Economic and regulatory forces are leading to the consolidation of medical practices across the country. Hospital systems are acquiring primary care practices, multispecialty clinics are clamoring for their share of the pie and single specialty medical mega-groups are coming together to grab market share across geographic areas. It is now rare for young doctors completing their training to open up an independent office.
These developments may lead contemplative private practice podiatrists to wonder: “What do I do now?” Podiatrists have typically practiced successfully in solo and small group settings. This arrangement does not appear to be the wave of the future and the thought of working for a large corporation might not be that attractive to individuals used to independence at the workplace. Thus, the idea of maintaining a degree of independence while coming together with many like-minded colleagues in order to survive and thrive has an appeal to many podiatrists.
Podiatrists historically have sought key advantages when working together. These advantages include:
• decreased expenses through economies of scale;
• increased revenue through an enhanced range of services;
• increased office hours;
• the development of “best practices”; and
• shared responsibilities and the pooling of financial and professional resources.
Advocates of the so-called “super group” model in which more than 20 podiatrists work together under a single tax identification number tout additional advantages. These advantages include:
• decreased expenses through negotiated “group discounts”;
• increased revenues through the development of ancillary income sources, shared marketing efforts, increased visibility and the ability to negotiate improved managed care contracts with private insurers; and
• an enhanced ability to collect the required data needed for third-party payers such as “accountable care organizations” in order to prove cost-effectiveness, compete for business and stay in the “mainstream” of the medical marketplace.
What Are The Benefits Of The Business Model For The Group Practice Without Walls?
The model described below derived from perhaps the first podiatric super group ever formed by Neal Frankel, DPM, and his colleagues in Chicago. John Leardi, JD, and Hal Ornstein, DPM, expanded this model in New Jersey as a “group practice without walls.”1
Podiatrists in solo and small group practices would face a daunting task in rapidly forming a fully integrated business with 20 or more colleagues. Each podiatric practice tends to vary widely in the scope of services, modes of operation and overall culture. There would be a high likelihood of failure with the attempt of many individual businesses to merge into a completely integrated single business over a short time frame.
A group of podiatrists (including myself) in North Carolina studied the various options for forming a super group. We came to the conclusion that the group practice without walls model had the best chance of success for us for the following reasons.
• The group practice without walls, as set up by our attorney, is legal and complies with the requirements of “clinical and financial integration” in group practice design.
• The model allows for most of the advantages of the fully integrated model including ancillary income development, group purchasing power, economies of scale and enhanced third-party payer contracting.
• The group practice without walls model allows for a degree of autonomy that is attractive to our members while we become more used to the idea of practicing as a single entity.
• The practice model avoids the need to appraise every individual practice prior to forming the group. There is no hierarchy of ownership.
• The group practice without walls model is easier to unwind in the event that the group’s (or one of its member’s) circumstances change.
What You Need To Form A Group Practice
The following items are ideas to consider in developing a large financially and clinically integrated podiatric business using the group practice without walls model.
Legal. The services of a seasoned and smart healthcare attorney are required for anyone considering the formation of a large podiatric practice.
Accounting. The group practice without walls will file a single tax return. It is recommended that all divisions of the group utilize the same “chart of accounts” to streamline bookkeeping and that each division e-mail its financial records to the accountant on a quarterly basis.
Payroll. An Internet-based payroll service with electronic deposits is essentially required. Look for a rate of about $6.50 per employee per month for an entire package including the payment of all taxes and filing of W-2 reports.
Employee benefits. This is a more complex issue for businesses with more than 100 employees as additional rules apply. Consider the use of an employee benefit company or the use of an insurance alliance offered by the payroll vendor.
Benefits package. Typically, the practice must offer the same benefits to all employees in a large (greater than 100 employees) business. An agreement by all the podiatrists on a uniform set of benefits is challenging but will also typically reveal the level of cooperation of each of the members.
It is advisable for each of the former practices to maintain its prior corporation as a “holding corporation” for the equipment of the former practices. Thus, one solution to the conundrum of providing the desired flexibility of employee benefits is for the new corporation to pay rent to the old corporations for the use of each division’s equipment. Then the old corporations can take this rental income to legally pay for various and sundry items.
Health insurance. The ability to save on health insurance premiums is often one of the most eagerly anticipated benefits for small business owners joining a larger business.
In general, group health insurance premiums decrease when: a) there are more than 100 “lives” covered; b) the company is paying 75 or more percent of the cost of the coverage; and c) the insurance company has data on the past healthcare use of the people to be insured. A business can save an additional 5 to 15 percent of the premium if it is willing to partially “self insure” against catastrophic healthcare events.
Insurance companies will offer other types of insurance (dental, disability, life, commercial, etc.) and benefits (e.g. flexible spending accounts) to the group at attractive rates. Keep in mind that the agent is receiving a commission on each of the policies sold.
Retirement plans. A large business is typically limited to a 401(k) retirement plan. A “safe harbor” plan offers advantages for our type of business with the choice of a 3 percent match for all employees or up to a 4 percent match for all participating employees.
Insurance negotiations. It is frequently frustrating for small group podiatrists to compare the private insurance fees received by large group medical providers with the fees paid to small podiatry practices for the same CPT codes. However, private insurers will not be inclined to pay higher fees based on group size alone. The group practice without walls must provide additional information and come up with its own unique value proposition.
Group discounts. You might be surprised that there are various vendors that are eager to do business with large podiatric practices. Consider joining or forming a managed service organization to handle these issues.
Ancillary services. The pooling of resources and economies of scale present in a large group practice offer some potentially profitable sources of ancillary income. Ambulatory surgical centers, physical therapy centers and radiologic and diagnostic testing centers may be feasible for a large group practice. Pathology lab services, in which the practice does the technical component of the lab service and a licensed pathologist provides the professional component of the service, offer one of the most potentially profitable ancillary income opportunities.
Clinical integration. The Internal Revenue Service and other regulatory agencies require a group medical practice to be “clinically integrated.” The group practice without walls model complies with these requirements via protocols, chart review and outcomes data. The development of research projects, particularly involving the care of patients with diabetes, is encouraged.
The group practice without walls concept is a viable option for like-minded podiatrists to come together for their mutual benefit. This practice model is attractive to podiatrists who are willing to compromise, desire to maintain a high degree of independence, seek to remain part of the mainstream of medicine and want to play a role in emerging healthcare constructs.
Dr. McDonald practices in Concord, N.C., and is one of the managers of the NC Podiatric Physicians and Surgeons Group, PLLC.
1. Leardi J. Mega-Group white paper. Available at www.buttacilaw.com .