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Small but Mighty: How Private Medical Practices Can Still Compete

Small but Mighty: How Private Medical Practices Can Still Compete

Neurologist Yafa Minazad is no stranger to the challenges independent practices face, including declining reimbursement, increasing overhead, and costly EHR implementations. But unlike many other independent physicians, Minazad, who practices in Pasadena, Calif., would not add increasing pressure and competition from larger healthcare systems to that list.

That's because Minazad and her four partners have found a way to form a collaborative relationship with the nearby hospital, rather than a competitive one. It began, she says, as soon as she opened her practice (then as a solo physician) in 2005. "Right off the bat I was partnering with the hospital, trying to help them bring the expertise in to set up a neurophysiology lab while establishing my own practice," says Minazad, who has a subspecialty in neurophysiology. "It was a very collaborative and mutually beneficial relationship between my practice and the hospital."

Since then, Minazad and her partners have assisted the hospital with forming several innovative programs, including a stroke program, a headache institute, a memory and cognitive clinic, and a neuromuscular clinic. Though the partners are not employed by the hospital, they oversee these departments in administrative roles. "These are the type of programs that could not be built and put together without the expertise of the physician or the resources and the vision of an institution such as a hospital in the community," says Minazad."I don't think if we were employed it would necessarily be to their benefit, and despite the headaches of being in an independent situation, from the personality standpoint, it works best for me and also for my partners."

While Minazad has a strong relationship with the hospital near her practice, not all physicians are so lucky. From changing referral patterns due to health reform initiatives to increased preference for employment among up-and-coming younger physicians, many factors are making it more difficult for independent practices to thrive alongside larger healthcare systems. Here are three of the biggest challenges private practices face, and how medical practice consultants say they should respond.

Problem: The hospital is stealing your patients

Practices that choose to remain independent are feeling the pinch from every angle. Between 2012 and 2013, average commercial payer reimbursement for all new and established office visits fell nearly 9 percent, according to Physicians Practice's 2013 Fee Schedule Survey. That's on top of a 10 percent decline between 2011 and 2012.

These reimbursement declines and other financial and operational challenges are pushing many practices to sell to larger healthcare systems. In fact, 60 percent of the hospital acquisitions completed in 2013 were initiated by the sellers, according to a 2013 survey of 100 hospital executives conducted by healthcare staffing firm Jackson Healthcare.

As hospitals acquire more practices, physicians who choose to remain independent are facing additional challenges. Consider, for instance, an independent specialist in a region where a hospital is purchasing most of the nearby practices. That physician will likely see his referrals fall, as the hospital pressures its recently acquired practices to refer within the system, says Kenneth T. Hertz, a principal with the Medical Group Management Association (MGMA) Health Care Consulting Group. "All of a sudden their referral sources are being encouraged to refer elsewhere."

New payment models, such as accountable care organizations (ACOs) and bundled payments, may further strain referrals for independent specialists. The results of Physicians Practice's 2014 Staff Salary Survey indicate that nearly one-quarter of practices are already participating in ACOs. As that percentage grows, more non-participants may begin feeling the effects. That's because participants in such models receive higher pay if they improve the quality of care provided to patients while decreasing costs. As a result, most ACO participants will strive to keep patient referrals within the network of participating providers so that they have more control over each patient's care.

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