Physician Group Consolidations Let Doctors Be Doctors

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Mary Anne Pazanowski

Financial, administrative, and regulatory demands are pushing physicians into new practice models that are giving them more time to do what they do best—treat patients.

Consolidation and coordination is as prevalent in the physician practice field as it is in other segments of the health-care industry. Physicians have many options when deciding how to get out of the business of running a practice.

A growing number are joining physician-owned, physician-run practices, like New Jersey’s Summit Medical Group, which are stepping up to meet the demands associated with health-care reforms, practice preferences, and a changing business environment, the latter being driven by factors like an increased need for capital to fund investment in health-care information technology, care management, and patient population management resources.

These factors are driving “substantial deal activity” involving physician practices, Paul A. Gomez, a principal at Polsinelli in Los Angeles, told Bloomberg BNA. There are “many potential suitors out there,” Gomez, who regularly counsels clients on health-care deals, said.

Physicians’ Options

In recent years, many physicians have joined hospital- or insurance-based networks. The trend, however, is shifting away from hospital acquisitions, according to David N. Gans, senior fellow at the Medical Group Management Association in Englewood, Colo.

Physicians also can join large, national “strategic” companies, Gary Herschman, a member of Epstein, Becker & Green PC’s health law practice in New York and Newark, N.J., told Bloomberg BNA. These companies often employ doctors in a single specialty and are publicly traded. Sunrise, Fla.-based Mednax, for example provides neonatal, anesthesia, maternal-fetal and pediatric physicians to hospitals in all 50 states and Puerto Rico.

Private equity groups also are making headway by investing in physician practices. Typically, they provide the practice with money to make capital improvements and management services. Investors look for a good return on investment and usually divest themselves of the practices after three to five years.

Doctors can make a lot of money through private equity investment, Herschman, a Bloomberg BNA advisory board member, said. It “could be very lucrative” to throw in with a private equity-backed company, he said. On the other hand, physicians often lose autonomy and control over the practice’s future, and there is no telling who will buy the practice from the investors, he said.

Physician-Owned Practices

Determining which type of group to join is a matter of personal preference, according to Herschman. Physicians think differently about which type of practice group will best serve their needs, as well as those of their patients.

Many physicians opt into another type of practice—the physician-owned, physician-led practice group. These groups usually have management arms to take over day-to-day operational tasks, leaving physicians free to practice medicine. They vary in size and scope—some have just a few doctors; others have hundreds of physicians and other providers. Some groups have a national presence and others are limited to specific regions, Gans said.

Large physician practice groups also vary in terms of the type of practice. Multipractice groups provide patients with a one-stop shopping option, because they offer both generalists and specialists. Having different specialists within the same practice group also helps with care coordination.

Single-specialty groups also are popular. These groups ensure patients don’t have to go outside the group for second opinions or additional consultations.

Because these groups are owned by physicians, their doctors are accountable only to other physicians when it comes to their clinical decisions. The physicians aren’t beholden to shareholders or corporate managers—a big plus for many doctors, Herschman said.

Individual physicians usually have ownership stakes in the practices, so they still have an interest in the firm’s financial performance, he added. Doctors also “may perceive, correctly or incorrectly, that this option provides them with greater and more meaningful opportunities for influencing the direction and growth of the medical group,” Gomez said.

Attractions for Physicians

Physicians who “for business, cultural or professional reasons may feel more comfortable with a close partnership or acquisition by” a physician-owned or led group are attracted to this option, Gomez said. Doctors are “comfortable putting their faith in other doctors with similar training and backgrounds,” Herschman added.

Large practice groups generally have good management and offer a stable future for physicians, Herschman said. They take care of billing and staffing issues and provide doctors with a guaranteed income and time off. Scheduling can be more predictable than in a smaller group.

Groups of this type also usually have sophisticated electronic health record systems and advanced information technology that allows them to monitor patient population health. Additionally, these groups have been able to negotiate favorable payer contracts, Herschman said.

Gans added that many practice groups, especially those in smaller geographic regions, have a strong community focus—something many physicians like. These groups also are large enough to support ancillary services—like laboratory or imaging services. Centralized management of those services lowers patient costs.

Example: Summit Medical Group

Summit Medical Group (SMG), New Jersey’s largest and oldest physician-owned multispecialty practice, is an example of a physician-owned, physician-led practice group. It employs more than 700 physicians and providers. Although best known in New Jersey, SMG is expanding throughout the United States.

SMG buys physician practices, then offers the physicians an opportunity to become shareholders. The firm is picky about its acquisitions, Dr. Jeffrey Le Benger, the chairman of SMG’s board and its chief executive officer, told Bloomberg BNA. The most important element it looks for is a cultural fit, he said.When considering a transaction, SMG looks at the practice’s leadership culture, its revenue cycle, population health issues, legal and compliance challenges, and what the practice needs to be successful, Le Benger said. It takes about two years for a physician group to become fully incorporated into SMG’s culture, he said.Forty-five percent of SMG’s doctors practice primary care, while the rest practice various specialties, Le Benger said. SMG is open to adding practices of all sizes but targets practices consisting of a minimum of five to 40 doctors for its New Jersey-based business. It also looks for individual practices that are in need of capital management services.The company conducts extensive due diligence before buying a practice. If the practice isn’t doing well financially, SMG tries to determine why and discusses strategies for turning the practice’s performance around with its physician owners, Le Benger said.

SMG has grown substantially in the last five years and doesn’t show any sign of stopping, he said.

Management Side

New Providence, N.J.-based Summit Health Management (SHM) is SMG’s management arm. Its aim is to help physicians navigate today’s health-care environment, where the costs of doing business are increasing, reimbursements remain flat, and government and private payers are moving away from a fee-for-service payment model to a value-based payment system, Le Benger said.

Doctors normally are risk-averse, Le Benger said, and they don’t know how to solve the cost/payment dilemma, which affects their individual income. Physician burnout also is a common problem, he said.

SHM provides management services to SMG and manages SMG’s stand-alone ambulatory surgical centers, its real estate, and population health initiative. SHM also manages independent physician group practices and helps manage hospital-owned practices, Le Benger said.

SHM’s goal, Le Benger said, is to relieve stress and “give physicians hope.” Le Benger is a physician who is board-certified in facial plastic and reconstructive surgery, otolaryngology, and head and neck surgery, so he understands physicians’ concerns.

Empowering Physicians

SHM empowers doctors to do what they were trained to do—practice medicine, Le Benger said. Doctors retain ownership of their practices and enter into long-term management services agreements with the company. The doctors determine their compensation structure and develop the practice’s policies and procedures with SHM’s assistance. SHM focuses on improving a practice’s efficiency in five main areas: organizational structure and governance, operations, revenue management, physician management, and population management. The company tries to determine what a practice needs to be successful, then develop solutions to meet those needs, Le Benger said.Create a physician-based leadership culture at each practice it manages and ensuring each practice provides “excellent high-quality empathetic care in an extremely transparent fashion,” is SHM’s goal, Le Benger said. Its core values, he said, are transparency, honesty, trust, loyalty, and professional ethics.The physician-owned, physician-run model incorporated in both SHM and SMG, Le Benger believes, gives physicians the best opportunity to meet the health-care industry’s “triple aim” standards—improving the quality of care and patient satisfaction, improving population health, and reducing health-care costs.

“Physician-led groups should continue to be an active alternative to a potential private equity and health system partnership or acquisition,” Gomez said. Herschman said such groups usually are well-managed and provide physicians with stability.

Both attorneys, however, recommend physicians fully explore their alternatives.

Finding “the right partner with greater resources, capital, and purchasing power, with the capability to make investments, provide resources, and alleviate the burdens of dealing directly with these matters, can be very attractive to physicians and medical groups,” Gomez said.

To contact the reporter on this story: Mary Anne Pazanowski in Washington at mpazanowski@bna.com

To contact the editor responsible for this story: Peyton M. Sturges at PSturges@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Health Care on Bloomberg Law