Survival Tips for Physician Practice Consolidation

As merger and acquisition activity consumes independent physician practices, medical doctors need to weigh their options, says Nicholas Grosso, MD, president of The Centers for Advanced Orthopaedics in Bethesda, MD.

In addition to leading the orthopedics practice, which has more than 170 physicians, Grosso is a practicing orthopedic surgeon.

Orthos Top Physician Compensation List in 2017

He recently shared his perspectives with HealthLeaders on the wave of M&A activity inundating independent physician practices across the country. The transcript below has been lightly edited.

HL: For independent physician practices, what is the minimum scale and set of capabilities needed to maintain financial sustainability?

Grosso: It's hard to give a minimum, because the biggest challenge facing small practices today is the increasing burden of regulatory compliance.

There's no question that practices with less than 15 physicians will have difficulties with the costs associated with MACRA and MIPS compliance. For example, a Government Accountability Office report found the cost to be close to $40,000 per doctor.

Physicians will need to decide whether these expenses are sustainable or whether they need to join a health system or larger private-practice organization, as many practices are doing.

HL: For independent practices with at least a dozen physicians, what are the primary factors to consider when joining a large physician organization?

Grosso: As with any business venture, you have to look at increased revenue and decreased costs. How would joining a larger organization benefit you?

For example, private practices interested in joining The Centers for Advanced Orthopaedics look closely at the efficiencies and savings we can provide with commercial payer contracts, medical malpractice insurance, data mining technology investments, purchasing contracts, and compliance management.

It's also important for practices to consider whether joining an organization such as The Centers for Advanced Orthopaedics would offer a clearer pathway to retaining their patient base or finding a new patient base.

The concern is that as hospitals buy up primary care providers, they'll create narrower networks. At The Centers, we work hard to maintain that patient funnel for our physicians.

HL: For independent practices with at least a dozen physicians, what are the primary factors to consider in a merger, acquisition or partnership (MAP) transaction with hospitals and health systems?

Grosso: It's important to look at the long-term costs of an acquisition or merger. We're seeing physician groups across the country receive financially advantageous contracts when they are first purchased by a hospital or health system.

But typically, the hospital has to cut the pay in the second contract, and there is even more pressure on physicians to perform and meet goals.

Physicians also lose a lot of independence in decision making, even when it comes to something like the total joint replacement you're allowed to use.

If that's not the lifestyle you want, it can become burdensome. In contrast, doctors at larger physician groups maintain their credentials at multiple hospitals and continue to have full control over patient care and surgery, which is just as important as the financial considerations.

HL: Is there still a financially sustainable market niche for "mom-and-pop" physician practices or is assimilation inevitable?

Grosso: It's going to be harder and harder for solo practitioners to comply with the regulatory burdens of MACRA and MIPS. They could just take the penalty for failing to comply—which is up to 9% of annual revenue—but that's a huge hit for a practice.

The risk/benefit analysis has to be done. Another option would be to join a clinically integrated network as a partnership with other private practices, joining together to manage compliance, billing, and other back office work.

But this option is hard because there are not enough small practices left to establish market weight. You have to have enough groups to make it work.

HL: Is the trend of health systems and community hospitals employing ever-increasing numbers of physicians likely to continue unabated?

NG: That employment trend is actually slowing, at least in orthopaedics, and it's because of cost. A study by the National Institute for Health Care Reform found that hospitals can charge more than double private-practice fees for the same service.

Hospital care is not going to achieve the goal of decreasing healthcare costs. As time goes on, the employment trend will swing back to independent private practices because that's where we can innovate—improving outcomes and decreasing costs.

It's important to let new physicians know that the private-practice model is not only viable, but also could soon be preferred. Most medical students are planning on hospital or health system employment because that's what they know.