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BLOG: The three Cs of practice consolidation
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While the future of the Affordable Care Act remains uncertain, one element of health care “reform” won’t go away: Costs must be contained. Inevitably this means less monies flowing to ophthalmology practices for the same work. In other words, we must think in new ways about our business. In the cover story of this issue of OSN, we explore the investment of private equity in ophthalmology practices and why this may make sense for some. While private equity investment is a complex consideration, consolidation of practices makes a lot of sense for at least three good reasons:
1. Coverage. Naturally, larger groups allow simpler call schedules and easier management of patients when one doctor takes vacation. Subspecialty availability is another big advantage. When dealing with a train wreck corneal ulcer, isn’t it nice to have a specialist across the hall? IT solutions, like sophisticated EHR, are also more affordable to large groups and allow seamless flow of information. Complain as we do about electronic health records, they do allow clearer information exchange within a group than old paper records, and burgeoning solutions like our own MDbackline software make even more sense for larger practices.
2. Contracting. Insurance contracting is becoming increasingly complicated, and solo practitioners or small groups can scarcely afford the time or outside resource to negotiate smartly. In larger groups, the difference between a good and bad contract can have huge financial implications, so the investment in help to optimize new and renegotiate old contracts, from inside or outside the practice, is well-justified. Also, larger groups have more “leverage” in these negotiations. A carrier can scarcely afford to lose a group of 20 popular doctors, whereas one or two scarcely can motivate them to bend their rules.
3. Capital. Want that new laser to perform SMILE? Needing an office remodel? Investing in the future takes capital that small practices can only obtain by personal guarantees by the doctors. That means if you default on a loan, they foreclose on your house. Larger practices, with higher earnings and stronger balance sheets, have an easier time obtaining loans at competitive rates. Often these are tied into the overall banking relationship of a larger practice, whose collective accounts, credit card statements and other transactions are very appealing to a financial institution that wants to court their business. Smaller practices just don’t have this financial appeal.
Most of us wish that health care reform would just go away and we could practice as we always have. Unfortunately, this is just not realistic. Providing more efficient care under new models of delivery is a certain part of our future so maintaining our care standards while rethinking our practice structure makes good sense right now.
For me, working as I do in a practice like Harvard Eye, with about 15 doctors, brings much comfort, security and collegiality. But I wonder if even this number may be too small to remain relevant in the challenging future of health care.
Disclosure: Hovanesian reports he has equity in MDbackline LLC and Harvard Eye Associates.