In December 2008, Trinity Medical Associates, a Knoxville, TN–based family physician practice, bucked a growing trend in American healthcare, and politely declined a merger offer extended by colleagues and friends at the much larger Summit Medical Group.
"Our primary decision came down to the fact that we really just valued our independent culture that we had established," says Randy Pardue, MD, a family physician and one of five physician-owners at Trinity. "We did not conclude that joining [Summit] would destroy our culture by any means. It was one of those things that, having thought and prayed about it, we just thought getting into the bigger group could compromise what we had established. We really enjoy the culture that has been established here."
It was not a decision that the physicians at Trinity took lightly or made quickly. Summit is highly regarded and one of the largest physician groups in East Tennessee. Declining the merger offer meant that Trinity could not access the lucrative in-house ancillary services that Summit provides, such as lab, imaging, and other diagnostic services. Staying small and independent also means having less bargaining clout with hospitals, insurance companies, and other payers.
The physicians at Trinity knew they were leaving money on the table. "We would have definitely seen an increase in income, but we just decided that wasn't the most important thing," he says. "It's not that we would serve our patients less in the larger group. But we like the particular ways we are able to serve our patients in our own private group."
Marc D. Halley, MBA, president and CEO of Westerville, OH–based The Halley Consulting Group, LLC, says a number of factors—many of which are beyond physicians' control—are threatening the financial viability of small, independent practices. "My personal opinion is that we are going to see an increase in the consolidation," he says. "The healthcare industry is maturing, and as industries mature, they consolidate. That is Business 101. So, it will continue to consolidate in urban, suburban, and rural settings."
That doesn't mean it's a lost cause, Halley says. But if your group intends to stay small and independent, you must realize that you will be swimming against a strong current.
"Can some groups remain in private practice, independent of others? Absolutely. But they have to be in the right setting, with the right age mix," Halley says. "They have to be smart about how they do business, how they negotiate. And they have to be important enough to other players in the community to be left alone."
Evaluate internal factors
To make an informed decision about whether your practice can go it alone, Halley recommends a frank review of internal and external factors affecting your practice. Internally, you should consider factors like owner demographics.
"If I have a small group practice and the doctors are all 58 and they are saying 'We are tired of this. We've done our thing. We've been entrepreneurs.' Then it might make sense for them to say 'We want to get out. We are having a hard time recruiting. We don't have the capital we need to recruit new doctors. We are afraid that if we don't join somebody we will be unable to negotiate with payers.' "
Another internal factor is practice performance, particularly as it relates to finances. "Am I able to fund my retirement plans and provide benefits? If I am able to do that still, I may be able to stay independent," Halley says.
Strategic capability also should be factored in. "That simply means that I am able to make decisions and remain independent because I have a specialty that is needed. I've got access to capital. My debt ratio is low enough so that I have access to all kinds of capital if I need it. So I have the resources to recruit and add equipment or diagnostics. Or, I can't. I'm up to my eyeballs. I'm barely making payroll. I can't remain independent," Halley says.
Assessing the quality of leadership within your practice also is critical. "Are there physicians in my group that love business in addition to the clinical side of medicine?" Halley says. "You tell us you don't want to worry about business administration, you want to practice medicine. Our message to you is the day you leave your medical training program you are in business. Either you will be smart about being in business or somebody else will make those decisions for you, and that will affect how you practice clinically."
Consider factors outside your control
Then there are the external factors, many of which are beyond your control. "What is going on in your market externally? Do you have the internal capacity to respond to that and remain independent?" Halley says. "If you don't you have to consider who would be the best partner. You'd rather be making a partner selection than being forced into slavery, as it were, by a bigger player that is just gobbling up everybody."
It's not simply a question of buckling down and working harder to survive. "We don't know what is going on with healthcare reform, but there is one thing we can be assured of: Reimbursement will go down," Halley says.
To prepare for that, Halley says, small primary care practices can no longer be reliant solely on cognitive services. "We are saying to our family physicians, ‘Be smart, start looking for products and services you can offer. Don't think you can make it just on cognitive services and go from seeing 25 patients a day to 45 patients a day.' In a health practice, as a rule of thumb, we are looking for at least 20% of net patient revenues from ancillaries."
To stay independent, physician groups also must adopt stringent highest- and best-use staffing practices, where the physicians' valuable time is spent doing only what the physicians can do, with other work delegated to clinical assistances facilitating patient interaction. "One of the most important responsibilities of a clinical assistant is to help the doctor be productive, to keep that doctor moving all day long," he says. "That enhances the physician's productivity. But you have to staff for that. In some cases, you may have to increase staff to increase productivity."