Three Alternatives to Medical Practice Consolidation

May 29, 2013
Carol Stryker

Consolidation will probably continue to be a strong trend, but it is not the only available option.

The trend toward consolidation of medical practices is strong, and a previous blog discussed the primary motivators. A subsequent blog listed the reasons 70 percent to 90 percent of those mergers and acquisitions fail and suggested ways to mitigate them. 

The next step is to address the three currently most popular alternatives to consolidation.

1. Direct pay
The obvious advantages in direct pay practice are that contracting with payers is not necessary; the practice can set its own fees; and, provided payment is collected at the time of service, there is no lag in payment.  Direct pay requires patients who are willing and able to pay, at least temporarily, the full cost of their care in exchange for guaranteed access to the provider of their choice.  Professional fees can be lower if physicians realize lower operating costs and opt to share them with patients.  Payers are not always entirely out of the picture because insured patients generally expect the provider to file claims for services, with payment to be made directly to the patient. Direct pay supports both the fee-for-service and concierge models. 

Another interesting model is hourly billing.  Patients are billed for the time they require, and therefore maintain some control over their costs.  If they want the physician to come to them or engage in lengthy conversations, it is their choice and their obligation.

2. Independent physician association (IPA)
An IPA contracts on behalf of its member physicians with a managed care organization for services to the organization’s enrollees.  The IPA negotiates and manages the contracts, is responsible for certification and licensure, and often handles billing and collections for services provided to the enrollees of the managed care organization.  Some IPAs offer additional services to their physicians like IT and Marketing. 

Payments to the IPA can be at reduced fee-for-service rates, although they are generally based upon capitation.  Payments from the IPA to the physician can be on a variety of bases, depending upon the contract between the IPA and the physician, including fee for service.

It is important to note that the IPA only represents the practice to the managed care organization.  The physician must continue to independently negotiate and maintain a relationship with payers for other patients, or be out of network.

3. Traditional medical practice business model
By traditional, I mean the model of the last 50 years or so:  fee for service with insurance reimbursements and no electronic records.  The model is not necessarily dead yet, although it may not have long-term viability and success is more difficult to achieve than in the past. 

The essential elements to current success are:
• Make the practice attractive to patients and avoid the “cattle call” feel of large, hospital-owned practices.  Be aware that the practice is providing a service to people who have lots of choices.
• Dismiss patients who are difficult to work with, those who drag down productivity, profitability, or both.
• Utilize physician assistants and nurse practitioners appropriately.  That is, use them to effectively extend the physician’s capacity, but remember that their education and experience are not as extensive as the physicians, and patients with complex issues notice.
• Be effective and efficient.  Do not jump on any bandwagons and perform a realistic cost/benefit analysis on all major initiatives.  EHRs are the obvious case in point.  If the practice expects an EHR implementation to be a long-term drag on productivity, it will be.  The rational decision in that circumstance is to stay put and plan to absorb any reimbursement penalties as the lesser of evils.
• Keep overhead, particularly fixed overhead, as low as reasonably possible.

Medicine as a business has changed, is changing, and will continue to change. Consolidation will probably continue to be a strong trend, but it is not the only available option.  What other alternatives have you seen work well?