Doctors are facing more challenges than ever.  Costs are increasing.  Reimbursement rates are stagnant and/or becoming less certain.  This is causing many independent physician  and dental practices to critically look at how they are now functioning and whether they should continue on as small, independent, entities or not.

In some situations, staying small and independent, perhaps with a concierge medicine or direct contracting approach, might work.  For others, entering into joint relationships with other practices or other health care entities makes sense.  Some of the opportunities relate to affiliation with larger regional and even national physician groups. Others may join hospitals or health systems.  Others may be aggressively pursued by private equity investment groups.

Rising costs can be attributable to many things.  Some of it relates to infrastructure improvements, including going from paper based medical records systems to electronic medical records.  The ever increasing costs to pay staff to handle all of the administrative burdens now placed on medical practices, is often a big factor as well.

Reimbursements will not improve any time soon in the big picture.  They might actually fall as many are trying to reduce the overall expenditures for healthcare.  In addition, all of the new value-based pay initiatives and attempts to move away from fee-for-service, at a minimum, can be confusing for many practitioners as they try to map out their futures.  How will things be measured?  What infrastructure will be needed?  But, being larger can allow for improved reimbursements.

For some, the doctors may decide that they want to continue to be the owners of their practices and not have other “bosses” but, they may feel they need managerial assistance to paddle their way through the rough waters of the healthcare world today.  Continuing to practice independently and retain ownership of their particular practices is a good way to go if they are able to find and enter into a good management services agreement with an organization that knows what it is doing and can be a real benefit to the doctor owned entity.  Among the things practitioners may be looking for would be efficiency and organizational structure in governance, operations, revenue management, population management, and doctor management.

For some, if they are fortunate enough to have the opportunity to be involved with such an organization, being a part of a large, physician-owned and managed, single specialty or multi-specialty practice is an excellent way to go.  There are many who continue to want to have physicians be looked at as more than just “worker bees” and want to be involved in the planning, decision-making and equity ownership of a good practice situation.  It is not easy to get that type of thing off the ground without the proper funding and management in place.  However, it is being done and has been done.

In my practice, I have seen a marked increase in private equity groups looking into private practice consolidation situations.  The ones I have seen the most to date have involved dermatology, urology, ophthalmology, orthopedics, and some of the hospital-based type practices such as radiology, anesthesia, and emergency medicine.  Typically, in the private equity deals I see, they pay a really good price for really solid practices.  However, part of the transaction often involves the selling doctors being remunerated at a lower compensation level than they had been prior to the sale.  This provides the “profits” that the private equity folks need to justify the purchase price.  In some of these deals, equity in the private equity entity is also offered to the EBITDA-based selling doctors as part of the transaction.  Obviously there is risk in any of these deals.  However, since these private equity investors generally look at these purchases as a three to five year window, they usually try to flip things within that timeframe.  Some doctors have done very well with that.  Again, they are no guarantees and it is not something that is happening across the board in all practice situations.  However, for some doctors looking to cash out now, it can work very nicely.

Dermatology is really hot right now.  Although it is not right for everyone, some physicians have viewed the full or partial sale of their practices as a positive thing to allow them to spend one hundred percent of their professional time providing clinical patient care.  Centralization and consolidation of administrative functions (billing, scheduling, marketing, personnel, purchasing, etc.) can be a real benefit as well if you are dealing with the right people who know what they are doing.  In some cases, the sellers of these thriving practices have teamed up with investors to provide more equity to allow for the expansion of the practice footprint in a particular area, with those doctors getting an equity stake in the bigger organization.

Physicians also have and will continue to consider integrating their practices fully (often by sale and post-sale employment) or on another basis with hospital systems/academic medical centers.

The Eastern Pennsylvania and South Jersey market has seen a lot of consolidation and change in the hospital marketplace.  It is happening elsewhere also.

It was recently announced that Paladin Healthcare will be buying Hahnemann and St. Christopher’s.  Cooper University Health System recently announced it would be acquiring Lourdes Health System (Camden and Willingboro) and St. Francis Medical Center in Trenton.  Jefferson Health has been very aggressive over the past two years and has joined together with Aria Health and Abington Memorial Hospital as well as Kennedy Health System in South Jersey.  Penn Medicine is also expanding dramatically.  A few years ago it took over Chester County Hospital.  It is adding Princeton Health Care System and also had taken over Lancaster General Health.  Reading Health System recently acquired five community hospitals in southeastern Pennsylvania from Community Health Systems.  They included Brandywine Hospital, Chestnut Hill Hospital, Jennersville Hospital, Phoenixville Hospital, and Pottstown Memorial Medical Center.  That is a major expansion for this West Reading-centered hospital system. Crozer-Keystone Health System has joined forces with Prospect Medical Holdings, Inc.

All of these changes in the hospital market in the area may provide opportunities for many physicians and medical groups as they ponder their next steps.

Lamb McErlane has been in the middle of advising many of our doctor clients as they evaluate what is best for their professional futures.  The challenges and opportunities are many!

Vasilios “Bill” Kalogredis has been advising physicians, dentists, and other health care professionals and their businesses for over 40 years.  He is Chairman of Lamb McErlane PC’s Health Law Department.  He can be contacted by email at bkalogredis@lambmcerlane.com; by phone, 610-701-4402; or fax, 610-692-6210.