FAQ Great Oaks PCC

Some type of external financing is necessary today to operate a medical practice on a sufficient scale and deal with all the administrative complexities that come with it.   Managing cash flow, capital outlays for equipment and IT, adding professional staff members, expanding a clinic – these are all fundamental operational elements supported by financing.

At a minimum, the fundamental banking relationship for a medical practice involves a line of credit from a commercial bank for intermittent working capital, some cash management support and occasional loans for capital improvements and equipment.

Once the practice is well established, a typical doctor will obtain a personal credit line from his primary banking relationship which meets needs for his personal and family cash management. Normally, the commercial credit facilities available to a doctor, or a small group of doctors, are relatively limited and not sufficient for all the needs of an expanding medical practice.  And, of course, use of debt does nothing to monetize the doctor’s equity in the business.

While financing with bank debt may serve the immediate needs of a doctor, its limitations do not facilitate growth of a clinic to the scale required to be competitive.  And it does not provide a channel for the doctor to extract equity value from the business which has been built up already.  The doctor must join a larger clinic group in order to enjoy the financial and professional benefits of scale, including payment for equity in the business.

There are several forms of rollup in the medical field, and here are a few:

• Funded and Majority Owned by Private Equity – This is by far the most common style of rollup and represents most of the transactions.   The capital needed to acquire the member practices is provided by private or institutional investors whose sole purpose is to obtain exceptional investment returns.  For doctors retiring, this is often an attractive option.  In this environment, professional managers control all clinic operations outside of the direct medical service to patients.  Doctors work under terms of an employment contract.  For doctors not retiring, industrial metrics applied to clinic operations impinge on the doctor’s autonomy.   Constant pressure to cut costs while maximizing revenue may compromise both the doctor’s professional satisfaction and patients’ clinic experience.

• Merger without Private Equity for Benefits of Scale – This approach is less common and does not generally serve the goals of a retiring doctor. This does not generate cash to monetize equity in clinic ownership. It is essentially a collaborative effort by doctors to merge practices to obtain the core benefits of consolidation: economies of scale in purchasing supplies, more access to credit for expanding the clinics, and centralized professional management of day-to day clinic operations, which frees up doctors to concentrate on medical service to patients.  This form of partnership normally relies upon contract services with a third-party Management Services Organization.  Here again, industrial metrics applied to clinic operations will impinge on the doctor’s autonomy and may compromise patients’ clinic satisfaction.

• Partnership with Core Capital (PCC) – This recent innovation relies mostly on low-cost bank financing and preserves maximum autonomy for doctors.   This format is designed for doctors who plan to practice at least five more years.  Private equity is used for funding core capital needed at inception, but it does not own the majority interest in the partnership.   Because it is employed in a limited amount and for a limited time, the financial objectives of private equity investors do not require their control of the platform’s day-to-day management.  Most important financially, the limited role of private equity preserves the value of the doctors’ rollover shares, delivering higher cash distributions in the short term and creating much higher share values in the long term.

Frequently asked questions

Welcome to the FAQ page of Great Oaks PCC!

The most common questions

Frequently asked questions

Welcome to the FAQ page of Great Oaks PCC!

The most common questions

What role does financing play in operating a medical practice?

Generally, what are the forms of financing accessible to doctors for their medical practice operations?

How can a doctor monetize his equity value in the practice? Can this be done without effectively selling the practice or losing control of its management?

What are different styles of medical ‘rollups?

What key technical systems are essential for supporting a platform of medical clinics?

How can a Partnership with Core Capital (PCC) serve the objectives of a practicing physician?

What are the most common business risks to a doctor relying on external investment funds to support the business side of a medical practice?

Is sustainability an important factor in assessing a doctor's financing alternatives?

How is a Partnership with Core Capital (PCC) formed initially? And what happens next?

How is new technology integrated at clinics without causing disruption, friction and anxiety?