Many of you read Dr. Blaiss’ recent column, Is it time to sell your allergy practice? with a great deal of interest. The College regularly receives inquiries from allergists looking for information on selling or closing their practice or partnering with other entities – and interest has grown over the past twelve months as the pandemic has some allergists thinking about options for the future. So, what are options available to allergy practices looking for a change? We outline some alternatives below, along with pros and cons of each. Plus, we provide links to several helpful resources as you consider your options. But keep in mind, staying independent is still viable for many allergy practices!
1. Align with a hospital.
There are a few different models that hospitals use:
- Purchase and employment is the most traditional, where a hospital system buys the practice and employs the physicians. Purchase prices tend to be lower than other options– usually only for the value of office furnishings and supplies. The salaries are set and usually based on work RVUs, so consider negotiating a bonus structure for procedures like skin testing and PFTs you order and the value of allergy immunotherapy.
- Professional services is a model where the physicians maintain their practice and lease it to the hospital. The hospital pays the practice based on work performed (typically work RVUs). While similar to the purchase/employment model, this may offer more autonomy to the practice with a trade-off of less administrative support.
- Joint venture is a relatively new model where the hospital buys an interest in the practice. The practice can benefit from a capital infusion and the hospital’s enhanced fee schedule without losing autonomy.
Pros: Hospitals have a vested interest in working with physicians due to referrals. These can be long-term deals, and practices benefit from having access to the hospital’s resources and being a referral source for other hospital physicians. Another potential benefit is that the hospital system generally assumes the administrative functions of the practice.
Cons: Physicians may not be able to participate in ancillary revenue due to Stark Law considerations. There is a loss of autonomy, and hospital administration turnover is common. Plus, most hospitals lose money on physician practices, but more than make up for it in potential for significant ancillary billings from procedures, biologics and lab. One of the challenges for the typical allergy/immunology practice (unlike specialties like oncology, orthopedics, interventional cardiology, or gastroenterology) is that they bring very little significant ancillary income to the hospital system. This can affect contract negotiations when time for renewal. Finally, most hospitals require noncompete agreements.
2. Private equity
Private Equity (PE) firms typically start by purchasing a “platform” practice – i.e., a profitable practice with management and services already in place (EHR, HR, marketing, compliance, etc.). The practice already has significant established market share. These practices generally have also made substantial investments to get to that level, and the shareholder physicians usually maintain a significant ownership in the new PE entity. The PE firm will then provide resources to help the physician partners grow the practice by adding other physicians and new locations. This may include providing capital for growth and expansion and may bring access to experts who can help improve business practices, including human resources, information technology, payor contracting and revenue cycle management. Some PE firms bring in their own management, while others rely on working with the already established management team of the platform practice.
Pros: Partnering with a PE firm will help the practitioner monetize their practice and ‘cash out’ some equity. Typically, the physician partners continue to hold equity in the new (larger) entity and benefit when the new entity is eventually sold in several years to another larger organization, creating another wealth event. Additionally, the new PE entity can help reduce the administrative burden physicians are facing in running their own practices, including increasing regulatory burdens, by providing additional business resources. This can potentially improve negotiating power and may lead to better fee schedules with third-party payors as well as improved purchasing for supplies.
Cons: Carefully consider what happens to your practice after acquisition and be sure your priorities are aligned and addressed in contractual arrangements. Considerations include options to buy into the new enterprise, compensation formulas, retirement planning, how future ancillary services will be addressed, how future value-based contracts will be handled, etc. There’s also a good chance ownership may change in a few years with a recapitalization event with a larger PE firm. Non-compete agreements are also usually required. The new entity may decide to partner with ‘rival allergists’ in your community; this could be a pro but should be considered.
3. Join (or form) a supergroup.
A physician supergroup is a group of physicians or physician practices coming together under one employer identification number and legal entity. They can be either single- or multi-specialty. Practices operate much as they did before, but with centralized business offices that can drive economies of scale.
Pros: A supergroup’s central office can more efficiently handle compliance, human resources, payor credentialing, billing and financial concerns. If located in a regional market, they may be able to negotiate better insurance reimbursement, as well as malpractice insurance, employee benefits, supplies, drugs, etc. Plus, physicians can keep some autonomy and focus on practicing medicine.
Cons: This model usually requires significant capital outlay by the merging groups with a long horizon on recouping that investment. Successful groups typically require one or a few leaders (preferably single specialty) with bandwidth to manage this arrangement. It usually works best with a single practice management system for all practices. Potential challenges include loss of control, clash of cultures, difficulty in making decisions due to multiple partners, implementation of policies and procedures and allocation of overhead costs. Salary and compensation formulas can be challenging in multi-specialty supergroups.
4. Join a Clinically Integrated Network.
A Clinically Integrated Network (CIN) is a network of providers that shares information to improve quality of patient care, reduce costs, and demonstrate value. They are typically physician-led and can include partnerships with health care systems. CINs collect and analyze data, enabling the entity to satisfy performance metrics and demonstrate value.
Pros: In addition to improving quality of patient care, CINs can negotiate with payors, potentially improving reimbursement. CINs also allow independent physicians to maintain their individual practice while gaining access to resources and pooled data. CINs increase referrals within the CIN network. CINs can also negotiate drug purchases and perform other administrative functions. Finally, many CINs provide financial incentives based on meeting cost savings and quality metrics.
Cons: Typically requires some physician financial investment, along with time and energy to run the CIN. Also requires compliance with quality and cost-savings programs, which can be time-consuming. Pooling data across entities can be challenging, requiring significant investment in information technology.
Changing your practice type is complicated, and one size doesn’t fit all. Staying independent may still be the best option for many of you. If you’re thinking about a change, we strongly recommend getting feedback from your peers who have gone through the process. Be sure your priorities are aligned with the new organization and addressed in contractual agreements, including compensation formulas, retirement planning, profits from ancillary services and potential future value-based contracting. Consider consulting with an experienced legal advisor. Some practices may benefit from engaging a sell-side advisor to help you evaluate options. Remember, the College will be here to support you whether you are independent or employed.