Mergers aren't just for health systems: More physician practices are consolidating, too

Nonclinical tasks are 'overwhelming' for some physician practices

Read Advisory Board's take on this story.

More small physician practices enticed by the possibility of outsourcing administrative tasks and gaining bargaining power, are selling themselves to national firms, Christopher Snowbeck reports for the Minneapolis Star Tribune.

For instance, several small private practices recently joined Florida-based Mednax, which now has a network of more than 3,300 doctors across all 50 states.

Steve Collins, Mednax's SVP for business development, says physician practices agree to be acquired by Mednax so their practice can focus more on patients and less on administrative tasks, such as reimbursement negotiations and bill collection.

Physician practice acquisition toolkit

A lot of physicians are saying: 'Look I've had a lot of pride in being a small-business owner and owning my own practice, but the nonclinical burdens and requirements are getting to be overwhelming,'" says Jeff Swearingen, managing director with investment banking firm Edgemont Capital Partners.

Growing trend

Consolidation among hospital-based physicians, independent physician practices, and other companies has been increasing recently, Swearingen says.  

More independent physician practices are consolidating to handle cost pressures and gain market power at a time of increasing hospital and payer consolidation. Physicians in hospital-based practices are also starting to consolidate, pursuing deals to gain leverage during financial negotiations with their hospitals.

Even insurers are starting to buy up physician practices, taking a risk on nontraditional clinic owners who may be in a better position to make innovative, cost-effective changes, says Halee Fischer-Wright, president and CEO of the Medical Group Management Association.

There's potentially a lot of money to be made … for the group that can figure out how to provide high-quality, low-cost care," Fischer-Wright says (Snowbeck, Minneapolis Star Tribune, 6/16).

Advisory Board's take

Anthony D'Eredita, EVP, Consulting

Some physician groups see private equity and other new non-health system market entrants as an attractive alternative to health system employment and partnership, and we're seeing an increasing number of independent group models as a result.

Such models can provide medical groups with access to capital, infrastructure, intellectual capital, and operational experience that may help them establish a more sustainable and meaningful market position than if they continued to operate independently in smaller practices. Equally as inviting, these non-health system partners tend to encourage and enable the preservation of a physician-led practice and provide an entrepreneurial business model that can drive growth and scale for higher-quality and more cost-effective clinical enterprises.

The decision to align with such a larger enterprise—whether that's an independent medical group, private equity firm, or health system—has generally been an easy one to make based on market factors. However, the decision of which to type of partner to align with can be more challenging.

Many perceive health systems as providing greater compensation security, a more established brand, and a state-of-the-art infrastructure. But many others perceive independent practice as a more entrepreneurial experience with potentially greater rewards, albeit at the cost of greater risk.

The market is continuing to evolve and will include a healthy mix of independent and non-independent physician practices and models. All practice types will need to work collaboratively in mixed networks to provide cost-effective, quality care. And unless a group can provide a complete comprehensive network, both independent and non-independent practices will need to rely on each other for mutual success.

For more information on the characteristics of high-performing health system-sponsored physician practices and why physician employment is deserving of CEO attention, download the white paper, "Why Physician Employment is a CEO Issue." You can also read my blog post on why health systems shouldn't default to employing physicians.

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