Today, less than half of physicians remain independent. Key factors for the high rate of mergers, acquisitions and consolidation among medical practices include value-based reimbursement, shrinking margins, and record-high healthcare spending.
In this MGMA Insights podcast, MGMA senior editors Craig Wiberg and Daniel Williams are joined by industry experts who explore the driving forces behind the high rate of transactional activity and provide practices with a set of guidelines to help them remain independent.
Mergers and Acquisitions
Healthcare merger and acquisition activity, though off its record pace of 2017, according to a Kauffman Hall study, remains ripe with deals. One factor for the transactional activity is due to a shift towards single specialty groups rather than multi-specialty, said Isabelle Bibet-Kalinyak, Partner with McDonald Hopkins, LLC. Specifically, according to Bibet-Kalinyak single specialty groups that are most attractive to private equity firms are radiology, ER, ophthalmology and dental.
Neil Johnson, Managing Partner at Lawrence, Evens & Co., LLC added that the private equity investors are looking to “build the organization, make investments into a management team, if there's not one, they're already making investments into mid-level management, and organizational structure, policies, procedures, technology.” The main goal of investors is to “reduce the cost of care and provide better outcomes, and still be able to make a profit as a stronger organization.”
Something that these practices need to be warned of when considering an investment from a private equity firm, is the fact that that investors may not know a lot about the healthcare industry. Johnson said that “there's an education curve, but there's some advantages to it.” For example, an investor “that doesn't understand the industry doesn't understand what the physicians dealing with.” However, they may “bring in some other skill sets that are valuable.” Physicians will need to be patient with the investors that may need extra time to learn.
Chaos to clarity
Will Latham, President, Latham Consulting Group, said, currently, medical practices are too chaotic. Fortunately, Latham has ideas on how to improve medical practices and keep them running smoothly and successfully.
As in any business, the leaders are supposed to be working together. However, Latham said that medical group managers rarely meet with their physicians to “reach a pretty unified decision on how they’re going to move forward.” It is imperative that physicians take “a day a year or a couple of days a year to sit down together and say, what is it that we want to accomplish together? What key initiatives do what want to go after? What’s our plan for the organization?”
Another key factor to keeping a medical practice out of chaos is to “focus on what is it you want to accomplish over the next one year” rather than developing a five- or ten-year plan because the environment and situation will, most likely, be different then.
A roadmap to independence
Cameron Cox III, CEO, MSOC Health knows how to keep an independent practice successful without outside investment. Cox encourages independent practices to move “from merely running a medical practice to looking at yourself as a business owner to keep your practice privately- or physician-owned.” The biggest challenge of staying independent is that practices have “very limited control over their revenue, except from the perspective of the volume.”
To be successful, practice owners should look to other industries on how to adapt to customer needs. The problems that independent practices face, “particularly from a business standpoint, others have faced as well.” Cox said if independent owners look at their practice more as a business to invest in rather than just an expense it will “build something that people want to be a part of, not only for future partners, but also patients.”
A note for podcast listeners: One key aspect of owning a medical practice is physician and provider compensation. You can use 2019 MGMA DataDive Provider Compensation to ensure you are retaining and attracting the best providers for your organization.
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