Editor’s note: Welcome to Practice Points, by physician practice management experts Capko & Morgan. It is their belief – and ours too – that the more education sales reps receive on the issues facing their customers, the better prepared they are to provide solutions. Their emphasis is on helping physicians build patient-centered strategies and valuing staff’s contributions.
By Laurie Morgan, Capko & Morgan
There’s a practice valuation expert we turn to when clients want to sell their practices. Most often, he’s hired for pricing help by hospitals that are looking to buy physician groups. But when we contacted him recently for a client looking to sell and retire, he shared some interesting data about his recent project mix. He thinks he might be seeing a counter trend to the hospital practice acquisition spree of recent years.
Bigger isn’t always better
“I thought it seemed like calls about practices being sold back to their physicians were increasing,” he told us. “So I looked closely at our calls for the past couple of years, and it turned out my hunch was right.” He found that at least a third of his recent inquiries were about backing practices out of the hospitals that had bought them. In some cases, the doctors were frustrated by the structure of employment. In others, it was the hospitals that had found the upside of owning a practice to be less than expected.
In our work at Capko & Morgan, we’ve also noticed a recent flurry of prospects looking to set up independent practices. Sometimes, the calls have come from physicians who’ve been employed, and think that they can be more efficient and more profitable on their own. Other times, we’ve heard from doctors disappointed by mega-groups they thought would bring them negotiating power and more income, but seemed to mostly add bureaucracy.
Physician employment not all upside for hospitals
The idea of hospitals getting warier about buying practices caught us a bit by surprise. With facility fees enhancing Medicare reimbursements for physician services, practice acquisitions have seemed pre-destined to be profitable. Even considering how challenging and costly mergers can be, the optics of practice purchases look pretty good from the bleachers.
But thanks to Medicare copays and deductibles, facility fees drive up costs for patients, not just payers. With disparity in reimbursement across settings hitting both voters’ wallets and the Medicare budget, legislators have begun to focus on equalizing the facility and non-facility fee schedules. The Budget Act of 2015, passed late last year, kicked off this reform. It also seems to signal that more efforts to reduce hospitals’ reimbursement differentials are around the corner.
Besides the likelihood of the hospital payment advantage eroding, other data are surfacing that make practice acquisition decisions more complicated. Moody’s, for example, recently released an analysis linking high levels of physician employment to lower hospital profitability. While employing physicians drives more hospital revenue, Moody’s found, it also increases costs for technology, employee benefits, salaries, and other ongoing overhead.
Push me, pull you of healthcare reform means more change
Healthcare reform’s downward pressure on reimbursement, and especially on advantages like facility fees that hospitals have counted on, makes the upside of acquiring practices less obvious. But at the same time, other elements of the ACA, especially the drive towards ACOs and alternative payment models, continue to pull hospitals towards acquiring practices.
If anything, the decision-making for the potential acquirer and target practice seems to only be getting more complicated. Much depends on the local competitive environment facing hospitals and practices alike. And individual preferences will continue to make employment attractive to some doctors, and anathema to others.
Market forces, government intervention, generational shifts in career goals, and other competing forces all drive choices to join the consolidation wave or go independent. The only thing that seems certain about the evolving structure of the medical practice market is more change.