Physician Practices Look for Options as Costs Rise

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By Mary Anne Pazanowski

Nov. 30 — The future of physician practices looks healthy but nothing like it did a generation ago.

Soaring costs and stagnant reimbursements have made it virtually impossible for small, independent physician practices to operate today, a group of health-care transactions attorneys, investment advisers and physicians said Nov. 15.

Still, several options exist for physician practices looking to thrive in this environment. They can enter into joint ventures with other practices, become part of nationwide physician groups, join hospitals and health systems or pursue private equity investment.

Attendees explored these and other alternatives at a briefing sponsored by the law firm of Epstein Becker & Green, its affiliate EBG Advisors, consulting group Pinnacle Healthcare Consulting and financial advisers Provident Healthcare Partners and Alvarez & Marsal Transaction Advisory Group.

Leading Transactions Sector

The physician practice sector accounted for more transactions in the health-care industry than any other in 2016 so far, according to information provided to Bloomberg BNA. As of the end of October, 102 physician practice deals had been announced or closed.

There also were 58 hospital and health system deals as of October’s end, leading to a total of 160 transactions in which physician practices were involved to some degree.

These deals took various forms, including mergers and acquisitions, consolidations and joint ventures. In some transactions, the practice was absorbed into a new entity, although other deals consisted mostly of a cash infusion.

Conference participants expected even more deals in the future, and the change in administration isn’t likely to change that, they said. The participants discussed the reasons for the changing landscape for physician practices and alternatives for doctors.

Tipping Point

Costs have pushed physicians “beyond the tipping point,” Jerry Williamson, a physician, attorney and health-care consultant, told the audience at “The Future of Physician Groups: Consolidation & Strategic Positioning as Reimbursement Undergoes Transformation.” Williamson is an expert in health-care administration, compliance and risk management.

The pressure of those increasing costs is being felt by groups of all sizes and specialties, David N. Gans, a senior fellow in industry affairs at the Medical Group Management Association, said. Gans is a national authority on medical practice operations.

Rising costs can be attributed to the need for infrastructure improvements, such as updating from paper-based patient record systems to electronic medical records, as well as increased compensation for expanding staff.

Reimbursements, however, have remained flat. They aren’t expected to improve anytime soon and may in fact fall if a practice isn’t able to keep up with the demands of programs like the Medicare Access and CHIP Reimbursement Act (MACRA) and new value-based pay initiatives being implemented by government and private payers.

Add in an aging population needing more care, a doctor shortage and practitioner burnout, and the physician practice model clearly must change, the group said.

The panel’s other members were Mark E. Lutes, Epstein Becker & Green’s chair and a member of the firm’s health-care practice, and Anthony Long, a principal at Pinnacle and a fellow of the American College of Healthcare Executives.

Multiple Options

Physicians’ goals will determine the best alternative for a particular practice. Does the group want to maintain control over the practice with some managerial assistance, or does it prefer to cede management to another entity? Are the physicians looking for a large payment immediately or steady compensation, with a possible payout a few years down the road?

The answer also depends on what an individual practice needs to succeed, Epstein Becker & Green health practice group partner Gary W. Herschman said. “There is no silver bullet,” he told Bloomberg BNA.

Representatives of private equity firms, payer-sponsored groups and national practice groups discussed some options for physician practices.

EmCare, a national physician group that provides physician services mostly in emergency medicine, is always looking to acquire new physician groups, its president, Ray Iannaccone, said. This group is doctor-owned and operated but has a centralized administration that frees doctors to see patients, rather than manage practices.

Large group practices like EmCare are good for practitioners who are risk-averse, Iannaccone said. They also are attractive to physicians who aren’t interested in running the company, he said.

Groups, like OptumCare, also present an option for practices. OptumCare is a health-care network consisting of primary care providers, specialists, hospitals and other health providers. It contracts with 43 health plans and partners with 47 hospitals across the country. Optum Care, is a part of UnitedHealth Group, a diversified health and well-being company that offers a broad spectrum of products and services. Optum provides information and technology-enabled health services, while a second platform, UnitedHealthcare, provides health-care coverage and benefits services.

Daniel Egeland, OptumCare’s vice president, said the company is looking to expand nationally. It mainly focuses on physician groups, urgent care, complex care and home-based care.

OptumCare tries to align provider and payer interests as much as possible, Egeland said. This model may be attractive to doctors looking for long-term stability, he said.

Push to Find Capital

Some doctors just want capital to offset costs of updating their practices, and private equity investment can provide that. Darren M. Black of Summit Partners, Timothy J. Porter of Audax Private Equity, and Kenton Rosenberry of Varsity Healthcare Partners discussed how private equity firms can help physician practices.

Health care is a major sector for private equity investment today, Black said. And it is profitable: Black said Summit hasn’t lost an investment yet.

Varsity is a $300 million firm that brings practice management expertise to its deals, Rosenberry said. It provides an alternative to “aggressive hospital acquirers.”

Rosenberry contrasted today’s deal environment with the 1980s when, he said, physicians were “sold a bill of goods.” Doctors then agreed to reduced compensation packages but didn’t get promised administrative support in return.

Centralizing services, like billing and purchasing, provides “real value” for practitioners, he said. Rosenberry said he is a “real believer in the doctor-ownership model.”

Private equity investment provides benefits for doctors who have an entrepreneurial bent, the speakers said. Private equity invests in a practice, provides management support for five to seven years and then sells its investment. The sale of a well-managed practice will render a profit for the investors and the practice’s members alike.

This is a good model for practices that are committed to retaining earnings and reinvesting them in improvements, according to the panelists. The potential trade-off is a decrease in compensation for individuals doctors.

Entrepreneurial Model

The investment advisers said the private equity investment model might be less attractive to doctors who are just starting out or who are more interested in immediate compensation than in long-term returns.

On the other hand, doctors who have invested a lot in their practices and don’t want to lose that sweat-equity to large national practices or hospitals may be attracted to a model that allows them to cash-out in the end.

The advisers said they look for practices in which the doctors want to remain in charge but still grow the practice’s value. Private equity investment isn’t for physicians who want to take a step back, they said.

“It’s a great time to buy and a great time to sell” a physician practice, Porter said.

Hospital Systems, Mega Groups

Alternatively, doctors can opt to integrate their practices into hospital systems, academic medical centers and mega-physician multi-specialty groups, speakers said in a panel led by Herschman.

There are drawbacks to this approach. Physicians lose control over their practices, and reimbursements go to the group or hospital, which then cuts a check to the practice.

But consolidation can move a group into a position of strength, the speakers said. A system or large group has a dedicated management team, freeing doctors to practice medicine rather than worry about administrative matters, like billing or regulatory compliance.

Hospitals and health systems also open access to ancillary services, such as imaging, that a practice could supply, but at greater costs. Central cost and purchasing centers lower practice costs, and health systems and large group practices have the resources to offer better coordinated care, the speakers said.

Moreover, the hospital-employed physician model is becoming more common. About 38 percent of doctors are employed by hospitals today, Herschman said. These doctors are looking for stability in compensation, hours and support.

“Bigger isn’t necessarily better,” Herschman said, but practices integrated into larger systems and groups can take advantage of electronic systems, data trackers and other innovations that the systems’ greater purchasing power buys.

Health systems and mega-physician groups “have everything a doctor needs” to take care of patients, Mark Solazzo, executive vice president and chief operating officer of Northwell Health, said.

Additionally, physicians can develop relationships with other doctors to ensure care coordination, Kevin J. Conroy, chief financial officer and chief population health officer at CareMount Medical, said.

There is a place for private equity, Michael D. McArthur, vice president of business development of business growth at DaVita Medical Group, said, but investors don’t look at certain health issues, such as how to improve population health. DaVita is known for providing kidney care, but it recently bought HealthCare Partners, a physicians’ group operating primarily in California, Nevada and Florida.

“Doctors don’t want to be bothered with management,” Lynn Lang, chief operating officer at Summit Health Medical Group, said. Still, giving up ownership of practices they have devoted themselves to sometimes “leaves a sour taste in their mouths.”

These types of doctors should consider options that maximize their role in forging the future of the practice but still relieve them of burdensome duties. Wholly physician-owned practice groups are an example.

In physician-owned groups, the doctors set the growth strategy, determining when and where to expand, Solazzo said. They also set quality standards across the entire practice. Contracts with groups that don’t meet those standards aren’t renewed.

Innovation as Driver

Consolidation also lends itself to innovative ways of practicing medicine, such as telemedicine, one panel said.

Millennials want medical care where and when they want it, which is 24/7. Consolidation can aid the growth of stand-alone clinics, call centers and Internet-based consultations because more physicians are available to staff them than in a typical group practice, .

Consolidation or integration also may make following patients for purposes of improving community health easier.

Nearly every speaker brought up the concept of “culture,” which also is a consideration for practices look to merge or consolidate with other providers.

A practice’s culture may not mesh with other entities involved in a deal, leading to a messy divorce, the panel said. Contracts that anticipate culture clashes should be used.

This method of raising capital isn’t for everyone, the panelists noted. Doctors looking to retire soon might not want to give up their practices, or a percentage of reimbursements, to work for a larger entity.

Doctors just starting out, however, might welcome the security of working for a larger group, the panel said. They might be willing to trade some of their compensation for more predictable work hours or duties.


Donald Trump’s election introduced uncertainty into the health-care industry, all attendees agreed. Trump hasn’t made his health-care policies clear, short of a now-watered down promise to repeal Obamacare, Keynote Speaker Drew Willison said. Willison is chief of staff for outgoing Senate Minority Leader Harry Reid (D-Nev.).

Willison, like many others, predicted that a full repeal won’t happen. No one wants to throw an estimated 20 million people off their insurance, he said. The Republican Congress, however, can chip away at programs through its budget reconciliation process, he said.

Other speakers noted that the transaction movement’s drivers aren’t likely to change under the Trump administration. The fee-for-service model no longer works for the industry, but necessary technological and other infrastructure improvement costs remain out of reach for many small physician practices.

Changes spurred by Obamacare, like value-based care and payment programs, are showing promise. Health-care providers, along with those advising them, believe these changes will continue.

To contact the reporter on this story: Mary Anne Pazanowski in Washington at

To contact the editor responsible for this story: Peyton M. Sturges at

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