Long before the disruption brought on by the COVID-19 pandemic, the healthcare industry was experiencing consolidation as a great disruptor. As local hospitals began merging into larger hospital systems, it didn’t take long for private medical practices to feel the seismic shift. For example, as healthcare systems grew larger, private practices began noticing a drop-off in referrals—a significant source of revenue. Instead, referrals are being made within a consolidated system. Suddenly the playing field has changed, and that affects the competitive advantages private practices once had.
Between 2016 and 2018, hospitals acquired 8,000 medical practices, and 14,000 U.S. physicians left private practice to work in hospitals, according to Avalere Health and the Physicians Advocacy Institute. For many practices, consolidation offers tremendous value and opportunity.
Competition from Insurance Companies
Consolidation within healthcare isn’t the only threat to private practices. Some of the larger insurance companies, such as UnitedHealth Group, have entered the provider side of healthcare. Under its UnitedHealthcare’s Optum umbrella, for example, OptumCare is on an acquisition path, with a strong focus on the acquisition of private medical practices.
Private Equity Partnerships
Healthcare practices are increasingly considering private equity funding to remain competitive and grow revenue. Private equity initially invested in dentistry and dermatology, but have increasingly invested in other specialties, including orthopedics, OB-GYN, and ophthalmology.
According to a recently published study by the Journal of the American Medical Association, the number of physician practice/private equity deals doubled between 2013 and 2016. A more recent study reports that private equity invested more than $30 billion in 647 healthcare transactions in 2018 alone. With the growth of value-based care, private equity funds will seek specialties where there are still many independent practices with the intent of consolidating regionally.
Revenue Stream Diversification for Private Practices
Twenty years ago, physician practice management groups were able to provide needed capital for consolidations as well as new ancillary services. However, they also charged considerable management fees and did not command the level of accounting expertise required to run a medical practice. By the late 1990s, they disappeared.
Today, physicians wishing to remain independent are more attuned to what’s required to run their practice, and they turn to their accounting professionals for help with business issues and technology needs. Additionally, they can turn to their professional trade associations to learn best practices from their peers who also want to remain independent.
It is a challenge to remain independent in the age of healthcare reform and value-based care. However, the Physicians Advocacy Institute (PAI) advocates for policies and regulations that enable independent practitioners to continue. The group has recently called for site-neutral payment policies and small practice support for value-based reimbursement programs like MACRA. Independent practice associations (IPAs) are also helpful. Their focus is on having independent physicians compete with their larger peers and possibly share resources to remain viable.
Remaining independent calls for diversified revenue streams, such as the permanent use of telemedicine, enhanced EHR systems, and smart outsourcing. For example, do you want to outsource time-consuming tasks such as coding, billing, and transcription? Revenue stream diversification can come from adding new services. Examples include:
- Pharmacy Services: In-house dispensing pharmacies can help your practice achieve quick ROI, and patients often benefit from the convenience and improved compliance with therapy regimens.
- Cosmetic Services: Consider that dermal fillers are up 250% since 2000, and Botox-type injections have increased by 750%. These services, if they fit your practice, can offer quick ROI.
- Weight Loss and Nutrition Counseling: Americans spend more than $60 billion on weight loss each year. Even the addition of nutrition counseling can be a great source of revenue.
Pump Up Accounts Receivable Management
Above all, find ways of collecting more on the services you currently offer. You can shorten the revenue cycle by using the latest technology in electronic claims processing and payment processing. Be vigilant about managing insurance adjustments and denials—insurance carriers frequently make mistakes. If there is a persistent problem with coding, take the time to correct it.
If your patients understand your payment policies they are more likely to pay copayments and coinsurance. Be sure to offer alternate or financial counseling for fee-for-service patients.
For more information, download our e-book: Strategies to Improve Your Healthcare Revenue Cycle Efficiency.
Hospital acquisitions of physician practices will continue to gain steam in the 2020s. Industry experts expect the COVID-19 pandemic to drive consolidation, some estimating that primary care practices lost $15 billion between February and May due to a significant reduction in office visits, putting strains on medical practices that up until now remained independent.
As providers look to reduce costs and improve the quality of patient care, merging with a hospital can relieve their financial burden, important at a time when reimbursement rates are decreasing, and physicians are pressed to reduce costs.
The specialized medical practice accountants and advisors at Goldin Peiser & Peiser have decades of advising medical practices, hospitals, and senior living facilities. They have helped their clients understand ways to maximize revenue by suggesting best practices and technology to boost operational efficiencies and outcomes.
For more information, please contact Erick Cuter, CPA, at 214-635-2541.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.