Every week, there’s a headline about another hospital or practice merger. More healthcare “mega” mergers — deals amounting to one billion or more — occurred in 2021 than during the past 6 years combined.
Consolidation follows on the heels of instability in any industry, and the COVID-19 pandemic certainly destabilized hospitals and practice revenue. The American Hospital Association estimates that one-third of all U.S. hospitals lost money in 2021. A 2020 survey of America’s physicians reveals that 16,000 practices had closed due to pandemic and financial hardships. But COVID only accelerated an already occurring trend. Between 2016 and 2018 (before anyone had even heard of COVID), close to 8,000 physician practices had been acquired by health systems or consolidated with other groups.
This year, after enduring more than two years of reduced patient volume, 70% of physicians in private practice admit they still worry about their practices’ financial health. It’s no wonder. Revenues decreased from 10%-64%, and the concurrent 15% increase in pandemic-associated practice costs pushed many near (or over) the edge.
Add the constantly changing reimbursement environment to this unprecedented challenge, and many independent practices struggle with the decision to remain independent.
Why It’s Difficult to Remain Independent
Larger entities have some pretty convincing arguments for urging smaller practices to join them.
First, they offer to alleviate their crushing administrative workload. Managing increasing regulatory and compliance requirements is becoming a tremendous burden on smaller physician groups. In 2022 alone, the AMA released 405 code changes including 249 new, 93 revised, and 63 discontinued codes. Billing specialists working hard to collect from payers and patients just to keep revenue flowing in have little extra time to learn the extent of these changes. The coding errors that result from incomplete knowledge deplete practice revenues.
Unlike the smaller practices, a large, national system has the budget and bandwidth to devote training to keep billing specialists updated. In addition— with a high volume of patients—larger entities can more easily invest in technology to automate many front and back-office tasks.
Administrative overload isn’t the only reason independent practices are aligning with hospitals and larger groups. They also recognize that the one-stop-shop message promoted by healthcare systems appeals to some consumers.
Despite these challenges, independent practices have a unique and lucrative competitive edge: personal service and closer patient/physician relationships. We’ve seen many independent practices thriving because of devoted patients who prefer them over a larger, more impersonal healthcare system.
As tempting as aligning with another entity may seem, for many good reasons, a portion of practices pride themselves on remaining independent. It’s revealing, too, that many private practices that first go through with a buyout, only split off again once their three- or four-year contract has expired. Here, we cover how independent practices can retain their autonomy for as long as they care to while maximizing their leverage for a future acquisition.
Want to stay independent? Improve revenue
Robust revenue is the shortest route to practice viability. A strong balance sheet comes with perks like offers to buy, capital to invest, a positive work environment, well-paid employees, and peace of mind.
More revenue can seem like a tall order, however, when many practices are working overtime just to get by. Still, when we go into practices, we find unnecessary revenue leakage in nine out of 10 cases. Chances are, your practice is leaking revenue, too. We’ve had the privilege of examining the revenue collection, accounts receivable, patient eligibility, and charge capture of hundreds of private practices. Those with the most robust revenue do the following:
- Cultivate Your Reputation Based on Your Core Services
One of our long-time cardiology practice clients has rebuffed several offers from larger organizations. They have this luxury because their revenues are solid and the referrals keep coming in. They have intentionally cultivated a reputation for outstanding cardiac care by limiting their services to heart health and keeping press and marketing focused on their cardiology expertise.
This cardiology practice also runs a surprisingly lean operation. Their biggest cost savings came when they implemented billing and revenue collection technology that took over the manual, tedious tasks of two full-time billing specialists.
Independent practices like this one that build and promote their expertise while watching costs closely wind up with revenue that is the envy of the industry. They will always be able to find a buyer if they care to. Knowing they can not only pay their bills but accrue capital to fuel the business helps diminish their stress and create a positive work environment.
- Improve Revenue with Data and Technology
Particularly in a short-staffed environment, automation and third-party staff augmentation to handle time-consuming eligibility, prior authorization, billing, and A/R tasks can create significant revenue uplift.
AI and machine learning-based prior authorization technology plus cost-effective, third-party support can significantly reduce the burden on your in-house patient access staff, speed up TATs, and eliminate the revenue leakage that originates at the front desk.
On the back end, A/R analytics with tracking and follow-up can recoup the revenue many practices write-off. A good analytics tool should expose exactly where your practice is losing revenue so you can address the causes. Problem spots typically include insights into which payers are consistently late, unprofitable procedures, and which claims are most likely to be denied or approved.
- Add another revenue stream
While practices that focus on their core medical procedures enjoy the best revenue, sometimes, it takes offering additional services to boost the bottom line. When considering new services, practices that add only those that support central procedures tend to perform the best.
Many of our groups successfully add revenue by adding an office-based lab (OBL). Most specialties require blood draws and urine tests, and patients appreciate completing lab work at their doctor’s office. An OBL helps them avoid a separate trip to another facility and even potential COVID exposure.
Typically, practices looking for capital to fund this expansion are finding it easily, despite a higher interest rate environment. Third-party lab services can also help shoulder the workload of OBL setup and management so your staff isn’t overwhelmed.
Smart revenue strategies keep practices independent long-term
Despite the support promised when aligning with a large buyer, many providers are turning down lucrative deals. Practice owners do not want to give up the flexibility to control their own schedule, treatment decisions, and practice. They may be onto something. Research has shown that retaining this level of control helps to reduce the risk of physician burnout, an urgent issue in healthcare today.
Selling doesn’t need to be inevitable, especially in suboptimal conditions. When smaller practices invigorate revenue by promoting and developing their core services, bringing in an office-based lab, and using technology to plug revenue leaks, their practices can stay independent, and free to serve patients in the ways they had always envisioned.
When smaller practices invigorate revenue by developing their core services, and using technology to plug revenue leaks, practitioners can stay independent- or improve bargaining power for a mutually beneficial sale- leaving them free to serve patients in the ways they most value.