October 2019

IN THE PRACTICE

Practice Tune-ups
Practice consolidation: Responding to a growing trend


by John Pinto and Corinne Wohl, MHSA

Business consolidation is as old as business itself. Some consolidation works like magic, for example, the folding together of Disney and Pixar and the merger of Exxon and Mobil. Other times, not so much, for example, Mercedes-Benz and Chrysler and Target and Sears.
Consolidation has benefits and costs. Theoretically, larger businesses like those plumping up in healthcare today can be run more rationally and at less cost.
But as customers, all of us have personally experienced the downside of growth and consolidation—a favorite mom-and-pop restaurant that opens a satellite then folds in a year or a quaint hotel ruined when it is swept up into a corporate chain.
Consolidation in eyecare and specifically in ophthalmology is driven by numerous factors. In the following list, it’s clear that some factors are old and others new, and many of these factors are increasing in strength.
• An aging cohort of eye surgeons is looking for an exit strategy, but it is difficult as there are a declining number of new replacement ophthalmologists, and younger doctors desire an improved life-work balance. With traditional doctor-to-doctor succession harder to achieve, smaller practices are seeking out larger practices, institutions, and corporations for a buy-out.
• Regulatory, payer, and other business burdens are making it harder to run a small-scaled practice. By gathering into larger groups, supported by a deeper administrative and advisory bench, doctors can play strength-to-strength in a challenging environment.
• The polymath, comprehensivist surgeon is yielding to an era of subspecialty care. Some would argue that better care is provided by a team of generalists and subspecialists under one roof, rather than having unaffiliated providers scattered among various small practice entities in town.
• An accelerating pace of expensive technical sophistication is leaving behind surgeons working in settings where there is not enough volume to substantiate large capital investments.
• In managed care-intense markets, access to patients is controlled by locally dominant practices and health systems, obliging boutique-scaled practices to “join or perish.”
• Finally, there is the relatively new draw of private equity firms and large entrepreneurial private practices, which for better or worse provide a powerful financial incentive for older surgeons to aggregate into regional supergroup practices.
Cooperation between private practices and other market participants can be mapped on a continuum, from the lightest mutual aid to full-blown economic consolidation.

Informal or modest reciprocity

This is when two practices or their providers informally agree to cover each other’s practice, share call coverage, not recruit each other’s staff, or send referrals back and forth in some appropriate way. It usually involves some element of quid pro quo benefit to both parties. This could be a relationship between a mid-career doctor and a late-career doctor, who wants to send out difficult cases or have vacation coverage. It may be accompanied by a purchase option agreement.

Formal mutuality or reciprocity

This can be under the formal banner of an Independent Practice Association (IPA, for managed care contracting) or a Management Services Organization (MSO, to pool billing, call center, marketing, and other services). Other examples are when a retinal surgeon works part time in a generalist’s office for a percent of collections, or when a dominant regional practice sells management services to smaller practices locally to coax them toward deeper engagement.

Deeper sharing

When practices deepen their strategic relationship, it can include the fractional sharing of providers, equipment or facilities, or jointly marketing a patient service. Many independent surgeons co-owning an ASC or LASIK center is an example of this deeper reciprocity.

Expense-sharing association

This is when two or more MDs join in a common practice but retain their individual professional entities (PC, PA, LLC, Corp, etc.) and autonomy, and share in agreed expenses. This model is sometimes selected by doctors who are not yet ready to “get married” to a colleague. It can be more fragile, less stable, and less enduring than formal economic integration. It is generally not advised for clients.

Merger/acquisition

This is the formal economic integration of two or more practices. A practice merger is when all or most principals involved in a transaction go from owning shares in their individual practices to owning shares in a larger, combined practice. This is contrasted with a practice acquisition, where the selling MDs generally shift from being shareholders to being non-owner associates. Acquisitions are also pursued by health systems, private equity firms, and private investors.

What you can do

Here are five things you can do in the present environment:
• Keep your ear to the ground. Meet with local healthcare system executives and ask, “What’s coming around the bend for private practice specialists like me?”
• Be receptive and friendly to all overtures. Even if you and your partners are dead-set on continued independence, you want to keep all doors open. Conditions could change.
• Run a better practice and a better business. Continued popularity with patients and referral sources will give you control over your volumes. Contemporary, thoughtful financial practices like benchmarking your productivity and expenses will give you the economic freedom to remain independent.
• If a compelling opportunity to consolidate surfaces, deeply vet every detail. Your advisors should work hard to help you avoid regrets. Be sure to have frank discussion with colleagues who have already joined the same enterprise.
• If you do decide to consolidate, go all the way. Shift loyalties from your own interests to those of the larger enterprise. If there is any aspect of your post-consolidation life you don’t like, work within the system to overcome your frustrations, rather than grumbling to your colleagues or support staff.

About the sources

Corinne Wohl, MHSA

President of C. Wohl & Associates
San Diego

John Pinto
President of J. Pinto & Associates
San Diego

Contact information

Pinto: pintoinc@aol.com
Wohl: czwohl@gmail.com

Practice consolidation: Responding to a growing trend Practice consolidation: Responding to a growing trend
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2019-09-30T14:29:53Z
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