The Challenges of Owning a Practice

Owning Medical Practices

Marc Halley, president and chief executive officer of the Halley Consulting Group, a physician practice management and consulting firm, is more than somewhat familiar with the trends and challenges that surround owning a medical practice. His recently published book, (AHA Press, January 2011), focuses on the strategies behind the core business imperatives of owning medical practices. In a recent conversation, Halley shared his thoughts on trends in this area.

Is there a clear trend taking place today regarding the ownership of medical practices?

PMD:

There is a significant trend. The effort [on the part of hospitals] to purchase primary care practices has increased over the last few years, in particular because hospitals once again view them as what used to be called the gatekeeper, but certainly the holders of market share. And as they start looking at accountable care models, and patient-centered medical homes, those are focused on capturing lives and managing lives, both in health and in illness. And the majority of that occurs in healthy people in a primary care office. Once they have a chronic illness or need a procedure, then they get referred to a specialist and they ultimately end up in a hospital.

Halley:

But, by and large, primary care equals market share; folks have discovered that again. So hospitals all over the country are trying to acquire primary care practices to secure their market share, their access to patients, and they are acquiring specialty practices and/or employing specialists to secure their service lines.

If access to patients is a hospital’s motivation for owning a medical practice, what’s a physician’s motivation for either owning or selling a medical practice?

PMD:

Physicians are motivated for a couple of reasons. One, they see the trends in health care; it’s becoming much more complex from an administrative standpoint. There’s downward trend in reimbursement, which everyone sees. And that’s projected to continue, so their income levels in private practice will drop. In addition to that, the vast majority of young physicians coming out of their training programs are more interested in an employment relationship as opposed to being entrepreneurs like their predecessors.

Halley:

For the older physicians, how do they get their cash out of these assets that they’ve worked so hard to build up over time? Now the only potential buyer is another practice, and they usually don’t have the capital to do that, or a hospital, which does have the capital to acquire those practices. So, sometimes even physicians who would prefer to remain independent end up having to sell their assets to a hospital because they don’t have any alternative.

Of those physicians who prefer to remain independent, can investment in technology, like electronic medical records, help them stem the tide?

PMD:

Almost everybody we talk to and have worked with underestimates the cost of installing and maintaining an electronic medical record. It isn’t just getting into the medical record, but maintaining the record, especially training. The cost of supporting that EMR is huge. And there have been some private practices that have done that, and done it well, but there are also some that have not done it well, and the cost of the technology alone for a small solo or two-provider practice is huge. So the real issue is having enough capital and being able to justify the technology that would help maintain the practice.

Halley:

Can practice developing, reaching out to bring in new patients, help to maintain a practice?

PMD:

A primary care practice builds based on the service that a physician and his or her staff provide to primary care patients, who then refer other patients. And if there are enough patients to go around, and a practice does a good job, it will fill up. The patients are a passive sales force.

Halley:

If I’m a specialty physician, my ability to remain connected with referring physicians who are, most of the time, primary care physicians, is absolutely critical. But if the hospitals in town buy most of those physicians, and then the hospitals mandate referrals only to the hospital’s affiliated specialists, now I’m in trouble. If I can’t stay in the referral path as a specialist, I’m out of business. So practice development can have an impact, but it has more to do with changes occurring in the local market from a competitive standpoint.

Given today’s environment, are we seeing, or might we see, the end of the independent medical practice?

PMD:

I hate to admit it, but I think we’re seeing the demise of the traditional, independent, small cottage industry that used to be medical practice — largely because I don’t see physicians having the will to fight the fight.

Halley:

I salute physicians who have been independent for all these years and have maintained it. I salute those who are today maintaining their independence. But barring those exceptions, it’s tough today to stay in private practice.