When to add—or subtract—physicians

The era of bigger is better is over. There's no one-size-fits-all when it comes to expansion decisions, but here are some guidelines.

By Wayne J. Guglielmo
Senior Editor

Was it really less than a decade ago that doctors, worried about the power of managed care, sought safety in numbers by forming larger and larger group practices?

"The mid-90s were a very unusual time, when emotion overwhelmed business sense," says David C. Scroggins, a practice management consultant with Clayton L. Scroggins Associates in Cincinnati. "But mergers, like anything else, need to be based on sound business reasons if they're going to work."

Consultant Jeff Denning from La Jolla, CA, agrees. You need to ask yourself "what problem am I trying to solve or what goal am I trying to achieve," he says.

Now that the bigger-is-better mania is over, it's time to ask those questions again. Depending on the answers, some practices may need to get larger, adding not only more physicians but more support staff and office space. Other practices can do quite well by simply maintaining the status quo. And still others may need to downsize.

"There's no best size for all practices," says Denning. "But there's a best size for your practice."

Going from one doctor to two

Let's say you're a solo physician and are thinking about adding a doctor to your practice. What's your goal? If it's cutting down on overhead, perhaps you should reconsider.

"Most practice costs—the number of exam rooms, clerks, medical assistants, and the like—go up as volume goes up," says Denning. "All that primary care doctors can really share is the office manager and a portion of the waiting room. So in terms of reducing overhead, there's very little benefit to bringing on a partner."

If, on the other hand, you're more concerned with handling growing patient volume, a new partner may be just the thing, says Denning. But even here he urges caution. Before you go partner-shopping, consider these questions:

• Is there sufficient work for two—or "are you trying to put two pistons in a one cylinder engine?" If the latter, perhaps adding a midlevel provider—either a physician assistant or nurse practitioner—is the better alternative. "That's someone who won't become a competitor," says Denning.

• Will your new partner enhance or dilute the goodwill you've developed over the years? "Certainly, your patients love you," Denning says. "But will they also love your colleague?"

• Do you have a realistic sense of who will cover for whom? "It's very difficult for one physician to cover the practice of the other for extended periods," says Denning.

• How will you resolve differences? "If there's a major disagreement over policy or procedure in a two-doctor practice," he says, "it can result in a standoff that's frustrating to both parties."

There's another alternative for the overworked soloist—one that eases his burden without compromising autonomy or altering practice size. "Only rarely do overworked doctors consider cutting back on patients rather than adding a partner," Denning says. "They just can't stand doing that."

And in certain subspecialties—urology and neurology, for example—there's good reason not to cut back. "The ability to say Yes to patients is crucial because referring doctors will likely quit calling if the answer they get from you is, 'I don't have time right now,' " says Denning.

But if you're a primary care physician who does have the option of cutting back, saying No to new patients on occasion may be the right solution.

Growing from two to "group"

There are definite advantages to expanding beyond the two-person practice—as long as you have a specific goal in mind before you get bigger and are fairly sure that expanding will actually help you achieve that goal. Consider the ramifications involved in these typical reasons to expand:

Improved call coverage. Adding a third doctor to a duo practice can make call coverage much easier. "Two can easily do the work of three when one is absent, even for an extended period of time," says Denning. A three-person practice is also small enough so that most patients will accept being seen by another doctor because they've probably met him before.

But add a fourth doctor to this mix and call coverage gets more problematic. "Once you get over three doctors, a typical practice has too many patients and too much activity going on for one physician to be on call and not be inundated," says David Scroggins. "At this point, practices start to think about establishing two call groups, which means that each doctor is back to being on call every other weekend."

Call coverage can also be problematic for an expanding practice that begins to divide by subspecialty. For example, if a multispecialty group has only one gastroenterologist, the generalists may not be able to cover at all times for the subspecialist. If, on the other hand, the gastroenterologist is on call every night for his subspecialty, will he also be expected to participate fully in the general call rotation?

None of these questions are unsolvable, of course. But they do demand that doctors expanding their practices with an eye toward better call coverage think clearly through their decisions.

Increased capital. A two-doctor internal medicine practice might find the cost of a new chemistry analyzer beyond its financial reach, but not if it adds two or more new doctors to the practice. The extra cash or credit these additional physicians bring in could easily make such a large purchase affordable.

There's a risk, however: Will the additional physicians generate the "critical mass of patients" to make actually owning a chemistry analyzer financially feasible?

If the answer is Yes, says Michael Parshall, a consultant with The Health Care Group, a practice management firm in Plymouth Meeting, PA, then having expanded the group to raise capital for a major purchase is certainly justifiable. But if the answer is No, then the expansion has not only failed to meet its initial objective but also could end up hurting the entire practice financially.

Feeling of fraternity. "Most physicians feel more comfortable practicing with colleagues," says Denning. Adding a couple of doctors to a duo practice certainly enhances the feeling of fraternity, he says. "It's still a small practice by absolute standards, but it's collegial, it's fun, and your call is organized around people you know instead of competitors, as it might be if you were practicing solo."

But once practices get bigger than five members, the "feeling of fraternity is diluted because doctors tend to have fewer things in common," Denning says. That's very similar to what happened to a primary care practice in Michigan.

Beginning in 1985, a Michigan FP, together with his wife, an internist, gradually expanded their two-doctor practice. He brought on new physicians, built extra office space, and increased the number of support staff. By 1996, the practice was up to six physicians, and it was reasonably successful. But a series of internal feuds—made worse by different contractual arrangements the Michigan FP had entered into with the newer doctors—made operating and managing the practice difficult, sometimes impossible.

"As we got bigger . . . I gradually started to lose control," he says.

Today, the doctor is in the process of scaling back and restructuring. By year's end, he intends to reduce the number of physicians by at least two and, on the support side, "redefine a number of job descriptions." Any future growth, he says, will occur slowly and cautiously—if at all.

Going from small group to large

One of the primary reasons a small group gets much bigger is to drive harder bargains at the contracting table or to consolidate their power vis-a-vis other physicians in the community.

A group in Jacksonville, FL, has been especially successful at achieving the second goal. In 1995, the then seven-member, five-office, family practice group was bought by California-based FPA Medical Management. The financial meltdown of that company three years later left the Jacksonville doctors in debt and wondering about their collective future.

But after the doctors emerged from Chapter 13 bankruptcy a short time later, they promptly transformed each of their by-that-time nine offices into stand-alone practices. They also created a billing company to service the offices for a cut of monthly net proceeds.

"Today, the company has morphed into a true physician practice management company, offering billing and a complete menu of practice management services," says family physician Frederic F. Porcase, Jr., a partner and billing company stockholder. In the process, the group itself has grown. Now 29 doctors and 15 offices strong, it has expanded beyond family practice to become a multispecialty primary care group. Each physician-owner gets a $110,000 base salary, along with a monthly bonus of anywhere from 38 to 42 percent of his previous month's fees, depending on productivity.

Of course, not every practice is as successful as the Jacksonville group. And some practices that outmaneuver some of the competition still can't lock up a sizable managed care market. "In a large metropolitan market, if you don't have most of the doctors in your specialty tied up, you don't have that much clout," says consultant David Scroggins. "You certainly won't bring insurance carriers to their knees."

Still, with the right management team in place and enough flexibility to change directions when market situations change, a small group that gets significantly bigger can succeed.

Time to get smaller? Or just get out?

Sometimes contraction is the better course, even in the absence of an organizational crisis.

Consider the case of Eastern Hills Pediatrics, in Cincinnati. By the late 1990s, a practice that had once consisted of six physicians was down to four after the retirement of one member and the departure of another. "The remaining doctors decided to absorb the departing members' patient load among themselves and then re-evaluate the following year," says practice administrator Jennifer Amos.

Why shoulder the extra workload? Because for several years, lower third-party reimbursements had been cutting into the practice's bottom line, says Amos. By not hiring new doctors, the practice had found a way to become leaner and more profitable. Eventually, doctors decided to add two midlevel providers—one promoted from within and one brought in from the outside—to help out. Still, the original decision to downsize proved correct. Indeed, for a group that's grown too rapidly—or faces changing market conditions—downsizing may be the only way to save the practice itself.

It's also important to know when the disadvantages of running a practice—no matter what its size—have begun to outweigh the benefits. After years of trying to build a group practice offering tertiary eye care, North Kansas City, MO, ophthalmologist John C. Hagan III became tired of the constant feuding. "Every time we tried to enlarge the practice a fight broke out and the group split apart," says Hagan. "For 25 years, there was nearly constant discord."

Then about three years ago, Hagan had what he calls his "eureka moment." He joined a large Kansas City ophthalmology group as an employed physician. He receives a guaranteed salary, coupled with a productivity bonus.

"The move has been a lifesaver," says Hagan. "I do only ophthalmology, no eye surgery. I can go to meetings and take vacations without worrying about who's minding the store or generating income. All management, hiring, firing, insurance, and Medicare problems are handled by a large professional staff. And although the practice is owned by six physician partners, I'm treated as an equal and my opinion is highly valued and appreciated."

Looking back, Hagan wonders how some intermediate size groups survive: "As you add doctors with their own agendas and points of view, you create a dynamic that's not unlike unstable rings in chemistry. Too much energy, and the molecules spin out of their orbits."

Rightsizing tips

Knowing the best size for your practice isn't easy, but with patience and a clear-eyed approach, you can get it right. Just remember to:

Identify the problem you're trying to solve—or the goal you want to achieve.

Make sure there's enough work to justify a new hire or a new partner.

Make sure the doctor or doctors you bring on are a good fit.

Consider limiting your patient load as an alternative to increasing your capacity.

Consider the possibility of hiring midlevels rather than bringing on additional physicians.

Be ready to downsize, if that helps the practice's bottom line.

Bring in a consultant for objective advice and a fresh perspective.

Wayne Guglielmo. When to add--or subtract--physicians.

Medical Economics

Jul. 11, 2003;80:61.