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Practice owner or hospital employee?

Physicians ask: Should I remain independent or join forces?


  • Your local market, the health of your practice, and your personal needs and interests will determine whether you should remain independent, merge with another practice, or sell your practice.
  • The transition from independent practitioner to employee can be more difficult if you're used to being autonomous.
  • Do your homework before accepting a payout, and consider obtaining assistance when negotiating a contract.

Market and regulatory pressures and shrinking profits are leading many physicians to sell their practices and become salaried employees. Whether it's a good idea for you to remain independent or join forces with a hospital, insurer, or large multispecialty group depends on a range of factors, including the local market, the health of your practice, and, of course, your personal needs and interests.

Whichever route you take, however, a rapidly changing healthcare landscape may require you to re-evaluate your existing business model.

ATTITUDES ABOUT OWNERSHIP

With small groups of family, internal medicine, and general practice physicians under more pressure and living with less certainty than perhaps at any other time in history, it would be reasonable to think that doctors have widely changed their attitudes about practicing independently. In a recent survey of more than 5,000 physicians, however, the Doctors Company found that more than half—56%—of respondents indicated that they are not likely to change practice models over the next 5 years.

Only 20% say they plan to shift practice models or make other changes, such as practicing part-time, leaving medicine for a different career, or retiring. Nearly one-fourth of respondents (24%) did not select a future practice model at all. According to the Doctors Company, that "suggests respondents feel substantial uncertainty about their prospects."

The uncertainty extends to participation in accountable care organizations (ACOs), a central feature of the Patient Protection and Affordable Care Act. Only 14% of physicians surveyed said they would participate in an ACO. Fifty-seven percent said they are either undecided or need more information about what participation would mean for them.


Nick Fabrizio, PhD

The bottom line: "I think if you ask most physicians if they could stay in smaller practices and survive, they would prefer that," says Nick Fabrizio, PhD, principal with the MGMA Health Care Consulting Group.

Despite the desire for independence and the general reluctance to change the way they practice medicine, smaller groups of physicians merging with other practices to increase their size, or selling to larger entities, is a growing trend, experts say.

"So many doctors are so frustrated with the administration of medicine and so scared about Medicare reimbursement cuts and private insurers following Medicare," says Keith C. Borglum, a certified healthcare business consultant and broker in Santa Rosa, California. "There are so many burdens outside of just being able to see patients, that for lifestyle and hassle factor a lot of physicians are leaning toward employment," adds the Medical Economics editorial consultant.


Elizabeth A. Pector, MD

That's exactly what Elizabeth A. Pector, MD, is considering. She's run her own primary care practice—Spectrum Family Medicine SC—in Naperville, Illinois, for approximately 12 years. Dramatic changes to the practice of medicine over the years, coupled with the recession, have had a huge effect on her business, she says.

"Since 2007 and 2008, it's been harder to make ends meet," says Pector, a member of the Medical Economics Editorial Board. "Medicare hasn't increased pay since 2002. That's 10 years of adopting healthcare information technology [IT] and hiring staff. At the same time, care has gotten more complex. We're getting less money for more work," she adds.

To save money, Pector has cut her support staff, switched to a different malpractice insurer, and changed her office phone system, all to no avail. "We have fewer patients coming in, and it's been getting worse," she says.

Fabrizio says that Pector's story is a familiar one. "It's a burden for smaller groups," he says. "It's increasingly difficult to run a small practice."

Pector says she began to consider joining forces with another provider. "I figured if there is another way of doing this with a larger entity [that will take on] IT and care management costs and where there are people to help figure out how to do things...I feel I've done everything I can do as a small independent," she says.

Pector is in talks now with her local hospital about buying her practice. If the deal goes through, she expects to receive a lump sum payout, after which she'll become a hospital employee. She says this arrangement has become common among independent physicians in her area.

PRACTICE MODELS

For some small practices in family or internal medicine, merging with another small practice to slightly increase in size can be an effective strategy, Fabrizio says. "There are a number of efficiencies that come with that: an increase in reimbursement rates, ability to close an [office] location, and now, instead of being on call every night, they are on call one in five nights," he says.

More common these days, however, is small practices being bought by larger entities, such as hospitals, large multispecialty groups, or insurance companies.

With increasing financial and administrative pressures, becoming an employee of a multispecialty group or hospital with deep pockets and solid business infrastructure can sound like a good deal. For physicians such as Pector, who have seen a steady decline in their personal income, a regular paycheck, good benefits, and an almost instant relief from daily administrative burdens marks a welcome change.


Keith Borglum, CHBC

Large providers—and in some areas, insurance companies—benefit greatly from the purchase of practices. Most are eager to expand their market share and increase their power to negotiate favorable contracts. For them, the opportunity to own practices and employ more physicians offers a clear market advantage.

It's a win-win situation—except when it's not.

According to Borglum, working as an employee tends to be easier for newer doctors who have spent their entire careers in a group setting. "If they don't get out for a year or two and get a taste of control and independence, it's easier for them to go from the group situation of education to a group for employment," he says.

But for those who have been on their own for a long time, the transition from independent practitioner to employee can be a tough one. In exchange for steady pay and relief from administrative burdens, doctors must be prepared for less autonomy. That's often a bitter pill to swallow.

Although many have made the transition successfully, others have found the trade-off isn't worth it.

"What's happened in the past is, large entities—hospitals, ACOs, insurers—hire up and employ all these physicians, and the physicians who have had a taste of independence become dissatisfied and exit again," Borglum says. "I see now already the beginnings of a wave of doctors who sold their practices and took jobs and are leaving. I'm doing more start ups [right now] with physicians in their 40s 50s."

TO SELL OR NOT TO SELL?

The best way to avoid dissatisfaction and the need to course-correct just a few years down the road is to do your homework before accepting a payout.

Both Fabrizio and Borglum say that doctors interested in selling their businesses are best served by first examining their personal needs. Consider:

  • How close are you to retirement?
  • Are you dealing with a disability?
  • What's your frustration level with the state of your practice?

"Two physicians in family or internal medical groups, if the doctors are in their early 60s, will look different than two physicians in their 30s, from what they would want from integration," Fabrizio says.

Whether you're considering selling to an insurer, a multispecialty practice, or large hospital system doesn't much matter, experts say. More important is to understand the particular environment to which you're committing your professional life. Ask yourself: Would doctors who have made the move before you recommend that you sell your practice to this particular healthcare organization?

According to Borglum, doctors need to go on a fact-finding mission to learn whether other physicians whose practices were bought by the entity are happy with the money and the culture as well as with the person to whom they're reporting. "How happy will you be in this other situation?" Borglum asks. "That's the big thing, and it's very personal."

For Pector, being able to continue referring patients to the same group of specialists she's used for years, having access to an electronic health record system she's comfortable using, and being able to keep her staff, are all details that have helped her feel comfortable about selling her practice to her local hospital. She says that both she and her staff will do better financially in the deal, and her administrative burdens will become someone else's problem. She's spoken with other doctors who already have made this move, and they say they're pretty happy. Still, she has some trepidation about selling her practice.

"The fear is mainly about giving up autonomy," she says.

CAN THE SMALL SURVIVE?

Fabrizio says that physicians with a subspecialty providing high-quality services others don't offer may continue to thrive on their own. A small group of primary care physicians, on the other hand, is likely to find it increasingly tough to survive in the current environment.

"It's very difficult for smaller groups to compete in terms of getting better rates than larger groups. That's the advantage smaller groups find with joining hospitals—reimbursement is better," he says.

If you own a small practice and the thought of selling and becoming an employee of a larger system isn't appealing to you, however, Fabrizio says that, at the very least, every small practice should be working to make itself bigger. "Look at other practices in town that you could form a relationship with to be more efficient, to lower overhead and increase reimbursement," he says.

Depending on the market, some physicians may find success by switching to a concierge-style practice or by weeding out unprofitable insurance contracts and only accepting cash, Borglum says. Making that kind of practice model change takes time, however, and it requires careful planning.

To get it right, Borglum suggests that doctors work with a practice management consultant who can conduct the equivalent of a thorough physical exam on their business. "Often times, they can diagnose a problem or look at a symptom and be able to figure out what the problem is," he says.

NEGOTIATING THE RIGHT DEAL

Working with the right experts matters when it comes to negotiating the contract of a sale, too.

"I recommend that [physicians] have a medical practice transaction specialist attorney either negotiate for them or at least review the agreement before they sign it," Borglum says. You need more than a general attorney or certified public accountant not intimately familiar with medical practices to review your contracts.

Checklist: Negotiating to sell your medical practice

Finally, Pector says, as physicians negotiate their contracts, they need to be very clear about what their options are in case things don't work out, a scenario she's hoping she won't have to face.

"Even if the finances of my practice were better and I was bringing in the money I should be, I'm worried about things coming down the pike," she says, referring to today's emphasis on health IT, changes in billing, and increased demands associated with managing patient care.

"I could figure it out, but I don't want to. I'm done," she says.








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