Is a Group Practice or Solo Practice in Your Future?

Group practice squares off against solo practice to provide a snapshot of options to consider when setting up your practice.

“Like a Phoenix rising from the ashes to live again.” This is the feeling shared by many of the physicians who founded Providence Medical Group, Inc., in October 2002. In addition to maintaining busy practices, the physicians in this 44-plus physician group spent the majority of 2002 developing a framework for a group practice they would own and manage after being divested as employees of a hospital system.

Now, almost a full year later, the group is financially sound and working on expanding its horizons. For this group of primary care physicians, they have found success in banding together to create their own destiny, and you can too.

If We Do Not Learn from the Past, We Are Destined to Repeat It
Beginning in the mid-1980s, many hospital systems and some managed care plans attempted to vertically integrate primary care physicians into their business in an attempt to control referrals, secure market share, and ultimately, make more profit. At that time, risk contracting and gatekeeper models were gaining favor in the insurance industry and the thought of re-capturing dollars that would shift from inpatient care toward primary care helped cost-justify getting into the practice management business.

As insurance models changed in the late 1990s, risk contracting began to decline, HMO enrollment dropped and consumer demand for broader, unrestricted physician panels increased. Many hospital systems rapidly lost the financial incentive to employ primary care physicians.

Over the last few years, hospital systems have redirected their focus and funding away from primary care and back toward specialists and service lines that directly impact their core business and support their costly infrastructures, which are laden with equipment and facilities. Managed care plans have also refocused their efforts on plan consolidation and regional mergers with other carriers to achieve streamlined operations and improved bottom lines.

For the primary care physicians who were part of this practice acquisition mania, divesture from a physician ‘group’ in which they had no ownership presents a new horizon filled with opportunities in which physicians can once again be in control of their business and their future. All physicians can benefit from lessons learned by their peers, such as the importance of maintaining ownership and control of their businesses.

What Does Group Practice Mean To You?
The term group practice evokes different images in each of our minds as a result of our experiences and perspectives. To some, this concept may give rise to feelings of less control and authority on the part of the physician, increased bureaucratic hassles and a loss of personal identity. Others may feel that belonging to a group provides a sense of structure and security, camaraderie, and the ability to attain economies of scale.

For many physicians today, the increasing complexity of managing a medical practice requires more time and resources than they have available. According to the Center for Studying Health System Change, the proportion of time physicians spend in direct patient care activities increased from 81 percent in 1997 to 86 percent in 2001. With the average medically related work week hours dropping from 55.5 hours in 1997 to 54.4 hour in 2001, many physicians may have less time available to dedicate to the management issues of the practice.

Another study that appeared in the American Journal for Public Health in April of 2003 estimated that if physicians followed all of the government recommendations aimed at disease and injury prevention, it would require more than seven hours a day. These studies do not even factor in the time it takes to wade through the increasingly burdensome business regulations, such as HIPAA, OSHA, CLIA, and labor law statues. Not to mention the ever-changing reimbursement rates and coding requirements. It is understandable that joining a group is an attractive option for many physicians today who want to share in economies of scale garnered through group practice.

Groups Come in All Shapes and Sizes
Groups can range in size from two physicians well into the hundreds. According to the Center for Studying Health System Change, between 1997 and 2001, physician practice size in metropolitan areas experienced a shift. The most notable changes were a reduction in the number of one to two physician practices and increases in practice sizes of three to nine and 10-19 physicians. The study also concluded that growth of large groups has slowed, and Physician Hospital Organizations (PHOs) and Independent Physician Associations (IPAs) have been devalued following the shift away from risk contracting.

Group practices are mainly organized as multi-specialty, single-specialty, or primary care models. Depending upon market factors such as size, market share, competition, payor mix, and good, old-fashioned physician politics, all of these models have been able to thrive. The type of corporate entity, generally S corporations and LLCs and how ownership takes place, are varied as well. In general, solid legal counsel will be in place to help the group establish a practice that limits the individual liability of the owners and minimize the overall tax liability of the group.

Physician compensation models of the group practice can take on many faces as well. For example, some practices take a fixed salary approach, others adopt entrepreneurial models where physicians are treated as their own cost center and are paid based on direct earnings, and some groups pool physician revenue and disperse it using sophisticated models such as RVUs.

When evaluating a group structure, physicians should make an informed decision by defining their personal and professional goals up front and measuring them against the offerings of the group. They should ask questions about the legal structure, compensation plan, buy-in, and entrance and exit policies of the group. There is a personal and financial cost to physicians in groups when physicians enter and leave group settings, so making decisions that meet both parties’ long-term goals should be paramount.

What Advantages Does Group Membership Bring?
From a purely economic standpoint, successful groups benefit from consolidation under the theory that: Size = Cost › Quality + Negotiating Strength + Margin

The optimal size is impossible to define because so many factors, especially market composition, affect strategic and financial success. The key is to be fluid enough to adjust the group size and composition to market forces. Groups that are accessible to patients, have good reputations with peers, patients, hospitals and managed care, gain market share.

Economies of scale are often realized through negotiated purchasing prices with vendors, consolidation of sites, and the creation of a balance between centralized and decentralized administrative functions. Larger group size is a benefit when purchasing insurance benefits and defining retirement plans to include staff members.

For example, small groups must go through underwriting for insurance benefits, which may drive up premiums or limit the design of the plan. Somewhat fixed retirement planning costs can be spread among a larger pool of investors. Larger groups who have centralized management functions can create a separation of duties to reduce the risk of theft that many smaller practices experience. Success comes when a functional balance is created between the level of centralized and decentralized processes and this is based upon the needs of the entire group.

Information is power, and larger groups tend to invest in systems that help collect and report data easily. Larger groups can create statistically valid sample sizes when reporting on utilization patterns, clinical profiles, and patient satisfaction. They can also perform trend analysis across the group with regard to payment inconsistencies or changes in payment rules. This information helps create meaningful and fact-based dialogue with managed care companies and employers.

Solid data is also important in the business planning process for groups. Benchmarking costs and revenue streams within the group practice helps create new ideas for process improvement and efficiency. Expensive mistakes are made when physicians follow instinct when adopting new procedures or services because they lack access to hard data about reimbursement, market potential, or labor implications.

Larger groups have the potential to move beyond revenue streams from E&M codes and gain market share and profit through ancillary service revenue streams. Federal and state legislation prohibiting or restricting referral arrangements has increased the interest in physician group practice. Stark II and the Medicare anti-kickback statute (which applies to all carriers) have made it difficult for independent practices to engage in joint-venture activities such as clinical lab and imaging. Many of these laws have provisional carve-outs for group practice to enable ancillary service revenue to be shared in the group setting.

As a practical matter, a group practice under Stark II is defined as two or more physicians legally organized as a partnership, professional corporation, foundation, not-for-profit corporation, faculty practice plan or similar structure that meets specific technical requirements.

The Secret is to Associate Yourself with a Great Group
Warren Bennis, a renowned authority on organizational development, leadership and change has studied the principles that Great Groups have in common. In his article entitled, The Secrets of Great Groups, he discusses the concept of sapiential circles, which means knowledge-generating groups.

Great Groups subscribe to the philosophy that ‘none of us is as smart as all of us,’ and this creates an environment where outstanding results are achieved. When groups bring strong, high achievers together who have a variety of backgrounds and expertise and you allow them to interact, differences of opinion will arise. These differences stimulate creativity within the group.

In essence, the group begins to ‘build a better mousetrap’ through the process of eliminating options and gaining consensus on moving forward to implement the best ideas. According to Bennis, the group environment also provides a sense of psychic support and personal fellowship, which bolsters the confidence to make the impossible dream a reality.

How Do Physicians Find or Build a Great Group?
Look for a group that has a common set of goals and is moving in the same direction without much physician and staff turnover – this does not imply that all of the members are carbon copies of each other, quite the contrary. As noted above, differences in style and perspective help groups think outside of the box and grow. Look for a common mission, vision and set of values.

Begin with a review of the governance of the group. How is it owned and managed? Review the Board structure and how decisions are made. What types of decisions reside at the Board level, committee level, practice and physician level? Are there committee structures that enable creative thinking and input across the group? How is consensus reached within the group? How does the group manage conflict? Review how the operational functions are centralized and decentralized in the group and how they mesh with your philosophy.

Review the management and cost structure of the group. How are costs allocated? How are the financial reports constructed and is there full disclosure and access to information to all group members? What is the level of experience in the management team? Evaluate the working relationship between the Board, management and the physician owners.

Look toward the future of the group by assessing stability of ownership and membership. Determine how risk is managed within the group. Is there an effective infrastructure in place to accommodate future growth? Is the group financially healthy? Highly successful physician groups are highly productive with superior financial performance.

The concept of group practice is here to stay; individual groups that cannot adapt to the changing environment will come and go. A great opportunity exists for physicians today who have the courage to become a knowledge-generating group that works together to get bigger results than they can achieve as individuals.

Paul A. Martin, DO, FACOFP is the President and Chief Executive Officer of Providence Medical Group, Inc. and Providence Health Partners, LLC in Dayton, Ohio. He currently serves as a Governor of the American College of Osteopathic Family Physicians and was installed as President of the Ohio Osteopathic Association in June, 2003. His phone number is 937-277-1722.

Susan Becker, MBA is the Chief Operating Officer of Providence Medical Group, Inc. and Providence Health Partners, LLC in Dayton, Ohio. Her phone number is 937-297-8999.

Are we witnessing a paradigm shift or are we just reinventing the wheel? A recent article in the American Medical News (November 2002) stated that more doctors are leaving group practice to go out on their own, or to form smaller groups. When interviewed, the reasons these doctors gave were diverse, but greater autonomy, the ability to practice medicine in the style each doctor preferred (without ‘butting heads’ with other personalities in the practice), and the ability to increase income in this period of shrinking reimbursement, were among the more common reasons expressed.

In the early 1990’s, the authors, both of whom are in solo family practice, were told that they would ‘go the way of the dinosaur’. As we headed toward extinction, we watched colleagues join with larger groups, or sell out to hospitals or large corporations, and we further watched as many of these doctors came to regret their decisions. Now, we are witnessing a growing trend for primary care physicians to ‘go it alone’.

Starting a solo practice presents an opportunity to truly be ‘your own boss’. You will be working for no one but yourself, and all final decisions will rest with you. You will avoid potential personality conflicts with other physicians, and income from the practice will not have to be divided. Being in solo practice means establishing your own work schedule, vacation and CME time, as well as patient load, practice style, and sub-specialization.

As a solo practitioner, your patients will come to expect that you, and not some other physician, will be there for them in their time of need; this accounts for a more personalized practice, which patients appreciate. There is a great feeling of accomplishment in building a practice that is not only a successful business, but is also a means of keeping your patients healthy and satisfied. In addition, as sole owner of the practice, there is potential to build up substantial equity in the practice over time.

Locating the Practice Site
Before setting up a family practice, it is imperative to scout out potential suitable locations. First, the authors urge you to choose an area of the country in which you would enjoy living; but on a local level, doing some research pays off in myriad ways. Search for a location that needs a primary care osteopathic physician. Resources to check include the local hospital administrators, local pharmacies, and, if possible, physicians nearing the retirement age (or recently retired). They can help you get a feel for areas that might be in need for your services.

Speaking with specialists (surgeons, oncologists, and others) might give you an idea about the relative number of primary care physicians in the area, as well as their ages and retirement plans. Of course, check the yellow pages as well, to get an idea of the patterns of physician location within the community. Often, specialists are located in one part of town, or even on one street, but family physicians are free to ‘go where the patients are’. If new housing developments are springing up in your area, these might be good areas to explore as potential practice sites.

About six months before starting your practice you will have some work to do. First off, apply for licensure applications from the state in which you anticipate practicing, as well as neighboring states if you intend to practice in those states as well. Some states have notoriously long application delays, so this should be done as soon as possible.

Visit local hospitals and apply for staff privileges. Consult with the various professional liability carriers (or an independent agent who represents a series of carriers) and apply for coverage. Most hospital staffs will not grant privileges unless you have adequate coverage (generally, $1 million per occurrence, and $3 million aggregate), but check with your hospital staff office for their requirements. As to the number of hospitals you will need, we feel that, ideally, the primary care physician is best off at one hospital, but in the real world, satisfying the demands of managed care entities often means two or more hospital appointments.

Around this time, or a few months before opening your doors, you should investigate the local managed care scene, and decide which, if any, insurance plans you wish to join. Our advice is to speak with local practitioners, and your state osteopathic association, to get a feel for which plans offer reasonable compensation and lack of ‘hassle factor’. It is better to join more plans initially, and later to be more selective, as your practice grows.

Before opening the practice, take time to speak with area businesses, school systems, and police departments. They are often eager to meet new physicians who will cover the medical needs of the business or school system, or assist in pronouncement of patients. You should get to know local pharmacists, hospital administrators, and nursing home directors. In addition, be sure to introduce yourself, in person as opposed to via telephone, to physicians, dentists, optometrists, and podiatrists in the immediate vicinity of your new practice.

You will have to consider the physical set up of your office location. There are probably no inherent advantages, or disadvantages, to setting up in an office complex versus a detached building or store front, but some aspects are crucial: adequate parking, handicap accessibility, and proximity to major streets and highways. All things being equal, proximity to your hospital is an advantage, as is reasonable distance to pharmacies and other medical resources (specialists, surgicenters, etc.) you will utilize.

As to the size of your office, we feel that at least 900 square feet, but probably no more than 2500 square feet, is reasonable. Initially, renting is probably preferable to buying, but as the practice becomes established, an option to purchase your property can be a tremendous benefit; not only will your location be protected from steep increases in rent, but you will have the potential for appreciation in equity in the property.

Financing Issues
Before undertaking all of this, it is imperative to seek the guidance of a qualified accountant, preferable one with prior experience in setting up medical practices. You will be able to receive advice on a host of financial issues that will come up, from setting up a checking account, to deciding on accounting software. You will need to consider the possibility of incorporation versus sole proprietorship, and you will need someone familiar with state laws regarding these issues.

When the time comes, your accountant can help you set up pension plans and other employee benefits, as well as guide you through the often-Byzantine regulations regarding labor practices in your state. You will be happy to learn, though, that many of the state and federal laws you might have heard about only apply to businesses that hire a certain number of employees (usually more than you will hire.) Your accountant should also prepare your payroll deduction forms, once the practice starts.

The authors advise going slowly concerning borrowing huge sums of money to set up an elaborate office. We feel its best to start modestly, with as little out-of-pocket expenditure as is practical, and gradually expand later. Most equipment, including office furniture, waiting room furniture, and medical equipment can be leased, often with an option to purchase. Doing so frees up capital and your capacity to borrow for later needs. Also, you should investigate the possibility of buying used equipment and furniture; these are often available at steep discounts to their original price, and can be located in medical classified ad publications (such as the Carnrick Classified) or even on online auction sites.

Equipment
As to what you will need to equip an office, the list is variable, but some necessities would include:

• Waiting room furniture
• Office furniture and filing cabinets
• Computers, printers, fax machines and copier (we advise against a multifunction machine)
• Telephone system
• Exam tables
• Wall-mounted oto/ophthalmoscopes and sphygmomanometers
• Electrocardiograph
• Cabinets
• Oxygen and first aid supplies
• Surgical instruments
• Refrigerator with freezer
• Centrifuge (often supplied by your lab)
• Medical and lab supplies
• You will want to purchase billing software that will enable you to generate standard insurance forms, track and bill for your receivables, transmit bills electronically (even if you choose to do this at a later time), and generate reports that let you know how you are doing in the business aspect of your practice. Ask area family physicians for their preferences.
• Before opening your practice, arrange for a means of receiving urgent calls when not in the office. A traditional, human-staffed answering service is most common, but newer technologies exist for automated answering and call forwarding that may be less costly.

Opening and Building Your Practice
Decisions about office hours are among those things you will have to consider after opening your doors. We feel it is reasonable to limit your hours initially, to accommodate patient flow (which is bound to be slow at first, unless you have chosen a true physician shortage area), but it’s best to spread those limited hours over as many days as you feel you can, maintaining night, weekend, and early morning hours. These ‘off’ hours will be your most popular with patients, and are great practice builders.

You should also give consideration to making house calls, and covering nursing home patients. Your hospital may also have an on-call schedule for patients who present to the E.R. without a physician of their own; join it.

This is a good time to offer your services as coverage for other physicians at your hospital, and to arrange a permanent rotating call schedule for weekends. Ideally, your coverage group will be based at your hospital, and share the same answering service, but this is not absolutely necessary. What is necessary is good communication within the coverage group, and a sense of flexibility and accommodation that will engender good will within the group.

Much has been made of utilizing elaborate public relations schemes to build the practice. The authors prefer a reasonable advertising budget, preferable utilizing the local newspapers, or, if feasible, local cable television stations. Promotion of your practice should always be modest and tasteful; be sure to include features of your practice that distinguish it from others, such as osteopathic services, house calls, night hours, etc.

Conclusion
It is good to know that solo practice is alive and well in the new millennium. There is no doubt that hard work is involved, but there are many rewards once the kinks are worked out and the practice is running smoothly. Once you have established yourself in a community, patients will see you, and refer their friends and family, because you give them something extra—the osteopathic touch.

Richard Tancer DO, FACOFP and Paul J. Morris DO, FACOFP are 2003-2004 members of the ACOFP Practice Management Committee.