When choosing a type of practice model, podiatrists today have a number of options open to them and each option has its advantages and disadvantages. You need to choose the practice model that makes practical sense for you at this stage of your career and realize that there is no “one size fits all approach” in the selection process.
The following are examples of different types of practices.
Solo practice. There is not much to mention here regarding solo practices since this style of practice appears to be declining every year in podiatry. There are very few benefits of solo practice and the upside potential is very limited. The types of physicians whom I still see in solo practice are the ones who are creatures of habit. They are comfortable and do not feel the necessity to change. They need to be in control of every aspect of their practice and cannot think of turning the reins over to someone else who might offer them a more efficient solution.
Group practice. I would consider the small group practice to consist of three to five physicians and there is definitely a place for this style of practice. In this model, you can limit your upside due to scale but you can gain some leverage depending on your market space. In a small group, you still have more control and a small group of doctors can make all decisions. You and the other physicians function under one tax ID number and act as a cohesive group.
This model works better in some areas where you do not have much competition. This type of model leverages ancillaries the most when all physicians work out of one facility. I have seen this type of model create a nice $3 to $5 million revenue base with a small surgery center, physical therapy, an extremity MRI and some other ancillaries. Again, you cannot really maximize this size unless you all are practicing in one building. The downside to this is the practice is too small to really make a major impact in your market and gain the benefits of being in a super group model.
When it comes to the super group model, I am obviously biased since I have spent 20 years trying to perfect this model and have personally seen the pros and the cons. A super group model consists of a group of at least 20 to 30 physicians. This is not an independent physicians association or a group practice without walls.
When you are able to get everyone to work in an environment that embraces one set of core values, you are on to something amazing. You can truly leverage just about every ancillary possible. You can leverage your balance sheet and not have to personally guarantee debt. You can also leverage your size to obtain the best managed care contracts. The advantages go on and on. In addition, if you structure the model in a way that allows non-physician investors to infuse capital into your company, you have now just created a great exit strategy for yourself and your other partners. I have written many articles and given many lectures on how this model is the best equity-based and asset-building model for physicians.
On the downside, this model does require a much higher level of management with more costs initially until you get to about $50 million or so to minimize your corporate overhead. In addition, at this size, you truly are a big business and have to run like one. Many physicians have a hard time adjusting to this size of a practice structure. You lose your autonomy and rely on a board of directors, which the shareholders vote in to make decisions on your behalf. This is a more sophisticated and complicated model, and it takes both a financial investment and emotional commitment to be successful. At this size, you start attracting all kinds of outside investors and have to be very skilled or have very skilled advisors to deal with these individuals or institutions.
You also need to have a non-physician based board of directors with a great reputation in the investment community and who have done what you are trying to do. In this model, you have no choice but to grow and get big, and have passed the point of no return.
This model is not easy. It is filled with lots of volatility and since I am living this model everyday, I can honestly say that you must have the right people in place both on your physician team and leadership team, or failure is highly likely. However, the upside of this model is far superior to any of the previous models I discussed. In addition, your leader or CEO must have a proven track record with a lot of experience to make this a success.
This is by far the safest model from a regulatory standpoint and is the most equitable way to create value in a physician enterprise. The super group practice model is by far the most difficult to start but it is achievable with the right leadership and expertise. It has taken me 20 years to get our group to the current level with an annual growth rate of 147 percent since inception. I have mentioned most of the pros and cons already but I just wanted to reinforce that the super group is a model that takes a lot of patience and requires the most investment of time, energy and capital. However, if it is executed properly, it is this type of model that will provide you with the greatest returns in the long run.
Many podiatrists find security in working for established organizations or within big multispecialty groups connected to hospitals or insurance companies. This type of model has the advantages of not having to deal with management headaches or building a practice. You are also usually guaranteed a salary and could have some type of bonus. The usual downsides are a limited upside and not having any equity in most of these models. However, some multispecialty groups do offer equity options.
I have found that these types of arrangements work well for physicians who want a secure paycheck and a fairly hassle-free lifestyle. They are willing to deal with the politics to offset the stress of running and managing their own practices. These types of models are often very attractive to newly graduated residents because they often pay well up front. I have always preached to residents that it is not all about the money and if you focus on the big pay up front, chances are you are missing better opportunities. Again, there is not one flavor for every doctor and that is why all models are different.
Independent physicians associations have been around for a very long time. I have seen many groups structured under this model yet in reality they are crossing over and trying to act like a true super group model. Be very careful here because there are state and federal laws that govern these entities. Violation of these laws can cause severe penalties.
These associations are generally set up to organize independent practices into contracting entities. Independent physician associations generally contract with risk-bearing HMO contracts, vendor contracts and are loosely affiliated without significant loyalty among group members.
Independent physician associations are relatively inexpensive to join and most physician practices maintain their autonomy. This is very attractive to many physicians who join these associations. However, the disadvantages are that independent physician associations are very loose and ineffective entities with significant unpredictability. In addition, these associations do not offer much value to the physician when it comes to increasing the overall equity value of his or her practice.
A group practice without walls is a more tightly integrated model than an independent physician association and is one way to act like a group without truly being married “‘til death do you part.” In this model, the practices are usually set up with a single tax ID number. They share administrative and management costs, but maintain their individual practice locations and autonomy.
There are various types of group practice without walls. In some that are more integrated, the group practice without walls will employ the physicians, purchase assets from the practices and set compensation schedules. In a less integrated model, you would maintain your site autonomy and have separate site control and accounting.
In general, in a group practice without walls, you still maintain the financial emphasis on your own practice but as part of the group, you can share some marketing and administrative costs. The benefits are that you have more autonomy and can get some of the benefits of a true group practice model.
The reality is that in this model, you and the other physicians really are not fully committed to each other and have to really make sure you are set up properly from a legal perspective to receive the potential benefits of a fully integrated super group model. It is difficult to act as a unified team under this model with a set of shared core values. Again, under this model, your equity value opportunity is limited due to the nature of the structure.
Overall, you have many choices and there are many ways to skin a cat. The key to any of these models is education, education and more education. Do not make a career decision because it is the cheapest and least risky way to do something. You usually get what you pay for and that goes for this as well. You must seek wise counsel and have your own advisors on your side. Do your homework and understand every aspect of the model you are joining, including the leadership team. In this area, unlike with mutual funds, “past performance does guarantee future performance.”
The decision you make will either work or not work. Accordingly, it is important to understand the consequences of a deal going south and what impact it will have on you and your practice, and your career. If I can offer some friendly advice, do not ever do a deal because you feel that doing something is better than doing nothing. As they say in real estate, the best time to buy a house is when you do not need one.
The same holds true in choosing a practice model for you. Making emotional decisions based on the fear of being left out will ultimately be the “kiss of death” and lead to a fairly miserable practice experience.
Dr. Helfman is the CEO and Founder of Extremity Healthcare, Inc., and Village Podiatry Centers in Georgia.
For further reading, see “Transitioning From A Solo Practice To A Group Practice” in the October 2010 issue of Podiatry Today or “Understanding The Allure Of A Multispecialty Group Practice” in the February 2007 issue.