A modest proposal revisited for local practice growth, development and collaboration

A move toward the incremental consolidation of compatible local providers may be beneficial.

Issue: October 10, 2016

ByJohn B. Pinto

“Alone we can do so little; together we can do so much.”
– Helen Keller

“If you want the long road to success, do it all by yourself.”
– James Jean-Pierre

Fifteen years and three recessions ago, I wrote in these pages about the growing stresses of being an ophthalmologist and how these might be practically, proactively addressed by the profession.

Our pipsqueak irritations back then (remember the anguish of falling below 50% profit margins?) have all grown up into full-throated tribulations. Rising costs. Falling fees. Galloping regulations. Panel lockouts. And all occurring at a time when the average ophthalmologist is now in his or her 50s and finding it harder to muster the energy to lean into the current headwinds.

Here is a reprise of what I wrote then, updated for the times.

The current breath-holding stage we are in

Starting in the early 1990s, in an environment of spiraling health care costs and a stagnant economy, significant national efforts were launched to rein in the entire health care system. This involved a series of trial balloons.

There was an experiment to drive care to the most cost-effective providers, a “centers of excellence” approach, with a limited number of providers in each of several trial cities awarded a discounted contract for cataract care. Then there was an effort to require prospective review for cataract surgery — you had to call up a review nurse for approval on every case. Then Medicare HMO products were encouraged. These efforts and others fell out of favor for three chief reasons:

The health care system is massively complex and continues to be resistant to global/top-down reform.
Consumers lashed back. Ours is too litigious and demanding a society to passively accept substandard or rationed care.
But mainly, health care reform dropped from the scene because the economy improved in the late 1990s and health care inflation was eclipsed by buoyant times.

So where are we now? Basically, where we stand is a little like where we were around the mid-1990s. The country is still emerging from an economic downturn. Health care insurance costs are inflating at a double-digit pace, which makes health care a wonderful political target.

Depending on which health systems analyst you listen to, there are different scenarios for what will drive American health care delivery and payment reform in the years ahead. Will the next national emergency give new voice to the call for a single-payer system? Will pre-paid (HMO) health care spring back to life and continue once more to gain market share? Will cost-shifting from government and employers to patients lead to more rationalized buying habits? Will this in turn slow the pace of health care utilization and cost inflation as patients directly ration their health care spending? Or will we simply muddle through, with a hodgepodge of small changes but no grand design?

No one view seems ascendant at present. Elements of all of these are embedded in Obamacare.

One of the few advantages of age is a maturing perspective. And my view is that our current breath-holding moment feels an awful lot like the way things felt in the 1990s, immediately before there was a flurry of experiments in provider consolidation.

Most of the resulting physician practice management companies, or PPMCs, (Physicians Resource Group on the New York Stock Exchange, among others in the eye care space) became failed experiments. But everything old is new again, and the latest crop of financiers, mostly forgetting the lessons of the failed PPMCs, is rebooting ophthalmic practice consolidation in the form of holdings by private equity companies. I will predict here that the majority of these will fail also, with a few exceptions.

But rather than wait on the bench for a private equity capitalist to help your small practice bulk up and be part of something stronger, you can take the initiative locally.

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How big is big enough?

Soloists and small groups are clearly under pressure to consolidate and share not only staff and facility resources, but more importantly the leadership and technical resources needed to respond to growing regulatory burdens.

But overshooting and practicing in a much larger group — let’s say in the 10+ partner range — although gratifying for its relative market power, can lead to diseconomies of scale, partner discord and untenable enterprise complexity.

For most surgical specialties including ophthalmology, the scale that is just right falls in the middle, at about five to eight surgeons.

So if as in the 1990s growth through consolidation is inevitable, what are going to be the most viable pathways this time around, beyond selling to a private equity company? Here are two:

Consolidation with regional health systems (Mayo, Cleveland Clinic, Sutter Health and the like), which is troubled by a loss of control as an employed provider.
Formal economic integration into larger regional eye care practices (such as Barnet Dulaney Perkins in Arizona, with 18 locations and nearly 50 providers), which is troubled by the considerable work it takes to completely merge two practices, much less 20.

But perhaps a third option exists: to less formally integrate with compatible colleagues locally.

The American Eyecare Union

Eye surgeons have an innate desire for independence, personal control and the highest possible near-term income. Despite significant changes to the profession over the last 25 years, ophthalmologists desire to work as owners of relatively small private practices. And a majority of residents and fellows I speak with report their desire to be partners in a private practice one day. Can this desired old-school professional life be delivered to the next generation of eye surgeons?

Perhaps the answer is to be found in a growing interdependence between providers in each market: something more than independence, but less than full merger. The new model, for now let’s call it the American Eyecare Union, or AEU, would be a hybrid transaction model between local practices and their owners. Here is a first pass at what AEU might look like in your market. Elements of this have been taking place for years in the most challenging markets such as Los Angeles, with an excess of providers and deep managed care penetration.

1. A single practice would be the seed of AEU locally. It simply does not work to bring 20 different practices into a room to form a union. America was founded incrementally one state at a time; so, too, must the consolidation of providers be stepwise. A second practice joins in, followed by other member practices acceptable to the growing base.

2. AEU would ideally be bi-professional, with both ophthalmology and optometry practices welcome to align locally.

3. Each market has its own opportunities and challenges. A union of providers would be as loosely or tightly knit as the local conditions demand. In kindly markets with less competition from peers or institutions, practices might only collaborate on simple management issues, comingling their staff enough to share success factors and improve everyone’s operations. In deeply challenging markets in which group contracting is increasingly obliged, AEU could fully integrate both clinically and in business terms.

4. There would be “union dues,” perhaps a franchise-like 5% to 7% of net collections. That is fair to large and small practices alike and far below the kind of management tithes that are now being charged by the neo-PPMCs. These dues could create enough of a war chest over time to respond to even the most serious local conditions. All funds would be collected and spent locally, unless one day AEU morphed into a national organization.

5. Like any functional trade guild, AEU would, from a customized, local perspective, advance member interests: education to improve the management fluency of both doctors and lay staff, a central business office to collectively deal with the unique challenges of local payers, group services to help find and train technical staff, and perhaps even a local temp service. There could be group branding and marketing, shared capital equipment, and even a shared building or ASC. Ophthalmic capital equipment costs are rising. Local AEU members would have the ability to develop testing centers to reduce duplication and share resources.

6. A retiring solo doctor would have ready-made market ties to potentially help fold his practice into a fellow member’s organization. Even if the local structure is loose — more doctor’s club than integrated practice — individual practices could merge or acquire one another, fully integrating economically.

7. Although the greatest benefits to providers would always be on a local level, I believe that something like AEU could one day be a regional or national organization. With enough local markets, local successes and proven value to local member providers, a national organization could eventually arise, inclusive of a buying group, national contracting and shared regulatory response resources to play head-to-head with payers. This will take many years.

Like farmers, ophthalmologists can unite

Since the dawn of agriculture, farmers have collaborated for mutual benefit. It started out informally. “How did that new potato hybrid work out last year?” “You help me with my barn, and I’ll help with yours.” It continues to this day, with cooperative grain storage, political advocacy, shared capital equipment and group contracting for produce sales. On small farms, when one farmer retires and there are no children to take things over, the neighbors are the first called in to bid on the property. All the while, huge corporate agricultural conglomerates operate alongside the smallest boutique truck farmer. And both seem to survive, even when crop prices soften.

Maybe the future of eye care will be a little like farming today. A few huge corporate and institutional conglomerates will indeed emerge. But the majority of “family farmer” eye surgeons will still find their happiest employment tilling their own patch with the more formalized assistance of their local neighbors. The American Eyecare Union. With the strains, fears and stresses of the day, maybe it is an idea whose time has finally come.

For more information:
John B. Pinto is president of J. Pinto & Associates Inc., an ophthalmic practice management consulting firm established in 1979. John is the country’s most-published author on ophthalmology management topics. He is the author of John Pinto’s Little Green Book of Ophthalmology, Turnaround: 21 Weeks to Ophthalmic Practice Survival and Permanent Improvement, Cashflow: The Practical Art of Earning More From Your Ophthalmology Practice, The Efficient Ophthalmologist, The Women of Ophthalmology, Legal Issues in Ophthalmology, Ophthalmic Leadership: A Practical Guide for Physicians, Administrators and Teams and a new book, Simple: The Inner Game of Ophthalmic Practice Success. He can be reached at 619-223-2233; email: pintoinc@aol.com; website: www.pintoinc.com.