Practice Points: The End of the World As We Know It?

Edition: November 2012 - Vol 20 Number 11
Article#: 4099
Author: Laurie Morgan, Capko & Company

For what seems like forever now, medical practice management consultants have been hearing about how consolidation would bring an end to the private medical practice. Medical practices will all be scooped up by hospitals – soon there won’t be any independents left! I bet reps have been hearing the same thing. Should we be worried – or write off the hype as hyperbole?

Your best prospects may not be for sale

The trend toward hospital employment is undeniable for some groups of doctors – especially younger physicians worried about debt loads. But, the decision is about lifestyle preferences: established doctors with more entrepreneurial or independent personalities aren’t likely to give up profitable private practice any time soon.

In fact, an interesting aspect of the trend toward “selling out” is that it’s often physicians who are closest to retirement, or whose practices are financially unstable, who are most likely to be drawn to sell. For reps, these practices may not have been the most promising prospects for new products, anyhow.

Not all relationships are permanent

Sometimes, the lure of the stability and the financial upside offered by merging with a hospital or other large system can blind doctors to the differences in culture between the larger organization and their practice – and, sometimes those differences become intolerable.

Recently, we encountered a specialty practice that had happily sold to a large hospital system in its area a few years back. They expected to be relieved of the annoyances of negotiating with payers and managing the daily operations of their practice – so that they could focus on medicine. But, they weren’t prepared for the rigid structure of their new owners’ organization. Ultimately, they found that staff and physicians just couldn’t adapt to the more bureaucratic work style of the hospital – nor did they want to. At a time when many of their peers were considering a similar sale to a larger system, this practice chose to spin itself back out of the hospital and revert to their original private practice model.

It’s not uncommon for doctors to move back and forth between employment and private practice throughout their careers, as their priorities change. An interesting post on KevinMD.com last year – “Why This Doctor Moved to Private Practice” – offered a humorous anecdote by a primary care physician who chose to leave his hospital employment (and its meddlesome administrators) for private practice. Doctors in mid-career, with more financial security and comfort with risk, may actually find themselves preferring to move against the employment trend.

Not all changes affect our relationships

Some fortunate practices find that being acquired by a hospital brings exactly what they expected – and they don’t look back. Often, this happens when the hospital allows a well-managed practice to continue to call its own shots with respect to staffing and day-to-day operations.

We recently worked with one such practice to help them optimize their scheduling operations – and there was little difference between this assignment and any scheduling project with an independent practice. This hospital-owned practice’s autonomy even permitted them to select their own EMR and practice management systems, and apparently their rep relationships in other areas were completely unchanged as well.

One interesting aspect of the relationship that could impact reps, though – this practice was making a lot more money than it had on its own. Hospital contracts allowed them reimbursement at (higher) hospital rates; even though they were sharing part of it with the hospital, their income from ambulatory services like imaging and other diagnostic tests was soaring.

Consolidation with prompt new entrepreneurial trends

The phenomenon of hospital reimbursement dramatically increasing income for hospital-acquired practices is not unusual. The Wall Street Journal ran an excellent story on this by-product of the consolidation trend (“Same Doctor Visit, Double the Cost,” Aug. 27, 2012).

In the past, this type of consolidation-driven economic shift opened the door for cost-saving new business models like ambulatory surgery centers, free-standing cancer centers and independent imaging centers to emerge. As this new wave of consolidation gains strength, higher price ceilings will inevitably create opportunities for similarly disruptive medical businesses.

Already, models like concierge care and its new, more cost-conscious sibling, direct primary care, are shaking up assumptions about primary care – and innovating to address the challenges of delivering it efficiently, without consolidating. With Medicaid coming to the forefront as part of the Affordable Care Act (ACA), it’s becoming a focus of entrepreneurial physician activity, too. We recently worked with a practice that built a thriving clinic that primarily serves Medicaid patients. When it comes to Medicaid and the ACA, even hospitals and counties are getting in on the innovation act – with some even looking to find ways to make a Medicaid expansion happen on their own in places like Louisiana and Texas, where the governors have already decided against state-level participation in the expansion.

Without a doubt, these are interesting times. Consolidation is happening on many fronts – but, to mangle Newton’s law a bit, it seems reasonable to expect that these actions will also produce some equal and opposite reactions. Our customers will value help from trusted partners throughout the changes – and, their ingenuity will continue to present us with challenges and opportunities.