Alternatives to Selling Your Practice

August 5, 2013

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Business pressure in the 80’s – the fear of managed care – drove many physicians to sell their practices to hospitals and hospital – owned entities. This time around, it’s not managed care that’s driving physicians to seek cover. Instead, it’s pressure on reimbursement, rising costs and exploding governmental regulation: Obamacare and its accountable care organization (ACO) structure.

Hospital employment may be the cure for some, but the arrangement could be problematic for most. So, what alternatives to selling out to a hospital exist for physicians and their groups wanting to remain actually, or relatively, independent?

Create an Experience Monopoly

To start, no matter what other alternatives you also consider, you must begin to pull your group out of the commodity game. In order to achieve a transformationally better future, it’s anathema for your practice to simply do what every other practice does, even if it’s doing what the best of everyone else does.

Forget about “benchmarking” in terms of relationships. Instead, you should be devoting significant effort to creating a monopoly in terms of the experience that you provide to your “customers:” hospitals, referring physicians, and patients. The term I use to describe this is an Experience Monopoly.

You need to position your practice to be viewed by those customers as the only conceivable provider of your specialty services. Creating an Experience Monopoly is one of those positioning strategies. Think about it: You shouldn’t really want to “compete,” you should want to dominate.

Consider a Merger

Another alternative is to consider merging your practice with another group. But beware the fact that merging two weak performing groups rarely creates a strong one. Think Sears plus Kmart. Merging even two strong groups can be problematic, as there’s far more to a successful merger than balance sheets – focus, personnel, management style and group culture play determinative roles.

For example, there is a way of ranking groups based on their culture from the most reactive to the most strategic. I call this ranking The Four Circles. Because of space the limitations, suffice it to say that there is a success-­‐culture that distinguishes the most successful groups, what I term Strategic Groups, from the great majority of the mediocre. Merging your Strategic Group with one occupying the opposite end of the spectrum, one that is operated in the manner of a club and which is simply reactive to all business situations, doesn’t offer much promise.

The key is to seek the right merger partner with which to create a strategic merger, one in which one plus one equals 3 or more. Bad math, but very good business.

Consider Alternative-to-Merger Structure

As much as ACO’s hark back to the PHO’s of the 80’s, you may want to consider another managed care age model, the “group without walls.” In essence, a group without walls is like a merger without complete loss of constituent entity identity.

Generally speaking, a group without walls involves setting up a central entity, usually a corporation or in those states that permit, a limited liability company, through which the entire group’s financial operation is run. There’s centralized management, billing, collection and the like. However, the constituent groups still exercise a large degree of autonomy in terms of supervising their staff and managing their relationships with referring physicians and patients. Additionally, the constituent groups can have a degree of financial independence in terms of being treated as separate profit centers or divisions.

As in most, no, probably all, healthcare business arrangements today, structuring a group without walls is complex. But, it may be a very attractive alternative for you.

Consider Other Alignment with a Hospital

If your impetus in considering a sale to the hospital was to join its controlled group and participate in the hospital’s ACO, you may want to think about an alternative alignment strategy. For example, you can continue to maintain your own practice but contract, as a participating provider, with the hospital’s sponsored ACO. You can remain outside of the ACO and still market to the physicians within that structure.

I know that “alignment” is often the politically correct term for domination, but if you resist totally ceding power there can be ways to remain independent and still align your interests with a hospital and the physicians within its gravitational pull.

It’s a tough world out there for physicians – at least that’s what many physicians think. If you’re still serious considering selling to a hospital and joining the ranks of their employed physicians, take the time to groom your practice for that sale and to strategize for the best sales deal, and the best employment deal that can be had. You might also consider a two phase deal, selling your practice to another group followed by your employment by a hospital.

At the same time, consider the alternatives, those discussed above and others. No matter what, you are bearing the risk. Wouldn’t you rather hedge your chances by having more control over your destiny?


To download this article, click here: Alternatives to Selling Your Practice

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