By Andrew Colbert
The past 18 months have been anything but normal, with the healthcare industry fundamentally altered by the COVID-19 pandemic and physician practices forced to adapt. The pandemic served as a wake-up call for practice leaders to innovate and evolve in order to develop stronger and more resilient operational models. In many cases, practices were able to identify opportunities for cost efficiencies that will continue to reduce unnecessary overhead and infrastructure.
The industry’s transition towards consolidation predates the pandemic; heightened administrative burdens, changing consumer expectations, increased reimbursement complexity, and recruitment challenges were already prompting healthcare industry participants to consolidate well before last spring. But the pace of that consolidation is still accelerating.
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One clear takeaway from the last year and a half is that scale is important to ensuring your success over the long-term. Groups seeking to build scale must be willing to make the IT, management, and personnel investments to get there—and those investments will come at the sacrifice of owner distributions. If you want to invest in new technologies or acquire the outpatient center down the road, you can't expect to make what you made last year or the year before.
As an alternative to making those sacrifices, physician owners also have the option to partner with a regional or national group that can bring the benefits of scale and resources to the group. National group models are built on the concept that clinical control and governance remains in the hands of the local practice, while the partner brings extensive administrative, technology and operational capabilities to help ensure success. Additionally, the partnerships are often structured with aligned incentives, enabling the local practice to participate in the future upside and growth.
Here are the 6 pathways for securing the capital needed to achieve scale:
1. Bank loan
Taking out a loan from the bank allows owners to retain 100% of the decision-making power and responsibility over practice operations. The drawbacks include the personal risk associated with guaranteeing the loan and a relatively low ceiling for the loan amount. (Owners will also need the expertise to determine what is the best use of the capital – for example, should the practice expand services? Build out telehealth capabilities? Hire additional personnel?)
For the majority of physician practices, the drawbacks of this pathway make it more of a short-term option rather than a sustainable long-term solution.