I have had the distinct pleasure and honor to be allowed a few moments in the most recent issue of the SOAPM newsletter. I believe they will have it on-line for their members any-moment-now, but I do know that the printed version has gone out, as I have already received three phone calls about it. The article addresses some of the myths of merging practices and is similar to something I wrote here a while ago.
The most interesting call came from what is perhaps the largest single pediatric practice in the country. As you can imagine, even through their trials and tribulations, they are proponents of the benefits of large practices. After a few minutes of discussion, though, the caller realized that we are, in fact, in perfect agreement: the fundamental benefit of a large practice should be clinical. If the primary reason for a practice merger has to do with fighting the insurance companies, look out! The money follows the care.
Note: there are 11 other pages of really great pediatric practice management content in the rest of the SOAPM newsletter. If you’re not a SOAPM member already, why not?
You can see the PDF of the individual article here and the text is below.
The Myths and Misunderstandings of Growing Practices
By Chip Hart
SOAPM News, Spring 2008
Organizing pediatricians through the growth and merger of existing practices has been the hot topic in the pediatric world over the last 2 years. As pediatricians begin to understand how poorly they are paid relative to other specialties, the movement to “fight back” and find that strength in numbers is a natural instinct.
Unfortunately, we at Physician’s Computer Company (PCC) are often witnesses to statements about the benefits of becoming a larger group that are demonstrably false and potentially harmful to the well-intentioned physician. Physician’s Computer Company has worked with dozens of pediatricians over the last 25 years who have crossed the bridge into an organized or merged-practice environment, and we would like to share with you their failed, and successful, experiences.
First, let’s be clear that we need to distinguish among the many different methods for becoming part of a larger group. Merging 2 established practices is not at all like forming a practice without walls with 20 other groups, or joining any one of the flavors of a Independent Physician Association. Undoubtedly, you have heard from a peer or read online that one of these methods or another is the “best answer” to fighting the insurance companies. Let me assure you that, for every practice that has succeeded under a large organizational model, PCC has worked with 2 or 3 who have not. Let’s learn from the mistakes and successes of other practices and make our strength in numbers work. It is important to realize that what works for one practice may not work for you. The following are the most common myths we hear about large pediatric groups:
• Merging practices or joining a “supergroup” will deliver substantial overhead savings because of economies of scale.
• Unless you are in a supergroup, you cannot negotiate.
First, the belief in saved expenses from the economies of scale is a surprising one. Didn’t the hospital/practice merger frenzy in the 1990s show us all that there is no leaner organization than a small pediatric practice? How can anyone imagine that becoming part of a more complex organization would actually save enough money on supplies or services to make it worthwhile? If it were true, wouldn’t we hear about it all the time from the hundreds of American Academy of Pediatrics (AAP) members, some of whom are active Section on Administration and Practice Management (SOAPM) members? The Medical Group Management Association reports that, as practices grow in size, their expenses per physician actually increase.We have asked practices after a year in their new supergroups, “So, have you been able to cut the employees you expected? Are your costs down? Are your supplies so much cheaper they offset your other new expenses?” The answer to these questions is, inevitably, “No.” It takes too many miles of cheaper examination table paper to make up for those attorney fees.
Ultimately, with the many pediatric-specific buying groups available to even solo practices, any practice can, and should, freely take advantage of the savings delivered to organizations with thousands of members. If you have not visited these Web sites already, go to www.physall.com, www.pediafed.org, www.mainstreetvacs.com, or one of the other related organizations and ask them to show you how you can get the same prices as the largest group in your region.
One advantage that a larger group does provide, however, is the ability to pay for the professional help that is needed to run a practice. Providers in small practices do spend many late nights going over finances or strategic decisions, when a large practice can employ people who specialize in these matters; and a large group may have the resources to access professional negotiators or business consultants. These advantages are important. Negotiating with insurance companies, however, is hardly the sole territory of large and extra large groups, and rarely requires the resources of an expert negotiator. At PCC, we work with customers across the country who routinely report their success negotiating with payers. Not a week goes by without us hearing from a small practice on Long Island or a busy group in San Francisco about their negotiation successes. The size does not matter—only their willingness to drop payers who do not meet their expectations. On the SOAPM list, a handful of members have provided examples of successful negotiation without the benefit of being in a supergroup.
At least 5 or 6 times a year, we hear from offices who are approached by supergroups only to learn that the promised rates of the new groups are no better (and sometimes worse) than rates they have already negotiated on their own! In the middle of writing this piece, we have heard from 2 clients who, with the help of their system reports and a systematic approach, have been wildly successful in renegotiating their contracts. One is a 4-doctor practice, another is a 5-doctor practice, both located in competitive, pediatrician-dense east-coast locations. Hardly “powerhouse” practices, but each somehow will add over $200,000 to their bottom lines in 2008 as a result of negotiating.
So, where does that leave us, especially SOAPM members? In the end, there is one type of practice that benefits from joining a larger group—those who have never negotiated for themselves or treated their businesses professionally. Otherwise, if you are one of the better practices in your area, you will spend more time dragging up the standards of your new partners before you recognize a single financial benefit. If you can run the new, large group, then you will benefit. If you are just one of 20 new partners, you will be carrying their baggage with you.
None of these comments should imply that organizing pediatricians or becoming part of a larger group is a bad thing. It is quite the opposite. Look at the simple example of the purchasing groups and the tens of thousands of dollars they save each physician; or, more importantly, the amazing impact that SOAPM has had in the last 2 years. Section on Administration and Practice Management members should be driving the AAP to set standards for care and reimbursement. Be wary, however, of joining organizations where your participation benefits primarily those at the top of the ladder.
Ultimately, the issue that concerns us most is watching pediatric groups form specifically to “beat the insurance companies.”Without shared clinical goals and components, we have seen many practices wake up 3 or 5 years into a new structure only to regret making the change. If a positive clinical impact is not the primary goal of your new potential group, take a longer look before leaping. The money always follows the care.