STRENGTH IN NUMBERS

There’s been a great deal of debate regarding mergers in healthcare. For regional or smaller community hospitals, their viability in many cases may depend heavily on larger economies of scale. What about doctors, physician practices and outpatient centers?  From a lender’s perspective, there is definitely strength in numbers!  

As shrinking reimbursement becomes the 800 pound gorilla for all healthcare providers, we have to look towards improving efficiencies to survive. From throughput and case management to materials management and contract negotiations, providers have to find ways to improve across the board and cut waste within their existing processes. On top of improved efficiencies, they have to continually drive volume growth.   Procedure rooms with the lights off during operating hours at an ASC are critical dollars missed.  On one side of town there’s a patient waiting 3 days or more for a scan and on the other side of town there’s a CT sitting idle. 

Single doctor practices in specialties with higher capital costs such as imaging, cardiology, orthopedics, GI and oncology to name a few, need to consider building larger practices. The viability of a multiple doctor practice or multi-specialty ASC, are much greater than that of a single doctor practice or smaller, single specialty ASC.  Lenders that have taken recent losses on smaller practices closing will drive increased scrutiny across the sector.   Access to critical capital needed to keep on the leading edge of technology will decrease, driving smaller practices towards less desirable lease or loan structures and higher rates. Worse would be for a practice to find itself forced to purchase used equipment instead of new. In a competitive market, that alone could drive patients to the competition in certain scenarios. 

For a lender, spreading the risk across a number of highly skilled physicians, or a wider variety of specialties in the case of an ASC, will improve the viability of that business.  Now more than ever, the pros of larger practices in these specialties far outweighs the cons.  The alternative for many practices and outpatient centers has been to close or sell out completely to a larger national or regional operator, or to become an employee of the hospital.  

In the State of GA, pursuing a LNR rather than a CON can sometimes be the driving force for a single specialty ASC.  The path of least resistance up front is not always the best path to long term profitability.   A rush to open the doors can leave you bootstrapped and in a workout scenario before your second anniversary. 

Some common benefits of merging practices include; 

  • Economies of scale; purchasing power for disposables and capital equipment 
  • Payer contract negotiations; force in numbers 
  • Access to capital; better terms and rates 
  • Multi-specialty practices attract a greater volume of cases 
  • Stronger negotiating power with area hospitals and other referral sources 

There are many considerations in the process of merging practices or inviting more physicians to join your practice or outpatient center.  Leverage your peers in other markets or states outside your catchment area and speak with 3rd party management groups specializing in your sector of healthcare. Choose one with a team that has a long history of proven success.   Find out what has worked and what hasn’t for them and why.  Let’s improve healthcare from the inside out.

One comment Add your comment

Suchita

August 22nd, 2012
11:35 pm

Diego Garcia for crew swap? Good lord, I thought that Rota, Spain was bad for lietrby on crew swap in the 70s. From experience on a Polaris SSBN, I know that the missile hatches and a lot of other stuff need maintenance between patrols. Are they going to bring the Frank Cable to Diego Garcia for these refits or just put off maintenance for a year until returning to Kings Bay (not a good idea).

Add your comment