Managing Your Practice

More Practice Merger Options for Small Practices

Joseph S. Eastern, MD

May 27, 2022

The continuing changes in medicine have led to a significant erosion of physician autonomy, and to ever-increasing administrative burdens that affect small practices far more severely than larger ones. While there are some smaller offices offering unique services that may be able to remain small, most small general practices will be forced to at least consider a larger alternative. Recently, I discussed one option – merging individual practices into a larger one – but others are available.

Dr Joseph Eastern

One alternate strategy is to form a cooperative group. If you look around your area of practice, you will likely find other small practices in similar situations that might be willing to collaborate with you for the purpose of pooling your billing and purchasing resources. This allows each participant to maintain independence, yet share office overhead expenses and employee salaries for mutual benefit. If that arrangement works, and remains satisfactory for all participants, you can consider expanding your sharing of expenditures, such as collective purchasing of supplies and equipment, and centralizing appointment scheduling. Such an arrangement might be particularly attractive to physicians in later stages of their careers who need to alleviate financial burdens but don't wish to close up shop just yet.

After more time has passed, if everyone remains happy with the arrangement, an outright merger can be considered, allowing the group to negotiate higher insurance remunerations and even lower overhead costs. Obviously, projects of this size and scope require careful planning and implementation, and should not be undertaken without the help of competent legal counsel and an experienced business consultant.

Another option is to join an independent practice association (IPA), if one is operating in your area. IPAs are physician-directed legal entities, formed to provide the same advantages enjoyed by large group practices while allowing individual members to remain independent. IPAs have greater purchasing power, allowing members to cut costs on medical and office supplies. They can also negotiate more favorable contracts with insurance companies and other payers.

Before joining such an organization, examine its legal status carefully. Some IPAs have been charged with antitrust violations because their member practices are, in reality, competitors. Make certain that any IPA you consider joining abides by antitrust and price fixing laws. Look carefully at its financial solvency as well, as IPAs have also been known to fail, leaving former members to pick up the tab.

An alternative to the IPA is the accountable care organization (ACO), a relatively new entity created as part of the Affordable Care Act. Like an IPA, an ACO's basic purpose is to limit unnecessary spending; but ACOs are typically limited to Medicare and Medicaid recipients, and involve a larger network of doctors and hospitals sharing financial and medical responsibility for patient care. Criteria for limits on spending are established by the Centers for Medicare & Medicaid Services (CMS).

ACOs offer financial incentives to cooperate, and to save money by avoiding unnecessary tests and procedures. A key component is the sharing of information. Providers who save money while also meeting quality targets are theoretically entitled to a portion of the savings. According to federal data, ACOs saved Medicare $4.1 billion in 2020). As of January 2022, 483 ACOs were participating in the Medicare Shared Savings Program. A similar entity designed for private-sector patients is the clinically integrated network (CIN), created by the Federal Trade Commission to serve the commercial or self-insured market, while ACOs treat Medicare and Medicaid patients. Like ACOs, the idea is to work together to improve care and reduce costs by sharing records and tracking data.

When joining any group, read the agreement carefully for any clauses that might infringe on your clinical judgment. In particular, be sure that there are no restrictions on patient treatment or physician referral options for your patients. You should also negotiate an escape clause, allowing you to opt out if you become unhappy with the arrangement.

Clearly, the price of remaining autonomous is significant, and many private practitioners are unwilling to pay it. In 2019, the American Medical Association reported that for the first time, there were fewer physician owners (45.9%) than employees (47.4%).

But as I have written many times, those of us who remain committed to independence will find ways to preserve it. In medicine, as in life, those most responsive to change will survive and flourish.

Eastern practices dermatology and dermatologic surgery in Belleville, N.J. He is the author of numerous articles and textbook chapters, and is a longtime monthly columnist for Dermatology News. Write to him at dermnews@mdedge.com.

This article originally appeared on MDedge.com, part of the Medscape Professional Network.

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