PHYSICIAN PRACTICE MERGERS ON THE RISE AGAIN?! Print
Written by Michael Casanova   
Thursday, 09 September 2010 10:55

One essential skill of leaders and leading health care consultants is their ability to identify market forces that are driving meaningful change. An emergent trend that deserves close scrutiny is the transformation of the solo practitioner and the small group practice.  Health care reform appears to be speeding up the process of consolidation within the physician group practice sector.  The era of the traditional solo and duo medical practice model that we have come to trust may be going the way of the dinosaur.  More importantly, if the consolidation trend continues it will be particularly evident in the S. FL Metropolitan Statistical Area (MSA). South Florida has been acknowledged as a mature and heavily penetrated managed care market, dominated by a "small groups" marketplace. The physician delivery system is characterized as disorganized, and heavily dominated by traditional solo and duo medical group practices across the landscape. Put simply South Florida is an ideal market for practice consolidation.

According to a study released in August by the Center for Studying Health System Change, physicians in solo or two physician practices decreased from 41% in 1996-97 to 33% in 2004-05, while the proportion who practice in larger groups of six to 50 grew from 13% to 18%, representing a 38% increase. These statistics demonstrate a definite trend toward large group settings and away from the traditional practice model of the past.

By the same token, there exists very little that has not already been tried in the empirical past. Much like the days of the Nixon administration (circa 1970's) which spawned the creation of DRG's forever changing the reimbursement landscape away from cost reimbursement to perspective payment systems (PPS), today we see more sweeping changes toward more preventive measures and coordination of care across the entire health care spectrum. The root cause driving these changes remains the same threat of an unsustainable health care system or lack thereof depending on one's point of view. Particular perspectives notwithstanding, the traditional one or two physician medical practice models are clearly no longer viable and may be headed for obsolescence. Even a cursory review of history proves that either one adapts, changes and evolves or be selected for extinction.

Not many would argue against characterizing the current healthcare scene as unstable, with rapidly intensifying competition, increasing costs, shrinking profit margins, and intensifying challenges with regard to compliance with consumer expectations. All these forces point toward an unsustainable system and possible medical Armageddon unless all participants in the health care transition re-tool and compromise for the greater good and mutual survival.

It does seem that once again the circumstances of history do repeat themselves. Today physicians' interest in merging with other physicians who may share a common vision is re-emerging. I recall the group practice merger activity of the 90's, and what a disaster that was for most.  One may argue the 90's mergers only left a -$21B hole in the U.S. economy.

Unlike the merger craze of the 90's, this time around is characterized by sober thoughts of self preservation. No doubt this is due to a series of dream shattering economic realities caused by "irrational over exuberance" over a series of decades. We experienced  economic bubbles that began with an S&L bail-out (circa 1980's), followed by a dot-com burst, followed by deficit spending, and arriving today at another housing melt-down combined with massive bailouts all financed and collateralized (i.e., backed by) the "untouchable, sacred" Medicare fund locked box. We have arrived at that point where we can no longer kick the perennial can down the road. Unlike the past, today's practice consolidation isn't driven by caviar dreams and champagne wishes of easy life, but by  survival. No doubt the economist would argue the life cycle model, (i.e. things are born, mature, and either they evolve to another level or they terminate) is just running its course.

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Michael Casanova is a Miami-based healthcare author, executive, and consultant working closely with physicians, medical groups, hospitals and payors.

 

Last Updated on Sunday, 07 November 2010 10:35