Deal between Minnesota Eye Consultants and Waud Capital Signals Change Coming to Ophthalmology

Two years ago, the principals at Minnesota Eye Consultants recognized the time had come to find a way to expand the practice.

But doing so came with uncertainty. The group could opt to join a larger hospital-backed network. Or it could serve as the foundation for a practice roll-up, bringing other practices into the fold so the “integrated eye care delivery system” could compete more effectively for patients and negotiate more effectively with payers.

MEC founding partner Richard Lindstrom, MD, recounts the firm’s deliberations in an interview on this week’s OIS Podcast. Dr. Lindstrom, who started the practice with six employees in 1989, says the 10 partners considered a few different routes to expand the practice.

At the end of the day, MEC took the path increasingly taken by ophthalmologists – partnering with a private equity group. Last month, Minnesota Eye Consultants announced it was pairing with Waud Capital Partners to create a new entity, United Vision Partners, under which it will try to build a national network of providers.

“We want to continue to grow,” Dr. Lindstrom acknowledges during the podcast. “Over the last 28 years, we have grown from one doctor to 28. We’ve built five offices and we’ve built ambulatory surgery centers; we’re on the way to having 10 operating rooms around the [Twin Cities] metro area. But all of that is expensive.”

Typically, a practice like MEC would borrow to grow. But Dr. Lindstrom says banks typically require the partners to personally guarantee any debt. This necessitates younger partners to guarantee debt that is greater than their entire net worth, an uncomfortable option. Older partners, meanwhile, also were interested in finding a way to monetize some of their stakes in the practice.

The partnership with Waud Capital frees the younger partners from debt and provides a partial exit for senior partners. In part two of the interview, which will be released next week, Dr. Lindstrom tells the OIS Podcast about his plans to remain with Minnesota Eye Consultants and United Vision for at least five more years.

MEC isn’t alone in exploring these choices. Ophthalmologists face increasing challenges that consolidation could help alieve. Regulation and paperwork have become more onerous, requiring more staffing than practices historically have committed. At the same time, larger provider networks hold a stronger competitive position in drawing patients and negotiating terms with payers.

As a result, more and more ophthalmologists suggest they may opt for retirement rather than battle the pressures of running a practice.

Chris Graber, a principal at Waud Capital Partners, told Eye On Innovation the private equity industry has successfully funded consolidation plays in areas such as anesthesiology, radiology, and other hospital-based specialties. Private equity players have made headway outside hospitals as well, backing dental practice management groups and primary care physicians.

Now, the interest is flowing into dermatology, orthopedics, and ophthalmology, which seem ready for consolidation.

In a similar deal, Sterling Partners, another private equity firm based in Chicago, reported partnering with Grand Rapids Ophthalmology (GRO), which managed ophthalmology, optometry, and retail services throughout West Michigan. GRO became the first to join Great Lakes Management Services Organization, a practice management services firm formed by Sterling.

To be sure, private equity groups have tried rolling up physician practices in the past, most famously in the 1990s with physician practice management groups. Graber says private equity today is taking a different approach to creating these consolidation vehicles, creating a framework where practices can still retain considerable autonomy and identity.

“We think you can grow by adding incremental service lines, adding locations, and expanding research initiatives,” Graber says. The investment in United Vision Partners represents the first investment from Waud Capital Partners IV, a fund with over $1 billion in commitments.

As enticing a space as ophthalmology is, Graber says success comes from “picking the right groups to serve as the foundation. We were remarkably impressed with Dick and the rest of the team at Minnesota Eye,” pointing to the practice’s research efforts and broad scope of services. “We thought it was fundamentally important to serving as a core foundation of growth.”

Going forward, Dr. Lindstrom says United Vision will look to partner with like-minded practices facing the same questions that dogged Minnesota Eye Consultants. He adds that practices will be able to retain their own cultures and brands.

“The hesitation [in doing the deal] was we wanted to be able to retain control of our clinical practice, retain control of our culture as an academic private practice, be allowed to do research, to teach and to interact with industry in the development of the next level of innovation,” Dr. Lindstrom says. “That’s why it took us so long to find a partner. It was critical to find a partner that would be supportive of that. We are pleased with the partner we have chosen and their culture is very similar to ours.”

In next week’s podcast we’ll present part two of the conversation focusing on what impact consolidation would have on industry.