How Private Equity Is Transforming the Gastroenterology Job Market
Private equity firms have been investing in certain medical specialty groups for years, and have recently turned their interests to gastroenterology practices. Their aim is to streamline administration and support services for greater efficiency. The private equity (PE) model now provides a third practice option for gastroenterology (GI) physicians who have traditionally worked in either acute care hospitals or private practices.
“There has been a dramatic shift over the last five to ten years with private equity firms, first working in dermatology and ophthalmology. Now in gastroenterology, the PE model can connect several practices by combining administration issues including electronic health records, billing and more,” said Alex Knight, senior director of recruiting for AMN Healthcare.
“A lot of these practices have been dealing with a shortage of physicians, and private equity in gastroenterology offers a lot of value by providing the technology and handling everything behind the scenes. Multiple practices can collaborate, as they share systems and interests.”
So, how big is private equity’s footprint in the gastroenterology job market?
In a recent interview with Healio, Praveen Suthrum, president of NextServices and author of Scope Forward, noted that, as of February 2021, “more than 50 PE transactions have occurred in gastroenterology” and that there are eight major PE platforms—some of which are pursuing a regional strategy and a few that have expanded nationally. He noted that some estimates say close to 1,000 gastroenterologists are now employed under a PE model.
Growing demand and limited supply in gastroenterology
Gastroenterology is one of the highest revenue-generating specialties for hospitals, according to a 2019 survey of chief financial officers conducted by AMN Healthcare. These CFOs reported that the average net annual revenue generated by gastroenterology physicians in 2019 was over $2.9 million, exceeded only by invasive cardiologists and cardiovascular surgeons. The comparison data to previous years also showed tremendous growth in the field.
“Additionally, a lot of gastroenterology private practices have been struggling to maintain call coverage and keep enough staff as more physicians are approving retirement,” said Knight. “Over 50 percent of gastroenterologists are over 55 years old, and there is already a shortage of between 1,000 to 1,200 physicians—that’s a lot in a field that only employs around 13,000 full-time practitioners in the United States.”
“It’s been hard for some private practices to stay afloat with limited staffing and resources. We currently have more than 50 gastroenterology jobs available throughout the country, and demand continues to grow.”
What a GI private equity model has to offer
“Private equity companies can sell physicians on the shared technology and resources, even incentivizing with profit sharing,” Knight noted. “Traditionally, there were either hospital-employed physicians getting compensated based on RVUs, or a private practice offering additional revenue through endoscopy suites that are owned by the practice.”
“With a PE model, the group can sell shares into the business, and as the model continues to grow, their compensation will, too. The system with equity shares can make more money, and is very attractive to physicians,” he continued.
““Getting a job with a system that has multiple practices also provides more opportunities for physicians in more locations,” Knight pointed out.
“Physicians in these networks tell us that they like the PE model because they typically have less call requirements, have dedicated space to practice—with the best technology—and more time to work directly with patients. They also enjoy collaborating with their peers within the system. As more physicians join, they can learn from each other and stay fresh in their skill set,” he said.
A private equity network in gastroenterology also removes a lot of administrative headaches.
“Those who have run their own GI practice know how hard it is to maintain compliance, billing, administration and medical staff. It has become very complex to hire people and run the business,” said Knight.
“Having a group that provides shared technology with a systematic approach, updates offices, while bringing in added revenue is very attractive. These physicians don’t have to worry about covering overhead. It allows them to just focus on providing the best quality of patient care.”
Understanding the PE model
Despite the attractions, private equity firms in gastroenterology still have some obstacles to overcome. Some people have a negative perception of the model, Knight explained, perhaps because it is unfamiliar or they know someone who had a bad experience. “But most firms have a good reputation and can demonstrate value for GI physicians in the job market.”
Physicians may need more information to understand the services and benefits provided by private equity, and the income potential over the long-term. Each opportunity also needs to be examined for its own merits, which is an area where the team at AMN Healthcare can help.
Some private equity groups have created network brand awareness that makes it easier to sell the model as they continue to grow, said Knight.
“And because they are not just selling one location, these practice situations have more options to recruit, and more potential for the candidate’s future growth,” he added.
In order to compete with the private equity networks, some hospitals have become more bullish when recruiting gastroenterology physicians and are offering higher initial salaries, Knight explained. “It’s not uncommon to see offers in the $600,000-plus range,” he said. “Private equity networks tend to pay less up front, but offer more potential with profit sharing.”
“We have noticed that a lot of those providers in the 55-plus age group are finding they are very comfortable in a bigger gastroenterology network; it is less pressure and gives them more options,” said Knight. “Meanwhile, younger physicians seem to be more hesitant. Most have been trained in hospitals and were expecting to find a traditional job in a hospital or private practice. They know less about what the PE model entails.”
“We expect, however, that over next four to five years, we will see shift among physicians in this specialty. As they are talking more to their peers and getting comfortable with this idea, a larger percentage will opt for this kind of arrangement. A firm that has a positive reputation with a good retention rate will make it easier for younger physicians to consider. Especially knowing that the longer they are with a firm, they more they can make,” he said.
Gastroenterology recruitment continuing to evolve
“Reputation really matters for these private equity firms in gastroenterology; it’s a very competitive landscape,” said Knight. “They need to make sure they do a good job of explaining the value they provide and that the model can provide long-term sustainability.”
“At the same time, those in private practice or a hospital setting have to be willing to understand the model and get used to it to better target physicians.”
“The industry as a whole is dealing with a lot of turnover because more physicians are retiring, and most employers will need help from a placement firm like AMN Healthcare to maintain their physician staff,” he continued. “Private equity platforms are busy acquiring practices and streamlining operations, and may not have time to manage recruitment without support. We can help them promote their openings and educate physicians on their benefits. It is more and more of a challenge now, and everyone is trying to keep up.”
A bright future for new gastroenterologists
“Gastroenterology is a very challenging but rewarding career, and new grads have countless opportunities,” said Knight. “New gastroenterology physicians who focus primarily on geographic location or starting salaries may short-change themselves. They should also look at workplace culture, long-term career options and compensation potential. And that’s where PE firms really have something to offer,” he continued.
Knight noted that it is a unique time for gastroenterologists to be coming out of training. With so many options and opportunities, recruitment can be challenging for both candidates and employers.
“The job search and placement process can feel overwhelming to a new physician. One way our company can help is to help them understand the culture of an organization, and whether it would be a fit for them. We get to know our clients and what they are looking for, which also helps us ensure job candidates are well-informed.”