The health care marketplace is growing increasingly competitive, and the financial burdens of maintaining an independent practice continue to increase. This can make it more challenging for small, independent practices to survive. Pediatricians can choose to stay small and independent, become employed by a larger entity, or investigate opportunities to band together with other like-minded practitioners to obtain the advantages of a larger size. Potential benefits of growing larger include:
- Ability to negotiate more favorable group purchasing terms for supplies and vaccines
- Increased availability of resources to implement joint ventures and establish a more professional business infrastructure
- More personnel to share on-call burden or to implement practice initiatives
- Attainment of greater market power, which can enable the practice to negotiate fees and contracts
- Reduction of overhead expenses by centralizing billing and management
While the benefits are many, growing larger often comes with trade-offs. Quite often, the larger and more integrated a group becomes, the greater the loss of independence and autonomy. Below is an overview of the various models, including a discussion of their respective pros and cons.
Becoming Employed by a Larger Entity
Becoming an employee of a larger entity offers various opportunities, challenges, and risks.
- The larger organization takes on some of the practice’s responsibility, which can lead to reduced administrative burden for the practice, economies of scale and cost savings; however, the cost savings and other benefits may or may not be shared by the individual physician.
- The larger organization will have an established governance structure. Some questions to ask include:
- What is the philosophy of the organization? Is it run in a manner that benefits patients and physicians, as well as the organization?
- How are the needs of small practice physicians represented in the governance structure? If a multispecialty group, how are the needs of pediatricians and pediatric patients represented in the governance structure?
- How are employment contracts negotiated from year to year? Will initial terms (sometimes used to entice pediatricians to join) be maintained? Are there protections against termination of the physician’s employment, and how long do those protections last?
Staying Independent and Growing Larger Organically
Organic growth requires a strong leader with a vision for the practice as it grows, as well as resources to implement that growth and expansion. Additionally, staying independent may be easier if the demand for services is high in your community. For example, the only pediatric practice in a 4-county rural area would probably have more negotiating power and patient demand than a small pediatric practice in a suburban area that is saturated with pediatricians. Differentiating your practice from others by embracing patient-centered medical home, technology, and ancillary or other services designed to improve quality can also help your practice compete more effectively.
Establishing an Independent Practice Association
An Independent Practice Association (IPA) is a business entity made up of a group of independent physician practices who cooperate to reduce overhead expense and to implement business ventures such as innovative care delivery models. Practices in an IPA can maintain fiscal independence, with separate tax structures, but are limited in the degree of negotiating power that they can exert, since it is not possible to share contract information or coordinate approaches and responses to insurance companies without fiscal integration under a single tax ID number. Because of legal implications of this structure, legal advice is needed when considering forming or joining an IPA.
Forming a Group Without Walls
A Group Without Walls (GWW) is a hybrid of the IPA and a full practice merger. It involves full fiscal integration with a common tax ID number, which allows a GWW to jointly negotiate fees. A GWW also requires a common fee schedule, standardized benefits and equally shared ancillary service revenue.
A GWW allows for centralization of financial management, including HR, payroll, benefits and, importantly, negotiation and contracting; however net revenues can still be distributed to individual practices based on productivity. The GWW can offer the individual practices who join the group the opportunity to retain clinical and staffing autonomy, allowing the physician to maintain some independence in practice decisions. The larger scale of the GWW provides greater support to implement “best practices” such as medical home certification and other quality improvement initiatives, which will become more important in achieving optimum revenue growth under value-based payment models. A GWW is one model which offers a compromise between the need to grow and the need to maintain some degree of autonomy.
Full Asset Merger
A full asset merger is the merging of 2 or more independent practices, with all assets of the merging practices owned by the new practice. It is most similar to a marriage, so deciding with whom you can successfully work is the key. Practice culture and economics must be closely examined for compatibility and flexibility. Good advice from accountants, bankers, lawyers and practice management consultants is vital, as is a business plan that is well thought out. Below are some key questions to consider when pursuing a full asset merger:
- Is there agreement on rules and bylaws?
- How will the practice leadership be structured? How will decisions be made? Will there be an Executive Committee and who sits on the Executive Committee?
- What is the practice culture in terms of the balance between productivity and lifestyle?
- What type of compensation model will be used for physicians? Will compensation be based on productivity? Will a transition period be needed to equalize salaries when one merger partner brings more to the table initially?
- What benefits will be provided and how will these be structured (eg. pension, retirement, etc)?
- What will partnership agreements look like? What will partners be responsible for?
- Will the merged practice employ physicians who are not owners/partners? If so, how will these employed physicians be managed?
- What personnel and expertise will be needed?
While there are many models, there is no perfect model. The landscape will determine the best model for the practice.
American Academy of Pediatrics