BLOG: Practice mergers as a tool for augmenting profits, part 1

As this blog goes live, we are mere weeks away from Inauguration Day and the start of a new administration in the White House. Good news or bad from Washington and CMS, ophthalmic practice budgets, along with surgeon household budgets, are entering a potentially tender new stage.

In a majority of practices, large and small — urban and suburban and rural alike — crafty managers and doctors have learned how to ramp productivity. They have learned how to find new sources of patients and to offer them new services, including optical boutiques and surgical centers, creating passive income for surgeon-owners. And they have learned to benchmark their resources to deliver each unit of service at the lowest possible cost.

Still, at least in profit-per-surgeon-hour terms, the typical practice is just staying even or perhaps sliding backward a little each year, proving that just about the time you figure out how to make ends meet, they go and move the ends.

As a result, a few practices now (and more later, I think) are dusting off plans to consolidate with amenable local colleagues to share costs and boost profits.

The potential motivations for a merger of independent practices remain the same as for the last few generations. Here is the short list:

1. The potential economic security through better access to patients and contracts as a dominant provider.

2. Increased profits due to facility consolidation, staff sharing and joint marketing.

3. Increased access (and reduced cost through group purchase) to emerging technology.

4. Potentially increased access to capital for growth and expansion.

5. Hedging of business risk. The risk of any one practitioner is pooled with colleagues — a group as a whole is likely to be more risk-taking than an individual doctor or small group.

6. Cross-vending of services by combining primary care, generalists and subspecialists in a single setting.

7. Increased management sophistication. More-qualified administrators can be augmented by outside experts — both can be difficult for smaller practices to afford.

9. Increased practice liquidity and improved exit strategy options.

10. At least in the context of a potentially more brutish future health care business environment, we may all — as doctors and as supporting professionals — enjoy our respective professions more fully in a larger group setting.

In the second installment, we’ll continue the discussion and examine the numbers.