Joining and Leaving Private Equity: A Radiologist’s Story

Previously in the PE series, we spoke with someone who joined a practice that had previously been purchased (before eventually leaving). In this entry, we’re hearing from someone who joined an independent practice and was an associate in the work-up when the group sold.

Just like last time, I’ve sanitized names and some details. This case study is food for thought, not an indictment of a specific group or corporate entity.


BW: Your story is one where you joined an independent group and then it was sold while you were in the workup. What did that look and feel like?

When I started, the first four to five months were normal, and then probably six months in things began to change. Leadership in the group started to talk: Hey, where’s medicine going? Where’s radiology going? You know, we’re seeing other groups starting to entertain these ideas of selling. Maybe we should start thinking about it. And that’s when they hired an investment banker to kind of basically shop them around.

Early on, most of the people I talked to were like, “Oh yeah, we’ll never sell.”

And then it was this sequential pitch process of companies coming to talk to us, the order of which was on purpose. The first pitch was the worst. The second pitch was a little bit better. The third pitch was pretty good: less cash but a little earlier in that company’s practice portfolio, a lot more potential I think for the stock side of it, and what they were offering for the associates was quite a bit better.

And then leadership brought in who they wanted to sell the group to. And that was the last one. And it was obviously the most as far as buyout money. Then it was oddly weird. People started to flip pretty easily who were previously staunch ‘we’ll never sell.’ The previously discussed disadvantages of private equity or things that could go wrong were drowned out by the upsides and advantages of PE.

There was actually a fear tactic they used: “Hey, if you don’t sell now the big bad hospital could come in and push you around, and being big and in a national group will help you fend off competition.” And I was hearing these things and I was like, well, really: How is a PE owner gonna help us? How are they going to help us keep market share with what we currently have as a big group? If they don’t like the new entity or if they stop liking your group, it’s not gonna stop a big hospital from moving in, opening up imaging centers, or hiring their own rads.

BW: I gather some of this was secondhand since you weren’t a partner. What I often hear is that the sale is “sold” to the shareholder radiologists and doesn’t always feel fully transparent. But maybe that’s more of an indictment of the local physician leadership.

I think one of the biggest things was that there was asymmetric power and information on who knew what was going on. There were probably a lot of partners that didn’t really know what the contract said and what the buyout said as far as terms.

But they just believed their leaders because the group had been doing great for so long and there’d be no reason to not trust the people in charge who were pushing it. So over the course of a few months, people flipped and it was almost a unanimous vote. In the end, the holdouts were forced to vote yes because to sign the contract, the PE entity needed a unanimous partner vote.

We had [a long] partnership track and over 1/3 of the group were associates at the time. I think that made us very attractive to PE with a large fraction of the workforce being relatively cheap. And it made it very attractive for the partners to do the deal before lots of people became shareholders and got a bigger piece of that buyout pie. I was almost two years in when we sold.

The class below mine had several people leave immediately. In my case, they shortened the track. I thought about leaving at the time of the sale, but I was like, well now I’ve done more than half my workup track now.

BW: You’d put in some sweat equity.

Exactly, and I was in a place I wanted to live and my job at the time was good. And leadership projected certain numbers post-sale for what partners would be making and it sounded pretty good still. And so you kind of had to take that on a leap of faith that hey, they’ve done their homework and we’ll get back to these salaries. So I decided to stick it out. I was looking for jobs when they started talking about selling; however, we weren’t yet in the market that we are now where there’s been a shortened time and/or increased salary for the workup.

My other biggest fear was, what if I go to another group and I’m in a multiyear track again and they get bought up?

And so that was actually my big fear: it could happen again. Maybe you should just stick with the devil you know? And then long story short, the promises and where we’ve ended up post-sale haven’t played out. At first, COVID masked what things looked like, but last year we had a better gauge of where we’re going to be. In 2021, take-home pay was 20-25% down from projections. But we’re also down rads. Because of staffing shortages, we haven’t been able to use a significant amount of our vacation, and it’s even harder to get time off when you want it. So we’re actually working a lot harder for that decreased pay.

So I started thinking in my head, we’re making much less than we expected, and we’re down rads. What happens if we can actually hire the rads that we need to staff appropriately and get the vacation that we’re promised? About 1.5 years after the sale and after I’d become partner, we had to drop the length of our work-up track again and raise the starting salary for associates to be even semi-competitive in hiring.

And so now we are getting pretty close to where associates are almost making as much as partners.

So I started looking.

BW: Where were you in the exodus line?

I definitely wasn’t the first person to leave. We lost more than half the people I started with and about half of the people who were associates at the time of the sale. It’s been a slow trickle along the way, but it’s really started to pick up this year. The people walking out the door are of the younger generation.

BW: The legacy partners are presumably still stuck for a while. Did you vest any of your stock before leaving or did you leave it all on the table?

So my two-year vesting happened before I put in my notice, so I actually do own 40% of the stock that was promised to me. There’s still some real time left for the legacy partners to finish vesting. And that was a big part of it for me, wondering what happens when that final vesting date comes. What is the future of this group and what is going to be our staffing deficit when vesting hits? In preparation, the group asked what people’s plans were and there are a significant number of people that want to retire or go less than full-time at that time of full vesting.

My takeaway was that we will more than likely be really hurting down the line, especially in the current market conditions.

BW: Do you think that the possibility of a worsening staffing crunch will begin affecting contracts?

Already has. We just had to sign a non-exclusivity contract with our biggest hospital contracts. This contract wants to start bringing in its own rads and has opened its own outpatient imaging centers not staffed by us. I think they’re a little bit scared and they probably rightfully should be about what happens in the future if a bunch of our rads go part-time, retire, or leave. Are we gonna be able to staff their hospitals? And so I think they’re starting to think: what is our backup plan and how are we gonna be prepared if this group cant adequately staff us? Obviously, they’re trying to build themselves a safety net as competition and be prepared in case something happens. On the flip side, they are hiring in the same market forces as we are.

BW: The whole country is hiring, and it seems like a lot of groups simply aren’t able to hire up to where they want to be. The competition is fierce. [In fact, coincidentally: we’re hiring!] A few years ago groups were cutthroat competing for contracts and now a lot of groups have too much work and not enough bodies. I know I’ve seen some practices lose or shed contracts and be okay with that because it brings their workload more in line with their staffing.

We got sold that being part of the big umbrella would help with contracts, but I think that some of these big hospital networks have seen groups like us where they kind of get whittled down and then have a big cliff of people leaving at the vesting date. I don’t think they’d be doing what they’re doing in this market if it wasn’t for our current situation.

BW: If you’re in the hole by dozens of radiologists, I’m not sure there’s an easy way to dig out from that in the current market. Even all things being equal, imaging volumes are growing faster than trainee supply, and that’s not even accounting for the PE-retirement bolus coming down the line or people’s (increasing?) desire to have a better work-life balance. It’s hard to grow into higher volumes when you can’t hire.

A group that needs a big physician presence in a large metro is competing in a whole new world. Some unhappy associate leaves for a 7-on/14-off swing shift job in Nebraska and gets to stay in the house they bought and keep their kids in school? That wasn’t really possible just a few years ago. And if somebody in a specific group wants that kind of flexible (but not necessarily sustainable) job, their average local group may not have that need–but someone somewhere certainly does. And equitable daytime tele is a sweetheart deal that isn’t fair to the current employees. In the current market, there are enough places hiring from coast to coast to give an out to anybody who wants an out. You’re never stuck in a radiology job in 2022.

For sure. One of the things during the months prior to the sale was that you had a lot of young associates who were like: Don’t do this. This is not gonna be good. You know you’re gonna have difficulty hiring. The younger people recently out of training were definitely worried about the stigma of being a PE-associated group and the hiring difficulties that come with it.

And the leadership felt that they’d always been able to recruit. You know, “we’re a really good group in a desirable location” and had a false sense of confidence that they could always recruit to our metro.

BW: But now people can quit the group, and they can take a tele job and not have to uproot their family. The activation energy of bailing has never been lower.

And when the hiring dried up, you started hearing things from the leadership saying, well, it’s tough to hire everywhere. Yes, it is definitely harder to hire right now across the board, but also there’s a bit of disinformation–like, which groups are you talking to and how many rads are they down? Are you talking only to other PE groups? Or are you talking to other groups in the state that are still independently owned? Cause those are the groups you should be talking to. They are competing for the same rads. Obviously, they have had to cut their tracks and/or raise salaries just like we have, but most independent groups I’ve talked to are not down 25-30% of their workforce like we are. There are still groups hiring out there and are reasonably staffed, and I think there’s some disinformation from the leadership on that front for sure.

BW: Non-competes have really lost their teeth with the explosion of teleradiology over the past year or two, which has been in part driven by the desperate staffing needs of private equity-owned practices. And now suddenly a ton of groups and even academic centers, especially in low-desirability metros, started putting out more remote-only spots in order to just get the work done. And some of these are in high-reimbursement areas. Even just straight mercenary work. At least for this current moment, it’s probably the easiest it’s ever been to be a pinch hitter independent contractor if that’s your jam.

So it’s like now you can’t necessarily just rely on being in a good geographic area to recruit because if you really wanna be somewhere and those jobs/groups suck, you just stay there or move there and work somewhere else. As long as you don’t mind being alone.

And that was my backup plan. And unfortunately, these employment agreement contracts are constantly changing. So when the original partners signed their employment agreement for five years of work at the time of sale, they had a one-year non-compete.

I was reading my new partner contract before I signed it, and I took it to a lawyer, and I had a legacy partner’s contract to compare it to. And there were five or six things that were different, all not in my favor. The biggest one was a one-year non-compete for partners at the time of sale whereas newly minted partners had a 2-year non-compete. So a few of us take the contract to our president, and he says: this is the standard employee agreement and there’s no room for compromise; they don’t really make changes. At this point, we were frustrated, like: Now we’re partners. We want to have the same contract that the legacy partners do, equals. And at this, he snapped and says, “put your thinking cap on, you want to keep people here.” He didn’t use the word trap, but you could tell that’s what he was planning to say. And it was kinda like, man, this is not really sounding like my friend and colleague here. This is sounding like, hey, we’re trying to trap people here and make it as hard as possible to leave. And then he finished the conversation by saying, “you can either sign the contract or you can keep making an associate salary.”

BW: Fierce.

There we go. The guns are out. So we had to sign the employment agreement, and there was no wiggle room, and then they changed it every year. The year after mine, for example, they changed the termination notice from 90 days to 180 days. But I think new grads coming out have started to wise up because they’ve actually had to back off some of these employee agreement stipulations, just because people are really reading them.

The other big thing is tail insurance. They had to change the tail. Used to be a three-year clock before the group would pay your tail when you leave. The clock to cover your tail now starts when you make partner and not when you join the group. So I had to pay half of my tail even though I’ve been here 5+ years. But now that’s eased up, and now they cover 50% of the tail after 1 year and 100% after 3 years, more along the lines of where I think the market is going.

The biggest thing I would say on the front and back end is: Read your contract. Read it again. And have a lawyer look at it and see, because it’s not an easy document to read, and they are designed that way for a reason.

BW: The key differences weren’t exactly coincidental, they serve a purpose. They’re changes there to trap you, like you said, trying to keep the ship afloat, keep it watertight, and–barring that–to mitigate the direct costs of you leaving, something they presumably expect to happen at a higher rate in the future.

How much time did you end up working after you decided to leave?

So I gave a 90-day notice. I read my contract and they didn’t fight me on it. It’s really kind of unfortunate for some others that were newer in the practice because they changed the employment agreement after my year without notice. And some others who have left were required to give a 180-day notice, and they’re being sticklers about it.

A few people actually gave notice before me and had 180 days’ notice in their contract, and they thought they could bargain and cut it short and planned on giving them 120 days, like, I know our contract says 180, but they’ll let us off. But they weren’t willing to budge.

BW: I can’t imagine you’re always going to get regular productivity from people who literally don’t wanna be there. Know what I mean? It’s not great to have disgruntled people there to poison the well, to put in the least amount of effort that they can.

Yeah, basically doing the bare minimum and daring the group to fire them and get severance. It’s not a good situation to have disgruntled people there for six months. But they’re still a warm body. And if they’re sitting in a hospital or if they’re sitting in a clinic seat, they’re still filling a slot, still covering contrast.

I think this is coming mostly again from our leadership. I think the biggest thing that I’ve realized is that our president might not entirely be aligned with our group and may be more aligned with the private equity entity that acquired us.

So how it works is that when a group sells to this PE entity that some of the group leadership, people on the executive committee, get a kickback of more stock when the group is bought.

And I do know that there is an incentive for other groups’ physician leaders already in the PE entity to come and give a sales pitch to groups considering joining up. If you go and give the pitch to another group and that group ends up selling, the physicians who made the pitch get rewarded with stock from that sale. I don’t know how much of a stock incentive it is when that transaction happens but it obviously rewards painting a picture that the grass is green over where we are. Some of our group leaders have gone to other groups and pitched and then those groups have sold. So they get more stock. I don’t know how much that is to be honest, but they also don’t want you to really know. And that lack of transparency makes you question where their loyalties really reside.

BW: Interesting. So in our last interview, we discussed different share classes. Are your shares the same as the new generation of post-sale employees, the legacy partners, or something in between because you were an associate when the sale occurred?

So partners at the time of the sale got class L shares, which are the best shares and have value at whatever price they are at. Associates at the time of sale got class C shares, also known as catch-up shares. They’re not like the ones from the last post, those are kind of a slap in the face. Those shares are worth nothing unless the share price starts to go up.

Class C shares have a strike price, above which they are actually worth something. Below that strike price, they are worth nothing. I received class C shares, and as I discussed above I vested 40% of those shares. Hypothetically, let’s say the strike price of those shares is $10. If a transaction, say a partial sale of the PE entity to another entity, is made above that price I would receive a distribution for the sale price of those stocks. However, if a transaction is made at any price below $10, let’s say $9, my shares are worth nothing, while the class L shareholders would get $9 for each stock owned. So that’s the difference.

BW: I’ve heard of vanishingly few legacy-type partners leaving prior to vesting. But I’ve heard of a much higher number of non-legacy folks just say, I’m gonna leave and not worry about it.

They skimped the newer associates so bad that a lot didn’t care about the stock anymore. The only reason that I even put in my notice when I did was that I had a distribution from a previous sale that I hadn’t vested yet, and that was actual money [BW: and not merely a potential value downstream if the company is increasingly successful].

BW: How has productivity shifted with the staffing?

It’s unequal across the group. The slow months are now busy months too. But now it’s starting to kind of parcel out. You have the older guys that don’t wanna work as hard. This is the natural progression. We have a policy that you have to be within a certain % of the mean in your section. And there’s not really a whole lot that happens if you don’t. You get a word of warning from the CMO, the first quarter you’re out. The second quarter in a row under is a letter of warning. The third quarter in a row under, the person goes before the professional standards committee, and then the fourth time in a row, the person would actually go before the board for a possible termination vote. But the clock resets if you read enough for one quarter to be above the % cutoff. Let’s say you do two quarters in a row under the cutoff and the third quarter you get above the % cutoff, it resets.

So you could play the game and people do where they’ll go one or two quarters a year where they’re below the % cutoff, and then they’ll work harder for a quarter and be fine. And there’s no penalty for that. And they’re afraid to institute a real penalty like that right now just because they’re so desperate to have people.

So I started looking at how many RVUs I was reading, what I’m generating, and now what I’m making, and I started thinking what am I actually making per RVU?

We do have an RVU tracker and what really struck me is that I was reading about 18,000 RVUs per year and our average is around 14,500 to 15,000. So when I took my 18,000 RVUs and divided it by what we made cashwise, it was $23 per RVU. With benefits included, it came out to $26-27/RVU. And I was like, man, I could go work from home for VRAD or some of these low-paying telerad companies where they pay about $24 an RVU.

[BW: As an aside, it’s worth pointing out that how much you make per RVU in most groups depends on how much you produce. If you have a fixed salary and an acceptable range of RVUs, then you as an individual will have a pay per RVU that varies based on that range. This person is a high-producer and in many groups would also be paid relatively poorly per RVU compared with someone slower. Fast readers are the most likely to benefit from a production (“eat what you kill”) model. (If you have some productivity incentive on top, then pay per RVU will also vary depending on how that is determined). The group on the whole will have an average $/RVU collection, and that will reflect its contracts, which themselves largely reflect their payor mix and geographic area/competition. And then there’s overhead dragging that number down.]

At this point, I was like what am I doing here? So that was the crystal clear moment for me. This was 2021, a full year uninterrupted without COVID drama. This is my baseline, this is what I’m making for how hard I work. And it’s kind of trash.

BW: I can see why you’re leaving.

I’m going to an independent group elsewhere.

I was thinking about doing telerads for a couple years and staying local, but for me, I didn’t want to kind of pigeonhole myself into tele yet. If and when the job market changes in the future, tele people are usually the first to be let go and it can be hard to transition back into a non-tele position. If I was in the second half of my career, sure, I’d have done tele.

BW: Insofar as advice goes: Read your contract, including termination notice, tail, and non-compete. Perhaps: if things are bad and there’s a strong reason to suspect things will get worse, life is short–look for a new gig; you don’t have to wait for things to actually get worse. What else?

When evaluating your current job or a prospective job, I’d ask what is the pay to the physician per RVU? It’s an easily calculable metric to compare jobs and what you are actually getting for the work you do. There are obviously other important factors to a job including location, time off, call vs no call, tele vs in-house, academic vs independent vs PE vs hospital, job satisfaction and degree of subspecialization, etc. And everyone will weigh these factors differently. But the $/RVU pay gives you a quantifiable starting point.

Lastly, don’t be afraid to change jobs if you are unhappy. As you said, life is short. Just do your research and have your ducks in a row.


Additional entries:


Nota Mule 10.26.22 Reply

Really interesting interview. Thank you for sharing your experience. Wish you luck at your new position.

Stan 10.30.22 Reply

Great interview!

Arleen 10.30.22 Reply

I worked for 2 money oriented groups. I was on a Mommy track and not a partnership track. As one of the guys working on the so called partnership track said, “Do I really want to be their partner?” This isn’t all about money. If the answer is, “No.” Move on.

BC 11.04.22 Reply

Excellent interview. Thank you and best wishes on your new job.

Phil 01.02.23 Reply

Excellent interview. More to this topic of course. Might like to chat sometime.

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