NY Group Rethinks Physician Consolidation to Add Long-Term Value

A group practice in New York is centralizing business operations with their peers to keep practices independent in the face of rapid physician consolidation.

March 18, 2019 – Physician consolidation, value-based care, and other market pressures are sounding the death knell for many small and independent practices.

Less than a third of physicians owned an independent practice in 2018, according to a Physicians Foundation and Merritt Hawkins survey. Instead, almost half of the surveyed physicians said they closed shop and/or started working for a hospital or medical group.

Surviving as a small or independent practice in the current healthcare economy is hard. Providers are competing against large, integrated organizations that are just getting bigger. Healthcare reforms are also requiring providers to implement the infrastructure and practice transformation necessary for the shift from volume to value all while reimbursement rates are declining.

Hospitals and health systems seem to have an upper hand with their larger pool of resources. And the organizations are rapidly swallowing up practices to realize efficiencies through scale, reach new patients, and better control costs and outcomes.

Physician practice owners are in a difficult position. They can try to survive in an increasingly competitive economy and face possible closure or bankruptcy, or merge with a larger organization and lose their autonomy.

But practice owners may have another option that will not only allow them to survive in the new healthcare economy, but also thrive amid rapid physician consolidation.

“There are opportunities to streamline and standardize services through some type of central business structure, whether that be an MSO, a statutory merger, IPA, or some other vertical integration,” suggested Deepak Kapoor, MD, Chairman and CEO of Integrated Medical Professionals (IMP) and Chairman of Health Policy for the Large Urology Group Practice Association (LUGPA).

Based in New York, Kapoor runs a multi-specialty physician group that delivers about 20 percent of the urology care in the state and 1.6 percent of the urology care in the entire country. That makes IMP the largest organically-grown practice in terms of service volume that grew without the help of private equity dollars or corporate sponsors.

Despite market pressures like value-based care and physician consolidation, the group has grown to 100 physicians across nearly 50 care sites in the New York metropolitan area.

Kapoor attributes IMP’s growth to the group’s unique business model. Each physician in the group is considered a partner, not an employee. Therefore, physicians feel like they own the group even though they are centralizing their businesses to implement the latest innovative technologies and best practices.

“Any individual practice only has so much bandwidth to develop initiatives on their own,” Kapoor said. “If we can put the best heads together from major players in the market, then we should be able to be transformative.”

The group’s business model will mark a shift in physician consolidation activity.

“In the past, physician acquisitions were designed toward exit, but now we’re going to start seeing physician consolidation that’s designed around value and growth,” he emphasized.

SHIFTING PHYSICIAN CONSOLIDATION ACTIVITIES TO ADD VALUE

Physician practices will need to start rethinking their consolidation strategy to survive in the changing healthcare landscape. Rather than merging or selling the practice to keep the doors open, deals will need to also add value to the practice.

“In a nutshell, the future does not belong to people that can just sell more widgets. It’s going to belong to practices that can deliver the best widget at the lowest cost. And in our case the widgets are the professional services that we provide,” he said.

“That’s where we see smaller groups of seven or fewer physicians start floundering. What we’ve observed in urology is that once you get to seven or more docs, you need to have a dedicated business person as opposed to an office manager or a managing partner. There’s just too much to do.”

But many physician consolidation transactions are not helping practices create the business infrastructure necessary for survival in the current economy. Instead, practice leaders are putting their business in the hands of actors who may not have value on the mind.

For example, partnering with a private equity firm may help some practices stay afloat financially. However, the firm’s ultimate goal for partnering with the practice may not give physicians the long-term, strategic help they need.

Some private equity firms have the goal of selling to a larger firm, Kapoor warned. Therefore, investing in a practice’s transformation into a value-adding organization is not a top priority. Those investments could dilute from the practice’s purchase price.

Practices with the goal of strategic growth need to make sure they are selecting the right partner. While some private equity firms and corporate sponsors may help practices survive, partnering with peers may be a better option for small and independent practices.

IMP took the latter route and plans to expand further thanks to the success of the business model in their market.

“We want to be able to work with other major urology players in the United States that also share the vision of growth and create an infrastructure by which we can share everybody’s best practices,” Kapoor explained.

“For example, we happen to be really good at revenue cycle management. Our operating costs are among the lowest in the United States. If we take what we do well and we can scale it, then we can help others achieve value. And other practices may have call centers, a great group purchasing option, clinical cycle management, or oncology care management pathways that we could learn from.”

IMP already has some of the infrastructure necessary to scale the business model and share best practices.

“We have offices ranging from Rockland County all the way east to Fort Jefferson. The demographics of my office in the South Bronx and the demographics of my office in Bay Shore are not even remotely alike,” he explained.

“We’ve had to put in infrastructure that enables us to function in a wildly-diverse environment,” he continued. “Our entire office and structure with 50 different offices in eight different counties is built on a tech engine. Everything is being run virtually. There’s no reason why we can’t do that across more providers as well. We should be leveraging technology to be transformative.”

“The ideal is to share some of these best practices, whether it be RCM, call centers, group purchasing, or other types of administrative functions. None of those functions have to be done on site all the time. We can do from anywhere.”

IMP intends to explore how much more they can scale the business model and realize efficiencies by doing so. The group is currently in discussions with other practices across the US to outsource business operations through a centralized management services organization (MSO).

Shifting the business operations will help the group focus on delivering high-quality, lower cost care, which will demonstrate the group’s value to consumers and payers.

“We’re in a declining revenue market,” Kapoor stressed. “We’re getting paid less and less to do our services. But to make more by leveraging margins in a disappearing market is not a long-term strategy for success. You have to be able to demonstrate that you’re creating value in the market.”