As issues with reimbursement and technological changes arise, small podiatry groups may be feeling the pinch, making supergroups the wave of the future. This author explores the business model of supergroup practices, including how physicians can join together to take advantage of economies of scale and enhanced practice marketing.
Supergroups in medicine are not a new concept. Well-known facilities such as the Mayo Clinic and Cleveland Clinic started out as supergroups, ultimately evolving into world-renowned medical centers with multiple geographic locations.
Recent history shows us that the formation of supergroups has been successful in many instances but failed in others. The 1990s had business models in which national medical organizations purchased physicians’ practices and created a national footprint, but physician motivation waned and those ventures failed for numerous reasons. There is a lot we can learn from those failures so history does not repeat itself.
During the early part of this century, orthopedic supergroups started to emerge around the country. In my neck of the woods, the Illinois Bone and Joint Institute put together some of the most prominent orthopedic groups on the north side of the city and northern suburbs of Chicago. Now they are a dominant presence with over 100 physicians specializing in all aspects of orthopedics, rheumatology, podiatry and physical therapy. Similar organizations exist around the country in Charlotte (OrthoCarolina), Indianapolis (OrthoIndy) and Los Angeles (Kerlan-Jobe). These organizations have found success by creating value through multiple aspects of patient care.
In the last several years, many hospital systems have gotten involved with purchasing individual practices or practice groups. The hospitals typically pay a nice purchase price for the practice and then a guaranteed salary to the physicians for a certain number of years. Many physicians find this attractive with the uncertainty of reimbursement in the future, especially with the Affordable Care Act on the near horizon. The stability of a known future income and patient access has made doctors who were previously very resistant to “getting in bed” with hospitals amenable to this alternative.
It has been my impression that few hospitals are currently interested in creating large podiatry practices within their systems. Certainly, organizations such as Kaiser Permanente have meaningfully incorporated podiatry but we are not seeing this across the board. With many of the referring physicians joining hospital systems and services increasingly being provided within those hospital systems, many podiatrists are becoming uneasy about their place in the future of healthcare in their communities. That coupled with the increasing burden of time and costs associated with running a medical practice has led many to wonder if being a part of larger group would be a safer alternative to their current practice situation. A common discussion that happens at local and national podiatric meetings focuses on whether there is a place for supergroups in the profession.
The definition of supergroup is vague. Essentially, it means multiple people and practices coming together and using their combined experience, expertise and resources to create a better organization than one left separate. There are different philosophies on how integrated these practices need to become in order to successfully navigate the benefits of forming this supergroup. There are many examples in our profession of different types of supergroups.
The decision process on whether a supergroup benefits an individual or practice really comes down to the pros and cons of creating or joining one. Lowell Scott Weil, Sr., DPM, started our practice in 1965. The practice has gone through several transformations over the last 48 years but has been relatively focused in a desire to grow and create strength with size, services and market share in the last several years. We have recognized the changing landscape of healthcare and prefer to be proactive rather than reactive. Through our relationships, research and analysis, we have felt it best to create a supergroup in Chicagoland. This has not come without great consideration and thought. We are constantly having discussions with potential practices interested in joining our group and my goal is to articulate the pros and cons of podiatry supergroups.
How Supergroups Benefit From Larger, More Specialized Staff
Larger is stronger. In the last several years, many knowledgeable people in the healthcare space have regularly commented that the days of one person or small group practices are coming to an end. It will be difficult at best for small organizations to keep up with the requirements of technology, reporting and evidence-based outcomes to survive. A properly configured supergroup will create the infrastructure necessary to meet the requirements.
A larger organization allows benefits such as economies of scale. There are many ways economies of scale benefit an organization. Some obvious examples are work redundancy and job specialization. A small practice requires its employees to “wear multiple hats.” An office manager may make appointments, do the billing and collections, and perform human resource activities such as hiring, firing and training. A clinical assistant will perform the duties required of the clinic but also probably handle some reception/telephone activities, supply management and other miscellaneous tasks. In this scenario, these people are not focused on doing one job well but doing multiple jobs adequately.
As a group becomes larger, it can dedicate people to specialize in their area of expertise. This makes the office work better, smarter and more efficiently, which creates a better patient experience as well as higher profitability. Billing personnel can focus on making sure that staff submits the proper bills for proper payment and that those payments are according to the terms of the contract. Podiatry billing is very specific and not like other areas of medicine with all the modifiers and multiple procedures. Having someone who does not specialize in this area ensures that the practice is losing money. Additionally, dedicated billers can track payments and work accounts receivable regularly.
One can train clinical assistants to perform the highest possible level of care, which will give the physicians the ability to see more patients and focus on their highest level of care.
When an organization is large enough, a call center becomes a beneficial necessity. Instead of your front desk person checking in two patients and trying to book an appointment for the new patient calling on the phone, a call center has dedicated people talking to the new patient. Usually, the first contact a patient has with a medical office is a phone call and if the person answering the phone is not competent, distracted and/or multitasking, the result can be a poor experience for the prospective new patient, who may then decide to go elsewhere. With a call center, the people answering the calls have training on proper telephone technique and can not only make the call a better experience but can extract important information such as insurance information, e-mail address and other things. This will make the initial visit more seamless and give the practice the upfront information necessary to be more efficient.
Why Larger Practices Have Greater Purchasing And Negotiating Power
Economies of scale also manifest through purchasing and negotiating power. When purchasing office supplies, durable medical equipment (DME) and orthotics, pricing can definitively improve when there is a larger account. Furthermore, it is not uncommon for larger groups to negotiate improved malpractice rates that can save 10 to 40 percent on premiums in comparison with the sole practitioner. As health insurance costs continue to rise, small businesses allot a huge amount of money toward this. However, in a larger group, real savings can occur in health insurance rates. Other aspects of negotiating power can be evident in profit sharing plans, electronic medical records (EMR) and digital radiography purchases.
For a supergroup to be truly successful, ancillary revenue needs to be something that a practice creates and nurtures. The overall benefits of an ancillary revenue program are what supergroups are based upon. Some key ancillaries that podiatry supergroups can establish are magnetic resonance imaging (MRI), computed tomography (CT), physical therapy services, bone growth stimulators and pathology labs. Legal provisions are in place to provide these services lawfully within a podiatry practice.
These are necessary services that patients need on a daily basis and most would prefer receiving these services within the podiatry practice. Patients prefer “one-stop shopping” where they can get all of their foot and ankle care. Patients are continually thankful for the ability to get an MRI right at the time of their doctor’s recommendation to avoid having to set up a visit to the hospital or MRI facility.
Technology has advanced to such a degree that MRI studies have excellent diagnostic benefits that are actually more cost-effective than an MRI machine owned by the hospital. Patients and insurance companies appreciate upward of 50 percent savings by having an in-office MRI while the podiatry practice can realize significant profits by offering these medically necessary studies. Similar alternatives are available with in-office CT scanners.
Providing physical therapy services is a common success story with supergroups. There are a number of ways to set up physical therapy within a practice by employing therapists, having a PT group rent space and provide the services within the office. There are other legal, creative ways that physical therapy consulting groups are now establishing themselves around the country. Once again, patients would rather stay within the confines of their physician’s practice to receive the comprehensive care they need and desire.
Bone growth stimulators can be a source of revenue for supergroups. Practices can purchase the devices in quantity from the bone growth stimulator manufacturers, dispense the stimulators and bill for them.
Supergroups make these types of capital expenditures more realistic. First, the cost of these ancillaries is often prohibitive to the individual or small practice. However, when a large group absorbs those costs, it is not so daunting. Furthermore, financing is much easier to attain in a supergroup with favorable interest rates and no personal guarantees needed. The return on investment is also more realistic when there are enough physicians involved to refer these ancillary services.
The largest capital expenditure but also the one offering the greatest profitability is surgery centers. A supergroup can easily create enough volume to purchase or build its own surgery center. Why should outside investors or hospitals capitalize on the hard work and medical legal risk that the surgeon takes on?
Facilities get reimbursement at much higher rates than the surgeon doing the work. A surgery center is a fantastic way to create profits for the supergroup while usually providing a higher level of service to the patient that is actually at a cost savings in comparison to the patient having the surgery at a hospital. A surgery center not only creates profitability but also efficiency. Turnover time between cases can be half of how long it takes at hospitals, thereby allowing more cases in the same amount of time. Surgery centers may have lower rates of infection and higher patient satisfaction. State law differs on the allowance to build a surgery center but no matter what state, surgery centers are available for purchase and the investment is well worth it.
Maximizing Marketing With The Supergroup
Marketing benefits are also apparent with a supergroup. The lifeblood of any podiatry practice is new patient volume. New patients come from variety of sources with previous patients and referring physicians being the most common.
However, in the changing healthcare environment, it is necessary to expand referral source alternatives and that requires marketing. There are numerous ways to market and many of the most effective approaches are expensive. A supergroup can dedicate the resources necessary to perform successful marketing efforts. Furthermore, the very existence of the supergroup is marketing. Consumers are becoming more comfortable with and expecting of supergroup care. It is a bit of a Walmart mentality. The perception is that a big, successful organization offers a higher level of services.
Any marketing effort is only successful with repetition and a great way of enhancing reputation is multiple locations. Consumers are constantly reminded of the practice’s presence by seeing offices throughout the region. A supergroup has the benefits of a larger geographic footprint. The larger the footprint of any group, the more opportunity there is for exposure, creating better brand recognition. The net becomes larger and will result in more patient visits for the entire group.
Understanding The Benefits Of Assembling A Management Team
Once an organization is large enough, the practice can put an experienced business management team in place. Typically, podiatry practices are managed by the physician(s) who owns the practice, a trusted family member or long-term employee. Rarely do any of those people have true business management education or experience. They have learned on the job and usually are wearing multiple hats. They may know the practice well but they probably don’t know the business of medicine well.
With a management team focused on the business of the practice, the physician can focus on patient care. This will usually also allow physicians more personal time for family or other activities, time that they had historically spent trying to run the business.
A supergroup allows investment into the right people to manage and create growth, stability and profitability. A management team will usually be headed by a chief operating officer who reports to the chief executive officer (often a physician in the group) and has a team consisting of a human resource specialist, a senior accountant or controller, billing manager, clinical manager, patient services manager and IT manager. These may seem excessive but in comparison to a successful non-medical business, this group is essential to foster success. A supergroup allows a medical practice to start thinking and functioning like a business. Non-medical businesses continue to thrive in our country while medical businesses that think small barely survive.
What Happens When A Doctor Wants To Leave The Supergroup?
Supergroups usually provide physicians with an exit strategy when they want to leave or retire. The exit strategy can vary from group to group but there is usually a cash amount paid to someone leaving the group. When doctors own their own practice or have a partner or two, there are rarely good ways to get exit money out of the practice. There are very few young practitioners who are willing or able to pay for a practice given the economic times and the abundance of education loans. Many physicians are faced with a harsh reality that their practice is not worth what they think. The years of hard work and the expectation of a big sale at the end is not happening in today’s market. Joining a supergroup may make that big sale more possible.
If some entity, be it a hospital system or a strategic buyer, decided to purchase podiatry practices, the resulting supergroup would have much greater value on the open market than the small practice alone. Individual practices that gross between $500,000 and $1 million would be valued at 100 to 200 percent of the practice profits. A supergroup that has revenue in excess of $10 million would be valued at four to six times the profits and that multiple can get higher the larger and more profitable the group becomes. By joining a supergroup, your practice value can literally more than double overnight.
A Closer Look At The Downside Of Supergroups
A supergroup does not come without its detriments. The most common concerns and obstacles I find with people considering joining a supergroup include the loss of their name and individuality. One or two people have started most podiatry practices and they have dedicated their lives to growing the practice. Their identity is tied to the practice and giving that up is a huge hurdle. When one joins a supergroup, the practice is folded into the larger entity and the name will eventually be the name of the supergroup. This is not a bad thing but a psychologically difficult one. The reason the supergroup will be effective is that everyone will be working in a business with the same goals. While individuality is important, one needs to set it aside for the good of the group.
In solo or small group practice, physicians can immediately execute decisions. A supergroup will not allow that to happen. As a business becomes larger and more institutionalized, physicians must follow processes for changes to occur. For those who are accustomed to running their own business and practice, this issue can lead to frustration and unhappiness.
There are two things that are commonly associated with supergroup failure. Many times, groups get together without a plan on how to benefit as a supergroup. They like the concept of a supergroup but have no idea what it means or how to make it successful. They get together just for the sake of getting together. Another problem that is common is a lack of strong leadership. If a group has not identified the person or people to lead the organization, it will flounder and ultimately fail.
Part of the success of supergroups is to create institutional consistencies, even in the delivery of care. In doing so, there can be less freedom for individual physicians to choose patient care but instead follow “best practices” established by the group. While this can improve patient outcomes and reduce healthcare costs, physicians who join the supergroup often resist.
Consistency of care is also important to the staff. As the staff has to deal with more physicians, there can be confusion about the needs of the physician, which leads to chaos and poorer patient experiences. Consistency of care is paramount to the success of supergroups. As the group becomes larger, the level of consistency must be even greater to ensure that the brand is delivering what it promises. Some physicians are just not capable of working within these parameters.
All supergroups have processes in place to divvy up patients to the physicians. However, as a group becomes larger, there is an inevitable confusion as to which doctors are to see which patients. There has never been a supergroup that hasn’t had issues and arguments about the way in which patients are distributed and this can often lead to rather significant problems among the physicians, management, staff and patients.
Furthermore, the larger the group, the greater the risk of losing the “personal touch” associated with a doctor-patient relationship. For years, patients had been used to calling the office and talking to the person they have known forever. Now this person will be replaced by an impersonal voice without a face that asks terse questions about insurance and other things never discussed on the telephone before. Some people are not ready for Home Depot replacing their local hardware store. There is a danger that some patients will become dissatisfied with this new delivery of care and seek their medical treatment elsewhere.
The process of joining a supergroup is usually not easy. The practice will have to adjust its way of performing medical records, answering the telephone, ordering supplies, delivering patient care, billing and getting their paycheck. For sure, there will be employee attrition with possible temporary or long-term unhappiness for employees and, in some cases, the physicians with the change of culture.
Creating a supergroup is expensive. There is the highly compensated management team, legal fees, capital investments and the cost of transition. If the group is not managed well and there is not buy-in by the physicians, then these costs will outweigh any expected increased profits. In fact, if poorly executed, the supergroup can be a financial disaster.
Lastly, the cost of a failed exploration into a supergroup can be quite expensive. Legal fees can add up quickly. Additionally, if the new venture does not meet a person’s expectation, the extraction of a practice from a supergroup can be painful and expensive. As one considers joining a supergroup, do as much “dating” as possible and find out if the supergroup is right for you. Additionally, understand terms before getting attorneys involved. Paying attorneys can be the most maddening part of any business deal.
Private and small group practices are at a crossroads due to the rapidly changing healthcare environment. Issues such as payment reform, capital investment and technology are causing many private practice physicians to reevaluate their futures. For some, the future is creating or joining a supergroup. Those who choose to remain independent will face significant obstacles.
To survive and thrive in the new world of healthcare, practices must have strong physician leadership, solid management and good governance. Many will choose to take on these challenges alone while others will band together and form a strong, unified group that can effectively weather the storm that lies ahead.
Dr. Weil is the President of the Weil Foot and Ankle Institute, which has 18 physicians in 16 Chicagoland locations. He is a Partner of Foot and Ankle Business Innovations, an organization that helps practices realize their full profitability. To find out more, visit www.FABI2014.com .