The current trend in physician practices is toward consolidation into larger groups, true for specialty groups and primary care practices alike.

This is an interesting phenomenon given a medical practice landscape littered over the last 10 years with failed mergers, both loosely held confederacies and tightly governed practices. Those of us who practiced in the schizophrenic ’90s harken back to the physician practice management debacle. I remember the feeding frenzy at that time when the rage was the rolling up of practices through mergers and acquisitions. I recall the parade of suits and ties offering stock and other seemingly incongruous benefits. The exchange of practice equity for stock in many cases created little value, mountains of debt, and disenfranchised, bitter radiologists having been fleeced of value and opportunity.

Here we are in 2005, and I have been asked to opine about the inexorable rush toward practice consolidation. Is this a result of opportunity or the consequence of an economic model that simply cannot support a smaller practice reminiscent of a simpler time?

I suspect the latter. Our practice has grown from three radiologists in 1999 scampering to cover two hospitals to 35 radiologists actively engaged at six hospitals and numerous freestanding imaging facilities in eastern Pennsylvania. Like most enterprises with growing pains, we frequently question not only the value of expanding but are forced to come to grips with fundamental problems that go hand in hand with the business opportunities: staffing, efficiencies, strategic deployment of radiologists.

In general terms for all practices, these trends create pitfalls and opportunities at the same time. The opportunity resides in the inherent value of a larger organization and the theory that economies of scale accrue at and beyond critical mass. For example, in radiology, larger organizations are capable of more sophisticated operations. The ability to move images/studies creates a business opportunity for practices with the infrastructure to send the studies to existing locations of service. Larger practices are more likely to invest in and support enhanced billing, better collection rates, and faster turnaround times for billing. Size per se, however, may leave a practice vulnerable. One-dimensional practices lacking product or geographic diversity may be more at risk to market forces or changes in reimbursement.

Some general suggestions or thoughts associated with the subject of growth to keep in mind are:

  • A business strategy designed to grow or achieve a desired size for the sake of growth is a mistake.
  • Practice merger opportunities may be a distraction. Planning, implementing, and creating operational policies is time-consuming and emotionally taxing. I have seen practices expend an inordinate amount of time and financial resources employing lawyers and consultants to determine practice value, adjusting salaries, and establishing workable governance. The noneconomic costs related to and resources consumed by establishing a credible practice, that is, creating a cogent philosophy and adequate governance strategy, must be considered as well.
  • Development of a non-revenue-generating infrastructure that is titrated to the size of the practice is key. Will the back office support the practice or will circumstances create the converse? Will a practice run like a business or be stuck in the encumbrances of a bloated nonessential infrastructure? What does a nonphysician CEO do? What value do they bring? At what point (size, revenue, practice diversification) is a CEO a good idea? What will the CEO do? Would a group be better off with financial and operations management and expertise? Practice management, operations, and finance remain the foundation for any expanding business, and while these are important topics, a detailed discussion is beyond the scope of this editorial.
  • Practices need to evolve into business enterprises. Assume a business culture. Understand revenue, project future costs into the business operations and budget.

Now that you have looked into the future, how do you leap into the process?

1. Develop a business plan and model.

2. Consider a mission statement and, if adopted, live by it.

3. Consider practice-specific, short-term and long-term goals.

a. Is there an interest in growth and expansion beyond the comfortable confines of an existing practice?

b. Do the resources exist or are they readily available to grow? Consider operations, administration, and perhaps, most important, a plan to finance growth. Too often physicians cringe at the thought of borrowing money, establishing lines of credit, and securitization of loans tied to practice assets or personal guarantees.

4. Avoid reliance or dependence on and the costs and distractions of outside consultants. Expend the time and effort (not to mention the savings) to develop these skills within a practice.

5. Invest in the future: physicians, technology, and information management.

6. Create parallel groups (physicians and support staff) committed to the operations, finances, and management. Define goals and expectations. Seek out new business opportunities without losing focus on existing lines of business (hospital-based activities, outside reading contracts, independent imaging centers).

CONCLUSIONS

Growth and expansion carry with them risks and benefits. On a personal level, the successful evolution of a practice brings with it monetary gains and financial security. At another level, the opportunity to develop an expanding, healthy business bestows upon the entrepreneur great individual rewards. Embarking on a path of expansion with firm goals in mind has always been personally rewarding for those willing to invest the time and energy in these endeavors.

Howard B. Kessler, MD, is chairman, Department of Radiology, Holy Redeemer Hospital and Medical Center, Meadowbrook, Pa, and president and CEO, Pennsylvania Radiology Group, and a member of the Decisions in Axis Imaging News editorial advisory board.