Independent physician practice ownership has dropped significantly over the past decade, and healthcare reform's focus on consolidation and integration of care will likely accelerate  this trend.

For entrepreneurial physicians, market consolidation presents unique challenges and opportunities. The ability to maintain small private practice is quickly dwindling, but new practice models as alternatives to hospital employment are catching steam.

"[Maintaining independence] will be very difficult for the small practice as in many situations their options will be very limited, especially if they are not in large metropolitan areas," says Lawrence Kosinski, MD, of Illinois Gastroenterology Group — a large single-specialty GI group formed in 2010 thorugh the merger of four separate groups — and Chairman of the American Gastroenterological Association Practice Management and Economics Committee. "If they have likeminded groups in their specialty, then mergers will be an option. In areas where this is not an option [such as rural areas] then multispecialty groups will be an option."

In September 2013, four large orthopedic provider groups formed a physician hospital organization operating as the National Orthopaedic & Spine Alliance to establish industry benchmarks for quality and value.

Cleveland Clinic, The CORE Institute, OrthoCarolina and Rothman Institute formed the foundation of this collaboration and others have been invited to join. The initial group includes 600 orthopedic physicians with a focus on quality and financial management.

Another more recent example of private practice consolidation includes The Centers for Advanced Orthopaedics, which formed after a merger of more than 25 orthopedics groups in the mid-Atlantic region in January. The newly-formed group includes 130 physicians and spans Virginia, Maryland, West Virginia, Pennsylvania and the District of Columbia.

"I think the new landscape is really starting to shape up. We are going to divide the world between institutional medicine of hospitals employing physicians and large private practices," says Louis Levitt, MD, Secretary Treasurer of The Centers. "In our area there is also a large OB/GYN group. This is how private practice has learned to survive. The big group approach to medicine is the future of private medicine."

Consolidation among orthopedics groups can give independent physicians negotiating power and leverage to afford increasing office expenses — such as electronic medical records or employee benefits — as downward pressure on reimbursements makes it difficult to cover these costs. However, physicians merging into these groups still lose a measure of independence and entrepreneurial-minded surgeons are left wondering whether there is a place for them in this new healthcare paradigm.

"There are large hospitals and institutions acquiring practices and large networks of single-specialty providers that are becoming large private groups," says Fred Davis, MD, Founder of Michigan Pain Consultants. "Even though you lose some independence when you merge with larger groups, the difference is that at the hospital you are one among around 500 voices of different specialties and your voice can get diluted in the mix. In the single specialty groups, all the physicians have the same focus and the leadership is in your specialty."

Who is most vulnerable
Single-specialty physicians with a narrow focus are most vulnerable to hospital employment, or losing out to larger interests in independent physician groups. "When you get good at doing a particular procedure, you become very dependent on just a few procedure codes, and that makes you vulnerable if the insurance company decides to change reimbursement patterns, or says they won't reimburse for that code anymore," says Dr. Davis.

Gastroenterologists are currently dealing with this issue, as many depend on colonoscopy and endoscopy to drive their practices. However, as new technology develops and payers focus on the high cost of colonoscopies, some gastroenterologists may see this source of revenue dry up. As a result, they are diversifying to include new procedures, techniques or services to accommodate a wider array of patients.

"We are focusing on our new business lines: CRC Screening and Surveillance, IBD, HCV, etc. We are developing niche markets like women's GI disorders, geriatric disorders and nutrition services," says Dr. Kosinski.

Specialties that require hospital based resource are also particularly vulnerable to employment. Nearly all cardiologists are now working for large hospitals and health systems because they couldn't practice without that infrastructure.

New practice models
Innovative minds in healthcare have developed new practice models that consolidate groups while allowing physicians to remain independent and avoiding laws against the corporate practice of medicine.

"There are options short of full employment like captive medical groups where the hospital funds the formation of the medical group which remains independent of the hospital," says Dr. Kosinski. "The hospital will demand some reserve powers and contractual agreements for patient flow and certain outpatient services, but the medical group remains independent."

Outside of hospital alignment, physician groups also have their pick of several national companies to join as a smaller practice and reap the benefits of a large organization.

"There are some national companies that have practices in several states and allow those groups to have some sense of autonomy, but there is also corporate control," says Dr. Davis. "The centers are individually owned but part of a larger group. They have to operate according to structured rules and regulations, and you are bound by contractual arrangements."

The ability to achieve a balance of centralized corporate and local decision making  will separate the losers and winners among these corporate entities, says Dr. Davis. When the national group snatches too much control over local judgment and precedent, the group is likely to fail. For example, after Macy's acquired Marshall Fields, the large corporation held stores to requirements that wouldn't allow regional managers to respond to t community needs.

"Macy's was able to turn that trouble around by allowing regional managers to adjust  to local purchasing patterns and considerations," says Dr. Davis.

Private equity is also breaking into the medical practice market. Many private equity deals are meant to occur for a certain number of years before a sale or going public. When that next iteration happens, there is a payout for physicians.

"The physicians give up a portion of control of their practices  for the promise of a payout in the future," says Dr. Davis. "They have to subjugate their individual needs to the needs of a bigger company, and understand that the stronger and more successful the company is, the more individual value will be created for them in the long term."

Branding, and where rainmakers fit in
Like large corporations, big hospital and health systems prefer to focus marketing efforts on their "brand" instead of superstar physicians and services; they don't want to give one rainmaker too much leverage that it would hurt if the surgeon decided to leave the group.

"For shareholders and national companies, it's more important to create a company brand and reduce the impact of marquee players," says Dr. Davis. "This has happened in dentistry. National organizations don't necessarily want these super excellent individual physicians that are big personalities within the company long term  because it gives them too much power. If they leave the practice, they could  take their patients. Whereas in a corporate oriented brand  you  lessen  that risk."

However, there is some room for a balanced approach to working high profile  physicians into the corporate structure.

"If the superstar quality is clinical, this can be difficult to maintain in the confines of a larger group," says Dr. Kosinski. "It all comes down ultimately to money though and the large group must be flexible with their financial structure in order to accommodate a very busy superstar. If the superstar qualities are managerial, all the better. These are the ones who should be selected for leadership positions."

In some markets, such as Chicago, the name may be important locally. Some groups will initially partner with the "marquee players" in a specific market as they break into that market, then gradually shift branding to the corporate identity.

"Providers like Mayo Clinic and Cleveland Clinic are establishing national and international brands that ensure a type of quality. What is the future for these great clinicians in the corporate structure?" says Dr. Davis. "Where are the superstar roles? There are rainmaker attorneys that are given a certain degree of independence and law firms have figured out how to work with them. Medical companies need to figure out the same thing."

Some medical companies are beginning to find roles for their superstars as instructors, medical directors and mentors to the younger physicians.

"Those are some of the qualities that would make the physician successful in a large corporate environment, if they are good educators, good at recruiting and able to work with the larger corporate environment," says Dr. Davis. "In a corporate structure, everything is more organized and standardized, and you have to pass through administrative challenges to change. If an independent spine surgeon comes up with a new technique, they can't just start using it. That thinking outside the box is how we have traditionally evolved in the past. How can we take that innovation and apply it to the corporate structure? Innovators and entrepreneurs can be an asset and thrive in a corporate environment, but you have to be able to leave your ego at the door." 

As these companies evolve, they will be looking for physicians who are good "team players" in the clinical realm and beyond. This mindset could dilute the effects of   innovation and entrepreneurial-mindedness in the future.

At The Centers, Dr. Levitt and his partners encourage physicians with a particular passion outside of clinical practice to pursue their passion. For example, being in the Washington, DC, area affords many advantages for physicians who are politically-minded.

"Just by our sheer number of members, there isn't any reason why we can't have influence on healthcare policy," says Dr. Levitt. He also encourages research and development among physician partners. "We have just begun to tap into the power of this organization."

Entrepreneurialship for young physicians
Younger medical students finishing their training are more accustomed to the idea of hospital employment — or joining a corporate structure — and may not want to undertake the pressures of starting their own practice, especially in today's healthcare environment.

"Most of the younger physicians want lifestyle, not more work," says Dr. Kosinski. "They want as little call as possible, lots of vacation and instant partnership."

Dr. Davis also sees many of the young practitioners coming out of training who prefer to focus on the clinical aspects of the job instead of business. Additionally, for many young physicians, innovation has changed from independents to focusing on analytics and applications that can strengthen clinical processes.

"Young physicians are now getting degrees in clinical analytics, MBAs or IT areas and using cross disciplinary brilliance to advance care," says Dr. Davis. "Their business is inventing a new algorithm, app or software that can provide better care instead of the past generations creativity going from a hospital-based treatment environment into the private ASC to capture facility fees."

Who is staying independent
Specialists that treat patients others find too complicated or undesirable are more likely to stay independent. For example, pain physicians that provide care for complex patients and organize the behavioral, physical therapy, medications and interventional care these patients need.

Additionally, if you are able to provide comprehensive care for an entire disease process, independence is easier.

"If you have a very narrow subspecialty that isn't really replicated, like neurosurgery, that can't flood the market with competition, then you are also more likely to stay independent," says Dr Davis. "Or if you're going into practice in a geographical location that doesn't have a lot of competition."

These unique specialists are in a position to negotiate with payers and other providers because they deliver a needed service. Some may choose to align or participate in accountable care organizations and manage the entire spectrum of care for their specialty.

"If you have interest in  doing that and demonstrating value, quality, outcomes and cost savings, it may not make sense for the big institution to duplicate your efforts because they are less efficient," says Dr. Davis. "We are in a period now for the next five years that before everything is shucked out, there are opportunities for innovation in the way physicians are practicing, and that's up for us to take advantage of."

Read more here: http://www.beckersspine.com/orthopedic-spine-practices-improving-profits/item/19354-the-new-healthcare-paradigm-where-do-entrepreneurial-superstar-physicians-fit-in