So Long, Mom and Pop

Like a lot of veteran physicians, Mark DeFrancesco, MD, MBA, began his career in a small practice with just one partner. Since his first days as an OB/GYN in 1984, however, his practice has grown organically and through mergers, and he now serves as chief medical officer for Physicians for Women's Health, a 155-physician group in Connecticut.

I spoke with DeFrancesco for this month's cover story about new business models for medical groups, and his career path in many ways mirrors a trend we're seeing across the industry: Small practices are struggling and dying out in a wave of medical practice consolidation.

The proportion of physicians in solo and two-physician practices dropped from 41% in 1997 to one-third in 2005, according to the Center for Studying Health System Change. Many older physicians are merging with other groups or selling to a hospital or health system. Newer physicians are skipping the small-business phase entirely and going to work directly for a larger organization.

There are many underlying reasons for the trend, but the tough financial climate physicians face—the one-two punch of skyrocketing costs and stagnant reimbursement—is probably most significant.

Practicing today isn't just about building relationships with patients and being a good doctor; it takes capital and technology and sophisticated management. Whether it's controlling costs, negotiating managed care contracts, or spearheading quality initiatives, larger practices have resources to succeed in today's environment that many mom-and-pop practices lack.

DeFrancesco thinks he could still make it in a two-person practice today, but he admits that it would be a much greater struggle in this environment.

I wrote the story less than two months ago, but since that time we've seen financial institutions collapse, a $700 billion federal bailout, and perhaps the beginning of a prolonged recession. As the overall economy turns for the worse, the financial squeeze on small practices will only become greater.

Yet we lose a lot if we lose our small practices. Mom-and-pop operations tend to have better relationships with patients (equaling higher satisfaction scores) and allow physicians the autonomy that many value highly.

The practices I spoke with that were most successful were striving to combine the best of both worlds—harness the strength of a larger group while maintaining the agility and personal connection of a smaller one. Although strategic decisions are made by centralized leadership, for example, they try to give formerly independent physician locations as much autonomy as possible to deal with patients on a daily basis.

That's essential going forward. As solo and two-physician practices become rarer, success in larger groups hinges on remembering why both patients and physicians have liked that model for so long.