How Sustainable Is Your Practice?

Although private practices are usually using debt financing because they don’t have the funds, hospitals do have the funds. And if you don’t join them, they’ll go buy their own physician who is in your specialty.

Mark Halley, president and CEO, Halley Consulting Group

Halley opened, saying that physicians need to understand what the hospitals in their area are doing and which ones they should align with. Also important, is knowing what happens to private practice physicians as hospitals hire physicians. Only one attendee said she was in an area in which the hospitals weren’t actively pursuing physicians.

Although just about every one of 80-plus attendees to the session said they wanted to remain independent, Halley asked “can you?” Since 2002, hospitals have been acquiring practices in both small and large markets, explained the presenter. And that’s what the average private practice physician who wants to stay in business has to compete with.

Although private practices are usually using debt financing because they don’t have the funds, hospitals do have the funds. And if you don’t join them, they’ll go buy their own physician who is in your specialty. If that hospital has many primary care physicians in house, they’re probably telling them that they must refer to specialists who are also in their system, providing another source of reduced business to those outside it. Halley spoke of a case in which specialists in this situation saw their referrals disappear overnight.

How else can hospitals win the competition with you as a private practice? They can offer better benefits, sometimes better pay, tell payers that they can’t afford to not include them in a given geographic area, can market extensively (helping aligned practices and hurting others).

You have to outrun your competitors, continued Halley. As they drop, your market share and leverage increases. The weaker, smaller practices are already dropping in this economy.

Perhaps selling your practice is an option you’ve considered. “But is it attractable?” asks Halley.

When determining if your practice is sustainable, demographics is the place to start looking, says Halley. Look at the age profile; having a mix of old and young physicians is good. Also, ask yourself if the other physicians in your practice are interested in staying, if they have the right business skills, are they satisfied with the business side of practice or are they tired of the flight, and have they met their financial objectives. If they have met their financial objectives, they might be ready to retire; if they haven’t, they’re probably motivated to stay in your practice. The bottom line: find out if your partners want to stay and play, says Halley.

If they, and you, want to stay and play, how are you going to do it? The whole staff has to be at or above the 50th percentile, he adds. If not, you need to remove the barriers that are keeping them from being successful. Also, learn if you, and them, are taking home at least market share compensation, if you can keep support staff, if your practice is on top of paying bills on time and funding pensions, and how market viable it is. Halley says a primary care practice should have a new patient ratio of 8-10%. Look at how many referrals you get on a month-to-month basis. If they’re going down, that’s a bad sign. Make sure you’re doing your own coding, he continues.

Strategic Capability is a key issue to review. Ask yourself what your market share and geographic influence are and if they are sustainable. If you’re a specialist, are you the specialist of choice in your area? How much capital do you have, what is your ability to recruit, do you have the ability to get an EMR, and where do hospitals in your area have their primary care physicians?—these are key questions to know the answers to.

Leadership is also important to understand, says Halley. “Have you done something innovative in the last 18 months that everyone is on board with in your practice?” he asks, adding that if you have, it’s a good sign of physician leadership. Are the other physicians in your practice decisions makers? They need to be, answers Halley, adding that they need to hold each other accountable for decisions. Physician leadership needs to be broad; everyone needs to be interested, he continues. Learn how good your management is.

External factors also need to be assessed. How is payer activity in your area? How many are there in your area? The more, the better, says Halley, because it allows you to better negotiate. Are the payers national or regional; regional payers “play nicer” explains Halley. What negotiating leverage do they have, and what strategy do they have; if they’re buying market shares, going with them is likely a good decision, he states.

What is hospital activity like in your area? Most attendees to Halley’s presentation say they have multiple hospitals in their area. Physicians should look at whether hospitals in their area own primary care practices and/or specialty practices, if they enforce domestic referrals, if they are focused on their workshop or on the market, and what is their competitive intensity.

What is the physician group activity like in your area? Are their group activities that throw their weight around? Do the large groups have leverage, pulling physicians away from the hospitals? What is their market share like compared to yours? Are they limited services providers? Can they access and accumulate capital?

So, how does a practice remain viable? For starters, one must realize that you can cut expenses all day and still go bankrupt, says Halley; expense control is key. Also, pay attention to what Medicare fees are and make sure you’re fees are over them. Further, provider productivity is important in staying viable. Halley noted that he doesn’t know one primary care provider who isn’t working harder now than 2 years ago for the same pay.

To remain viable, a practice’s members need to know what their neighborhood is like? The majority of one’s patients live within 10 minutes of the offices of primary care physicians and pediatricians, adds Halley. “Moms are working, and if little Jimmy has a sore throat at school, the working mom would much rather have her home, child’s school, office, and doctor close together,” explains Halley.

Payer mix management is also important. “Does one’s neighborhood affecter payer mix?” asks Halley rhetorically. “YES,” he adds. If you can’t change it, you might have to move out of the area.

Halley explains the importance of knowing “Mrs. Smith,” the average mom and wife. Mrs. Smith gets physicians referrals by word of mouth; “she’s a passive advertiser,” he notes, “referring other to her own physician” based on her relationship with that doctor, not on research of “morbidity and mortality” and assuming that the physician in provides clinical quality because he has an MD. Understanding her wants and needs will maker her happier and keep her as a patient.

Finally, knowing the personality of the other physicians and staff in your practice is crucial so that they can be matched up well. The others in your practice need to be comfortable with typing, because adequate technology will help enhance their productivity. Also helping productivity is the use of clinical support staff, who can keep the physicians doing only what they can and should do. Making sure this support staff is motivated and trained is also vital, concludes Halley.