Saving the Physician-Owned Practice
Originally published on June 21, 2022
Updated on October 31st, 2023
Family doctors making house calls might be a thing of the past, but physician-owned practices are still an essential part of the healthcare landscape. Sadly, healthcare professionals are increasingly selling their practices to hospitals or private equity firms. And that can lead to declining quality of care — not to mention surprise medical bills — for patients.
Whether you’re considering it now or down the road, you might choose to sell your practice for a variety of reasons. Perhaps you’re planning your retirement. Maybe today’s economic environment makes it difficult to stay afloat. With revenues declining and a workforce demanding better pay and benefits, it’s more difficult to afford updated equipment or hire the help you need. Or you could simply be tired of handling the business side of your practice.
Traditionally, physician-owned practices have taken on additional partners or practitioners to either share the workload or ultimately buy the business. However, an increasing number of practices looking for a transition plan choose the hospital or private equity firm route. For starters, a hospital or larger firm will generally handle the administrative side of your practice — something many physicians prefer.
A larger prospective buyer also has deeper pockets, which helps you weather a tough economy more easily. It also means you can more easily access better equipment and hire more qualified employees. For a struggling practice, a buyout can provide the cash infusion needed to stay afloat.
Then there’s the efficiency aspect. Private equity firms often create “platforms” with multiple providers to develop administrative and billing efficiencies. These platforms can also negotiate for higher reimbursement rates, maximizing the revenue for your practice.
While these certainly are tangible benefits, however, the end of a physician-owned practice could cost your patients dearly.
Monopolization of the healthcare marketplace – When larger entities like hospitals and private equity firms buy up multiple practices, it can monopolize healthcare in a given area. This consolidation of the market can result in higher prices and fewer choices for patients.
More red tape, less autonomy – Hospitals introduce multiple layers of management, which can drastically slow the decision-making process. For example, if a physician-owned practice needs a new diagnostic machine, that’s the physician’s decision (along with any possible partners). As long as the business has the funds for it, they buy or lease the machine. End of the process.
In a hospital, however, you’ve got to go through finance personnel. They have to make sure the cost is acceptable, the equipment is necessary (and of acceptable quality), etc. This can get time consuming and frustrating for practitioners who need the upgrade quickly.
There can also be differences in how you’d like to run your practice vs. hospital policy. This can affect everything from direct patient care to back-office procedures and compliance. If there’s a conflict, the hospital —with its monetary investment in your practice — almost certainly wins out.
Business-minded leadership vs. care-minded leadership – In the case of private equity, you also have a business model conflict. Unlike a physician-owned practice, the purpose of a private equity firm is to recognize a profit for their investors. And what’s best for growing that profit isn’t always best for patients. The lack of medical expertise among private equity firm leadership can negatively impact business decisions. They’re more likely to cut corners or make physicians take on more patients, all in an effort to maximize revenue, reduce costs and allow for greater profits.
These drawbacks are on the minds of newer entrants to the healthcare field, particularly in medical specialties. A recent study showed that 86% of early-career radiologists (including trainees and recent graduates) believe corporate entities harm their specialty and 83% prefer to join independent private practices.
Reduced income – Many physicians admit they got caught up in the excitement and the initial check received when their practice was purchased. However, they later regret selling out to a larger entity and the lower income that generally results after the transaction is complete.
Declining patient care – All of the above-mentioned factors impact the most critical area of any practice: patient care. And that impact can be devastating. Increasing prices can deter those needing care from seeking help. Physicians seeing more patients (to meet profit goals) means a decrease in time per patient. This can easily lead to missing crucial details and conversations that a physician-owned practice cherishes. It can also take much longer for a patient to even get an appointment in the first place.
For the sake of your patients and your employees, it’s important to consider maintaining a physician-owned practice. Whether you’re looking to scale back your involvement or leave entirely, you have options. Brokers are available to find potential (and qualified) potential buyers. You can also choose to take on additional partners so share the burden of leadership.
And don’t forget your healthcare CPA as a vital resource! With their knowledge of the business side of healthcare, they’re uniquely positioned to help in this decision.
All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.
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