5 Factors Driving Physician Practice Sales & How to Overcome Them FeaturedWritten by Laura Miller | February 27, 2013
Transformation of the healthcare industry has increased significantly over the past few years, driven by several converging factors. These changes are creating a climate of uncertainty for private practice orthopedic and neurosurgeons resulting in a trend towards selling their practices to hospitals or other healthcare organizations.
"We are seeing changes in healthcare in general that are basically consolidating resources into larger entities, whether hospitals, physician organizations or other institutions," says Fred Davis, MD, principle at ProCare Systems and a physician with Michigan Pain Consultants. "That's part of what is driving physicians to sell their practices. However, these changes are also creating opportunities for private practices to continue to thrive."
Dr. Davis discusses the five biggest factors driving physician practice sales and how surgeons can avoid selling in the future.
1. Regulations from healthcare reform. The Patient Protection and Affordable Care Act and changes in the private sector have made it more challenging for small practices to sustain business because they must purchase expensive electronic medical records systems, and invest infrastructure to comply with increasingly more complex regulations. All of this is occurring while reimbursements are continuing to decline.
"The government and other payors are moving toward alternative payment mechanisms which create more uncertainty that can be daunting for physicians," says Dr. Davis. "The other area causing a shift is in Health Information Technology; not just the EMR but also programs that are managing the process of patient care within the practice. These process changes are becoming increasingly complex and costly. Physicians must have a higher level of practice sophistication to be on the same playing field as larger institutions."
Physicians aren't sure of their future income and with increasing costs and administrative needs, financial pressure has built.
"The physicians aren't sure of their future income streams amid increasing costs," says Dr. Davis. "They are seeing increasing administrative needs and more financial pressures, which creates uncertainty about the future. In 2011 and 2012 there were several Medicare payment freezes because of budget impasses This makes strategic planning more difficult because things are changing so rapidly."
Private physician practices that have decided not to sell to a hospital often seek consultation with management companies or professional expertise to help them with the business side of running the practice.
"Working within a more professional management environment can allow your practice to thrive," says Dr. Davis. "Companies can provide services and infrastructure that the physicians couldn't do themselves, such as administration, HIT, strategic planning and contracting with payors. Working with a practice management organization gives them the heft they need to maintain their private practice."
2. Work expectations are different among young surgeons. A demographic shift has taken place in the types of people who are going into medicine.
"Medical school classes now are at least 50 percent female," says Dr. Davis. "We are seeing a much more rounded mix of people going into medicine and the younger physicians are different in terms of their feelings about work/life balance. This is especially true for women in medicine because of childbearing and family responsibilities. However we are also seeing more male physicians sharing childcare and family responsibilities. These physicians want to have more time for family and personal interests. As a consequence, there is a shift in physicians seeking employment opportunities in larger practices or institutions that can provide more flexible work schedules."
Some in healthcare have also noted a personality shift in surgeons as well. Orthopedic and Neurosurgeons who were once considered independent and entrepreneurial are no longer seeing the value of owning their own practices and are now content to become hospital employees, says Dr. Davis.
"The younger people going into medicine are intelligent, have a spirit of wanting to help people and practice good medicine, but they aren't as business oriented as they were previously," says Dr. Davis. "They want to feel like they are contributing to a greater good and have relevancy in their professional lives but do not equate that with private practice."
These factors are contributing to the difficulty in recruiting physicians into existing practices. As a consequence, there is a decrease in the pool of physicians who would typically buy into the practice over time which makes transition planning more difficult for the senior physician owners
3. People are less connected to their physicians today. Traditionally, people expected physicians and surgeons to stay in their communities and take care of them and their families from one generation to the next; this is no longer an expectation in medicine. Patients are getting used to their physicians and surgeons leaving the hospital — or the community — and seeing a new practitioner more often when they seek medical care.
"We are seeing a shift of physicians coming out of training, who are already heavily in debt for their education not wanting to be burdened by the additional debt it takes to buy into private practice. At the same time, they do not feel committed to stay employed by the same hospital either," says Dr. Davis. "The sometimes predatory employment contracting practices of large institutions have contributed to the rise in nomadic physicians who don't have to worry about big expenditures and aren't tied financially to a practice or location."
Younger surgeons are also more comfortable with the idea of their employers doing the marketing for them. They are not as dependent on personal relationships with their referral sources and can use new social media to directly reach their potential patient base in any given location. Because they may not have the same outlook on the business of medicine and their careers as older physicians, it is easier for them to have more mobility.
"Younger physicians may not be as financially driven as older physicians were and they have other values," says Dr. Davis. "You don't have the same motivations and financial responsibilities when you are an employed physician. Working in a larger institution, you are another line item on their budget. There isn't that social contract employers used to have and if surgeons become employed but they aren't treated professionally, and their financial status isn't maintained, they can move to another opportunity."
Dr. Davis says he is beginning to have a better time recruiting physicians than in the past, as some of the physicians that were employed by larger institutions are now looking to return to private practice.
"What is driving them away is their perception of being treated as a commodity in an increasingly impersonal institutional environment and not feeling like they are contributing in a meaningful and personal way to the care of their patients," he says. "What is attracting back into our private practices is the potential of providing high quality patient centered care. This can be achieved by having an effective data driven clinical care management system and ongoing research initiatives to demonstrate quality. I think we will see a certain degree of rebounding over the next several years with physicians coming out of employment that want to be treated more professionally, feel relevant and be in charge of their destiny."
4. Primary care physician employment by larger organizations. As hospitals and healthcare organizations increasingly employ primary care physicians, private practice specialty physicians may see referrals dry up unless they are aligned with the referring entity. Without ample patient flow from referral relationships built over the years, some orthopedic and neurosurgeons may feel they have few options other than to sell their practices and seek hospital employment themselves.
"Getting your referrals isn't as easy anymore because now referrals are made because of the network you are in," says Dr. Davis. "Private practice surgeons are looking at other ways of driving patient referrals and profitability."
Some groups are looking at these circumstances as an opportunity to develop different models of private practice.
"You can make adjustments in your practice to meet the needs of a changing healthcare environment" says Dr. Davis. "You also have the ability to capture patients that don't want the Wal-Mart approach to medicine. They want a more personalized approach. In primary care we are seeing a trend toward concierge medicine and arrangements that are more private where there is a quality focus oriented around the patients' needs instead of the institutions'."
Specialist physicians can also choose to develop newer patient focused practice models to help remain successful in private practice by hiring an outside company to evaluate their business and advise them of opportunities.
"Sometimes the smartest thing to do is have someone look at your practice that understands the healthcare system at the macro level and knows what is happening in your practice at the micro level so they can help you navigate through this, identifying challenges and opportunities," says Dr. Davis. "They can address the gaps for moving forward to the next level. It's too daunting for many so they give up their practice or sell it to the hospital becoming employed as a last resort. But, if they were to take the step of working with someone who could give them another perspective, I think they could have a better chance of staying in their private practice and thriving."
5. New medical neighborhood care models. Organized Systems of Care, Accountable Care Organizations and the Patient Centered Medical Home (PCMH) are driving the "medical neighborhood" approach to care. These initiatives encourage population based care, which focuses on providing services to treat the patient as a whole and demonstrating cost and quality benefits. Practices that can demonstrate that they have high quality clinical outcomes that contribute to improving the lives of their patients have a better chance of participating in these entities and maintaining their independence.
Private practice surgeons can also participate in more than one OSC, whether run by the hospital or group of physicians.
"The public and private payors are developing creative reimbursement mechanisms partially based on where you can find savings elsewhere," says Dr. Davis. "If the private practitioner can demonstrate that they can reduce excess costs in the healthcare system, they can have a seat at the table."
OSCs place more risk on the providers. However, this can produce rewards under the right circumstances.
"Demonstrating their value allows private practices to negotiate effectively with the large systems of care," says Dr. Davis. "There are tools that can be used to demonstrate clinical quality, provide more efficient care management and manage risk that allow private practitioners to compete with larger entities. Using data to advocate for your patients and your practice can overcome the politics involved in being selected to participate in these OSCs.”
The keys to successfully maintaining a private practice are having a strong patient centered clinical approach, focusing on providing documented quality and value based care and understanding how to recruit new physicians to the practice.
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