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.

"It varies a little bit by state and region, but in general the trend over the past few years of hospitals acquiring practices, especially primary-care practices, and also of larger systems expanding and building bigger footprints, has made a difference in referral patterns," says Laurie Morgan, senior consultant at practice management consulting firm Capko & Morgan. "Even if [referring within the healthcare system is] not mandatory, there's just a sense that physicians need to be referring within the larger organizations that they are part of."

Solution: Stand out, build, and partner

While declining reimbursements and shifting referral patterns present challenges for independent practices, there are some ways to weather the storm. One of the most effective is to provide such outstanding service to referral sources that they can't help but refer to you - even if they are pressured to refer elsewhere.

"Go above and beyond," says Hertz, adding that providing timely feedback to referral sources and quick access to care to referred patients are great places to start. "At the end of the day, physicians are concerned about the care that their patients receive ... I have seen instance, after instance, after instance where physicians within a system have said, 'You know what? We're not referring within the system for these reasons: The specialists aren't responsive, they don't give us our reports back in a timely manner, they're rude to our patients ...'"

Next, consider partnership opportunities to gain negotiating leverage with payers and access to a larger referral system. A clinically integrated network (CIN), for instance, enables physicians to remain independent while partnering with other practices and health systems (such as in an ACO arrangement), says family physician William K. Faber, chief medical officer of healthcare consulting firm Health Directions. "Clinically integrated networks are a mechanism to allow doctors to collaborate together, to get the benefits of those referrals - either on the giving or receiving end - without having to be employed."

Forming an independent physician association (IPA) is another option. Though generally not as powerful as clinically integrated networks, IPAs are a great stepping stone to broader partnerships, says Faber. "Doctors have got to find ways to create larger associations," he says. "They have to work together cooperatively to have: a.) power with the payers; and b.) economies of scale."

Problem: The hospital is stealing your staff

In addition to challenges attracting and retaining patients, more practices may be experiencing difficulties attracting and retaining staff. One big reason: As practices take on new initiatives, such as implementing EHRs, complying with new HIPAA requirements, and participating in reform initiatives, staff members must take on more responsibilities. But practices aren't always able to increase staff salaries and benefits accordingly.

In fact, 28 percent of the 1,400 respondents to Physicians Practice’s 2014 Staff Salary Survey said they cut or froze salaries in the past two years, 25 percent said they increased staff workload without increasing salaries, and 16 percent said they reduced benefits. In addition, 71 percent said they did not plan to give raises beyond cost of living in 2014.

As practices struggle to provide financial incentives to staff, larger systems with more financial stability may find it easier to lure away talented staff, and snatch up potential new hires. "There clearly is an opportunity in a larger health system to perhaps provide a richer benefits package than a private practice may provide," says Hertz, adding that hospitals may also offer a slightly higher pay scale.

Practices may struggle the most when attempting to recruit and retain advanced practitioners, such as PAs and NPs. A recent MGMA report, "NPP Utilization in the Future of U.S. Healthcare," found that the number of full-time equivalent advanced practitioners per full-time equivalent physician has increased 11 percent since 2008. "That market has really taken off," says Maureen Jamieson, a senior search consultant at healthcare staffing firm Cejka Search. "We're doing a lot more advanced practitioner recruitment of both NPs and PAs than we did in the past."

Solution: Cultivate, adapt, and adjust

Hospitals may have an advantage when it comes to providing more monetary incentives to staff, but private practices stand out as great places to work for other reasons. To ensure you are retaining your best staff and attracting new ones, focus on promoting those attributes.

"In a private practice there is an opportunity for a far more intimate, close, kind of family-type relationship with your colleagues," says Hertz, "There's a lot to be said for that." In addition, private practices tend to offer a more flexible and laid-back atmosphere. "Working in a hospital environment there are likely more policies, more procedures, more this to follow, more that to follow," he says. "You oftentimes get a lot of that kind of thing, and I'm not saying by any means that that is bad, I'm just saying it's different."

If you can't provide monetary incentives to staff, Hertz suggests rewarding them in smaller ways. Host a pizza party when they complete a major project, hand out movie passes when they do a great job, and so on. "Remember: We're dealing with people, and if we think of them as people first and staff second, I think we have a far better chance of being successful as we go through these changes," says Hertz.

If you are attempting to recruit advanced practitioners, offer a full-benefits package and additional financial perks, such as paying for any tests needed to maintain licensure, says Jamieson. And, make sure you are utilizing the best recruitment methods to attract candidates. Most advanced practitioners consult online job boards, network with colleagues, and assess e-mailed opportunities when looking for jobs, according to Cejka's 2014 Physician Assistant Survey of 809 PAs and Cejka's 2014 Nurse Practitioner Survey of 766 NPs.

Problem: The hospital is stealing your physicians

While retaining and attracting staff presents problems for many practices, keeping and recruiting physicians may be even more challenging. "Anecdotally, I'd say every year we see more and more physicians moving to an employed model," says Jamieson. "That's across the ages - recently trained physicians, those who are mid-career, those at the end of their career. We're seeing a lot of people making a jump from a private-practice partnership into the employed field."

Several factors contribute to the growing preference toward employment. They include the sense of security employment provides amidst the "unsettled" healthcare environment, and lack of physician acumen (and/or interest in) the business side of running a practice, says Pam Kinsella, a senior search consultant at Cejka. "They want to be practicing medicine, and employment by the hospitals and the health systems really allows [them] to do that."

In addition, many established independent physicians may be fed up with the pressure to do more without necessarily being paid more. Fifty-six percent of independent physician respondents to Physicians Practice’s 2014 Great American Physician Survey, Sponsored by Kareo, strongly agreed with the statement: "I used to enjoy being a physician much more, but today it's more stressful and less financially lucrative."

Solution: Target, promote, and mimic

Since the pool of independent-minded physicians is smaller, expand your search efforts and utilize several different recruitment tactics when attempting to attract new physicians, says Hertz. "I would encourage docs in the practice that are younger docs to talk to their residency programs," he says. "This really needs to be a full court press ..."

Also, start your physician search early. In 2013, 61 percent of soon-to-be physician graduates began interviewing prior to January of their graduating year, and 52 percent signed contracts by March, according to the more than 1,200  physicians who responded to Cejka's 2013 Residents and Fellows Survey. "We're seeing residents and fellows who finish in 2015 looking to sign here in the next couple of months, some of the more aggressive ones," says Jamieson. "Offering a stipend, where they are paid a monthly stipend from the time they sign to the time they start, is a good way to get residents and fellows to commit to your practice early." Also consider offering loan repayments, a signing bonus, and a relocation package, she says.

As is the case with recruiting staff, emphasize what your practice can offer new physician hires that employment can't, such as more flexible scheduling and opportunities for job sharing, says Hertz.

Finally, think about how your practice can "mimic" some of the characteristics of a larger system that new physicians might find appealing, says Sean Hartzell, a senior manager at healthcare consulting firm ECG Management Consultants, Inc. For instance, strong relationships with nearby practices might provide physicians with the sense of a broader network, new technology might lure them in, and participating in health reform initiatives might show that your practice is forward thinking. "At the end of the day, if the practice is growing and it's got a lot of good patient relationships, I think that that is also a nice recruiting and retention tool," says Hartzell. "If I have three offers and one is a thriving independent practice, one is a hospital, and one is a practice that is not growing and really shrinking and contracting, well I'm not really going to go to the one that's contracting."

Medical Practice Marketing Musts

Independent practices must step up their marketing efforts to attract and retain patients despite increasing competition from larger health systems.

One way: Ensure that potential patients are able to find you easily, and find the correct information about you, says Laurie Morgan, a senior consultant at practice management consulting firm Capko & Morgan. Since many patients find physicians by perusing their insurer's directory listings, search through your payers' provider directories to determine if your information is listed correctly. If not, ask the payer to make corrections.

"Over the past few months we've worked with so many different practices and you would not believe how many errors there are in their health-plan directory listings," says Morgan. "Everything from practices not being listed in networks that they are part of, being listed in the wrong location, to not being listed as taking new patients. All of those things are really essential to keep the referrals flowing."

In addition to assessing the directories, monitor online rating and review websites that "list" your practice. Since potential patients often visit these sites when searching for information about your practice, make sure that the information about your practice is correct.

To learn more about how to "claim" the listings on online rating and review websites and take better control of your online reputation, visit bit.ly/control-your-rep.

In Summary

It may seem like independent practices face an uphill battle when competing with larger systems, but there are some ways to turn things around:

• Provide outstanding service to referred patients and referral sources

• Cultivate partnerships with nearby practices and health systems

• Foster and promote a healthy, happy staff

• Offer flexibility and unique opportunities to established and prospective physicians

Aubrey Westgate is senior editor for Physicians Practice. She can be reached at aubrey.westgate@ubm.com.

This article originally appeared in the September 2014 issue of Physicians Practice.