To Divest or Not to Divest Your Physician Practice?

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Thriving in this new healthcare environment demands both significant capital investment and the ability to navigate increasingly complex reporting requirements and financial arrangements.
Thriving in this new healthcare environment demands both significant capital investment and the ability to navigate increasingly complex reporting requirements and financial arrangements.

Editor's note: This article is the first of a 3-part series.

Practicing medicine in today's healthcare environment is not for the faint of heart. Historically, successful practices were predicated on providing high-quality patient care; that is, being great physicians. Slowly but surely, over the past 25 years, operating and maintaining the necessary business infrastructure has evolved dramatically, outpacing physicians' limited time and ability to manage it properly. Sadly, this new reality may put our passion for practicing medicine at risk, increasing physician frustration and burnout. This is not because we are bad doctors; it is simply that we may not be the best business people. Not surprisingly, as payment models shift, and physicians face lower reimbursements amid growing expenses, many have at least considered — if not seriously contemplated — divesting their practices.

Nephrologists are not alone. The traditional practice of medicine is falling by the wayside as providers across the board look to adapt to a new practice environment. The question is how physicians will survive and what factors should be considered in evaluating the current marketplace and next steps.

Challenges to independent practice

Several developments are motivating physicians to consider different business models to practice medicine, including the shift away from fee-for-service to value-based payments. These changes, initiated largely by new federal laws and increasingly complex regulations, are requiring the medical community to:

  • Invest in costly electronic health records to satisfy meaningful use requirements. According to new data from the Medical Group Management Association, physician-owned multispecialty practices spent more than $32,500 per full-time physician on information technology equipment, staff, maintenance and other related expenses in 2015. 
  • Engage in the physician quality reporting system.
  • Implement the Medicare Access and CHIP Reauthorization Act (MACRA).
  • Contemplate new integrated care agreements, including accountable care organizations (ACOs) and end-stage renal disease seamless care organizations (ESCOs).

Nephrologists are particularly vulnerable to changes in Medicare since the federal program is the primary payer of kidney care. As such, not keeping up with new requirements can have outsized financial consequences as these programs shift from offering incentives focused on boosting physicians' participation to penalizing providers who don't meet certain requirements. For example, MACRA carries significant reimbursement implications over the next several years, with possible penalties of up to 9% of Medicare Part B revenue for non-participation or poor performance. This year, about 171,000 providers are subject to a downward payment adjustment under Medicare for failing to demonstrate meaningful use.

Thriving in this new healthcare environment demands both significant capital investment and the ability to navigate increasingly complex reporting requirements and financial arrangements. These factors, combined with a new generation of nephrologists with different expectations for their work-life balance, are prompting many nephrologists to seek a new way of doing business, including joining larger organizations.

Laying a foundation for the future

According to the Physicians Advocacy Institute (PAI), the number of employed physicians grew by 46,000 nationwide from 2012 to 2015, with the percentage of hospital-employed physicians increasing almost 50% from July 2012 to July 2015.

The trend is expected to continue. Uncertainty clouds many aspects of healthcare today, including how to cover uninsured Americans. However, the federal government and private insurers are aligned in their focus to better manage care for patients with chronic kidney disease and end-stage renal disease. These patients consume a disproportionate share of resources, to the tune of more than $30 billion a year. Regardless of what happens with the Affordable Care Act, integrated care and risk-based agreements are here to stay.

In addition to the significant capital investment required, these new payment arrangements pose other challenges for many doctors, the majority of whom have little to no formal training in busi­ness or business principles. After all, historic fee-for-service reimbursement models did not require physicians to have a sophisticated understanding of the business of practice. Further, payment structures employed by the federal government and private insurers increasingly favor integrated health systems, making it more difficult for independent physicians to compete.

Times of change are challenging, but there are viable options for partnerships that will put nephrologists on a sustainable path for the future. Physicians should consider partners who are not only better equipped to participate in integrated care models but who can also more easily absorb administrative costs to comply with regulatory and reporting requirements. Having access to a larger infrastructure allows administrative experts to manage contracts and reporting requirements, helping physicians, who may already be spread thin, to continue to focus on their top priority: caring for their patients.

Healthcare will always be local, and patients will always need nephrologists to meet their needs wherever they are. However, today's environment requires nephrologists to evaluate how best to partner to sustain their medical practices into the future. Now is a good time to take stock of your practice and reflect on your short- and long-term goals. This exercise will not only help doctors address future challenges, but it will also better position them to identify solutions. In future articles, we will describe different practice options, as well as how to evaluate them in light of your personal and financial priorities. With increased competition and costs, you can't afford not to.

Robert Provenzano, MD, is vice president for medical affairs at DaVita Kidney Care in Denver. He also is on the editorial advisory board of Renal & Urology News

Mark Hovermann, MBA, is Senior Director, Corporate Development.

Lanny Teets is Director, Transactions & Growth Initiatives, at Nephrology Practice Solutions.

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