Private Equity’s Vision for Eye Care with Mark Hauser
Over the past decade, a new trend has arisen in America’s health care system: the involvement of institutional investors. From dental practices to other physician specialties such as interventional pain management, anesthesia and dermatology, those within private equity have come to recognize how investments made in the health care sector can both achieve their end goal of expansion and profits while also aiding in improving patient care and spurring innovation across the board.
Estimates found in a 2021 report by the American Antitrust Institute showed that health care private equity deals conducted annually in the United States exploded between 2010 and 2019, nearly tripling from $41.5 billion to $119 billion. As the popularity of this investment category has grown, fund managers have sought out other outpatient practices through which they can make their mark, and eye care has increasingly proven to be a sector that fits well within the private equity model.
According to Mark Hauser, a private equity investor based out of Cincinnati and Los Angeles, by helping businesses within eye care improve productivity, private equity funds are able to increase the value of purchased practices and therefore improve patient care while also preparing the business for a future sale. Hauser’s firm Hauser Private Equity has made a number of investments within the health care vertical since its inception in 2008, and Hauser himself has had over thirty years of experience in investing. Below, we explore with him private equity in vision care.
Private equity funds primarily focus on increasing the profitability of a portfolio company within a five to ten year period, prepping it for an eventual sale that would achieve a healthy return on investment. The eye care sector fits well with this strategy, due to its ability to access both payer-based revenue streams such as surgical and primary eye care as well as cash-based services and optical products that avoid risks occurring in many other health care service businesses.
The industry also has a significant amount of room for quickly and yet effectively improving efficiencies, says Hauser. Within the three vision care services subsectors of optical, optometry and ophthalmology, only the former two have historically been offered at the same practice. There remains a large amount of opportunities for providers to capitalize on creating practices that offer a comprehensive level of service for eye care in which patients can receive primary vision care, be fitted for and receive optical products, and receive surgical care.
One example of this can bee seen in the case of CEI Vision Partners and EyeCare Partners. In 2018, Hauser Private Equity joined with the Denver-based private equity firm Revelstoke Capital Partners as a co-investor and strategic partner with Cincinnati Eye Institute. Together, Revelstoke and Cincinnati Eye Institute formed CEI Vision Partners, a management services organization designed to support Cincinnati Eye Institute’s growth, allowing them to pursue additional partnerships with other leading ophthalmology providers. Over the course of the next three years CEI Vision Partners was able to expand considerably, completing a number of acquisitions and sustainably growing its operations.
In 2021, the national network of affiliated ophthalmologists and optometrists EyeCare Partners entered an agreement to acquire CEI Vision Partners, resulting in a group of over 280 ophthalmologists and over 700 optometrists supported by almost 5,000 clinical staff and 1,200 support services team members across 18 states. Mark Hauser said in a press statement at the time that while the firm had made numerous investments in ophthalmology across its fund portfolio, CEI Vision Partners had been a top performer. Hauser Private Equity was successful in creating a favorable realization of its initial investment and EyeCare Partners significantly expanded its scope.
The success of EyeCare Partners and CEI Vision Partners have had through private equity show that investors whose primary focus are profits does not necessarily equate to practices that sacrifice patient care for it. According to Review of Ophthalmology, ophthalmologists who have worked in a private equity-backed practice say they have had positive experiences. One physician who had been with Cincinnati Eye Institute prior to the co-investment by Revelstoke and Hauser Private Equity told the magazine the partnership allowed them to keep their executive leadership intact while still becoming better-positioned for growth, and that the two private equity companies he had been involved with had not in any way been interested in thwarting the practice’s ability to provide medical care.
Indeed, investments into eye care by private equity firms are coming at a time of rapidly increasing demand for the sector. A growing and aging United States population in addition to more widespread insurance coverage mean an increased need for preventive care from optometrists as well as cataract surgeries and other age-related conditions treated by ophthalmologists. Cataract surgery alone has a compound annual growth rate of three to four percent in the next thirty years, with estimates showing that by age 80 more than half of all people in the United States either have a cataract or have had cataract surgery.
Additionally, advanced technologies are creating new and innovative growth potential within the industry. Laser surgeries in particular have become more precise, allowing for a more rapid recovery for patients and resulting in a public more willing to engage in procedures. Elective surgeries such as LASIK, premium cataract offerings that utilize lasers and oculoplastic procedures are opportunities in cash-based services that eye care practices can take advantage of offering, and an infusion of capital provided by private equity companies can allow them to make the necessary expansions to do so.
While some critics worry that private equity’s involvement in eye care and health care services in general will see a shift in focus from patient care to profitability, it is important to remember that not every practice will benefit from a partnership with a private equity firm such as Hauser Private Equity. Practices in smaller and more rural areas for example often aren’t focused on growth and aren’t faced with massive amounts of competition that would necessitate investment for survival. However, in more urban markets it is often the case that without growth a practice can and will fail, and a private equity firm can make for a strong and steady financial partner that can provide capital as well as managerial expertise.
Additionally, private equity investments provide a unique opportunity within the eye care sector to create a more comprehensive approach to vision services. The idea of combining optical, optometric, and ophthalmology services as EyeCare Partners has done presents a compelling opportunity for both eye care practices and private equity firms, creating a mutually beneficial partnership. The stability of demand for services even during economic downturns is also a highly attractive prospect, and improved patient outcomes through the ability to utilize advanced technologies will help to both up public acceptance of treatments and provide an additional revenue source.
The future is promising for partnerships between private equity firms and eye care providers, as firms create sustained and realized gains for their funds and physicians are able to expand practices that better serve the growing needs in the United States for all eye care-related needs.