just not as happy. That's Wall Street. You've got to, you know, promise low, deliver high. And so, but even if you, even if you promise low and deliver lower, they're still making money. And that's one thing that's very favorable about this model to them. Say they make 5%, you know, say they make 7% instead of 12%. I don't have any experience with that. I'm not aware of it. No. So we looked at this consolidation model, which is similar to what you're talking about, I think, although it's not publicly traded. It's essentially a management company that sort of manages consolidation and centralizes some of these efficiencies. But we're going to have to pay $10,000 per physician per year to be a part of that, where essentially with PE, we're getting those same benefits, but we got paid. So that was what I was talking about, where that was a formal unwind from that agreement. There would have been some advantages, then you're not owned by private equity, and depending on that value to you. It sounds somewhat similar to that. We'll probably have to wrap up here. Yep. Yes. Thank you guys so much. Thank you.

physicians

private equity partnerships

orthopedic industry

tax advantages

negotiation process

choosing the right partner

impact on physician income

long-term capital gains

financial management

ownership percentages

control over ancillaries

intellectual property