Organizational Governance
OBJECTIVE ADVICE
MGMA Health Care Consulting Group
solves practices’ problems
Is bigger better?
C
onsolidation of physician practices is
shifting the industry balance toward
larger organizations. The transition has
been evident since 2000, but passage of
the Patient Protection and Affordable Care
Act and the prospect of accountable care
organizations, or a similar quality-based
model of care delivery, have pushed the
issue to the industry forefront.
Leadership in this “bigger is better” race
has clearly been taken up by the hospital
sector with the creation of integrated
delivery systems (IDSs). Despite the failure
of consolidation efforts in the early 1980s
and 1990s, it appears that today’s IDSs are
more stable.
The same can’t be said of group practice
mergers. Although the trend toward
consolidation is evident, the number of
successful groups on the scene does not
compare to IDSs, particularly if you use
physician counts as the benchmark. Of
course, when addressing the number of
newly formed groups, we must continue to
recognize the number of practices that still
operate as physician-owned practices.
Why practices struggle with
mergers
Physicians have always savored independence, but now many seek employment.
Those who want to remain independent
but choose to merge with other organizations face a number of challenges:
• Mergers are complex and can take
six months or a year to complete —
if they are done correctly. Lack of
a defined result tends to scare riskaverse physicians.
• Failure to achieve a successful
outcome has placed mergers under
the microscope. Although failure is
frequently the result of unrealistic
expectations, lack of commitment
and a lack of understanding about
the process, the reasons are usually
not broadcasted.
• Expectations vary from “We will
conquer the world” to “Forming a
group is a piece of cake” to “We’ll
make our own rules!” It can be
difficult to manage expectations.
• Forming a new group is a challenge,
particularly during the first 12
months, when the revenue stream
is affected by old accounts receivable, external financing and practice
management system transitioning.
The impact can create a cash-flow
dip, but not necessarily a longterm loss.
• Physician turnover can adversely
impact a fledgling organization,
especially if it’s a partner who takes
funding with him. Initial planning
frequently fails to consider what to
do if the doctors leave and how the
people who remain will be protected
financially. Physicians with marginal
buy-in commitments may leave if
they have unrealistic expectations
that are not addressed.
• Structure is fundamental to practice
development and perpetuity. Newly
formed groups often find that individual physician preferences are not
sufficiently subordinated to support
the organizational structure. These
outliers oftentimes become candidates for hospital integration when
all else fails.
When considering other options, ask
why joining a hospital system or an IDS is
an attractive alternative for many physicians. Here are some possible answers:
• Herding instinct. Everyone is
doing it, so it must be good! Those
By Robert C. Bohlmann, FACMPE,
principal, MGMA Health Care
Consulting Group,
[email protected]
mgma.com
• mgma.com/consulting
• mgma.com/bok
see Objective Advice, page 26
©2012 MGMA-ACMPE. All rights reserved.
MGMA Connexion • January 2012 • p a g e 2 5
from page 25
OBJECTIVE ADVICE
who recall the ’80s and ’90s may
remember that post-acquisition
compensation for physicians was
later reduced to fund the buyouts
by practice management companies.
The physician practice management
companies (PPMC) concept hit the
wall a little more than a decade after
it was introduced.
• No risk. IDS employment is very
attractive for many professionals.
IDS compensation is typically related
to productivity and independent of
collections. There is no front-end
investment required to join an
IDS. You also don’t have the obligation to pay off the old guys in
an existing practice. But there is a
red-ink dilemma, which is getting
more attention as financial pressures
mount.
Why is joining a hospital system
or an IDS an attractive alternative
for many physicians?
position if they retain a strong
market position.
The question of where a physician’s
practice resides will depend on his/her
appetite for independence and risk in
contrast to employment in a seemingly
more-defined situation.
To their credit, many IDSs have done an
excellent job creating physician-friendly,
risk-averse practice environments. At this
point, IDSs have a lot going for them.
Future financial pressures may alter current
arrangements, but most systems should
remain more resilient than the private
practices.
Physicians or groups that contemplate
integration should not take life for granted.
A checklist of questions can serve as a
negotiating point to avoid misunderstandings. Conversely, the independent-minded
physician can remain independent. Smaller
practice units may get the crumbs, but
those who grow in a relationship should be
in a better position to control their future.
Starting down the path to a merger may
be more difficult than joining an
IDS, but can you put a price on
independence?
join the discussion: What’s your take on
this trend? Tell your colleagues at mgma.com/
connexioncommunity.
• Lifestyle. Physicians can achieve
a more balanced lifestyle. However,
soon employed doctors realize they
must meet certain standards. Wellmanaged IDSs have strong expectations and compensation is based on
market-based productivity. There
truly is no free lunch.
• Market strategies. Many IDSs
dominate the market and have
strong capital resources. We
frequently ignore that physicians
control the admitting process. Large,
diversified physician groups can have
a sustaining impact on admissions
and therefore retain financial control
with a seat at the table for decisionmaking purposes. Even specialty
groups can develop a negotiating
p a g e 2 6 • MGMA Connexion • January 2012
©2012 MGMA-ACMPE. All rights reserved.