2. Internal investment
In this pathway, the group’s physician-owners collectively reduce their salaries and invest the retained earnings to grow and strengthen the practice. In requiring physician-owners to forgo compensation they’ve worked hard to earn; however, it’s essentially asking professionals who’ve put in years of schooling, residency, and practice building to switch over to a startup mentality. This switch may be more or less difficult depending on individuals’ varying appetite for risk—but also on where they are in their career. (How many years will it take for the current investment to yield a return?) Even if the practice does reach a consensus to finance growth internally, having personal compensation on the line often leads to a lower tolerance for risk, which may slow down the practices’ ability to scale.

Realizing this option means overcoming several significant challenges. Still, it may be the only viable way for a practice to achieve scale while retaining full cultural and operational independence.
3. Joint venture (JV) model
A joint venture is a partnership between two or more healthcare entities, usually entered into with a specific goal in mind (i.e., business expansion, development of new service lines, or moving into new markets). Each party is invested in terms of capital contribution, as well as varying levels of resources and expertise, with the risks and rewards ultimately being shared. For physician practices, joint ventures can bring new market relationships, and can lead to attractive growth and diversification opportunities.

The JV model can be challenging when one party is bringing more value to the partnership than their ownership implies. It will also likely require the physician group to enter into a long-term non-compete agreement with their JV partner. This could place restrictions on other business initiatives that are outside of the JV, limiting future potential growth. There is also the possibility that the JV partner lacks the commitment or resources to ensure the project succeeds – for example, is unwilling to fund their share of a required capital call. Additionally, there are strict healthcare regulatory requirements that must be followed to ensure appropriate compliance.

4. Management services organization (MSO)
Another potential option is a partnership with a management service organization (MSO) to provide administrative services, often structured based on volume or as a percentage of revenue. These organizations can be helpful in offsetting administrative burdens, often bringing sophisticated software and expertise to handle the increasing complexities of healthcare administration, including revenue cycle management, payor- and risk-based contracting, as well as other back-office support services.

Business Affairs Homepage