Why Surgical Practices Are Merging
Size doesn’t always matter, but when it comes to surgical practices, more and more practices are joining forces to create larger and more formidable medical entities. And there’s a good reason this has become one of the hottest trends of the past year, and will continue through 2020 and beyond, particularly with the financial strains that COVID-19 has presented for surgical practices.
Merging small or medium-sized surgical practices can save money, improve purchasing power to negotiate better deals with insurance companies, tech providers and even hospitals for OR block time, and hopefully improve patient care. In today’s day and age, gaining a size advantage in a competitive market is key.
Here are the main benefits of merging practices:
Strength in numbers to negotiate better deals on reimbursements
Larger practices have greater buying power, more capital and increased operating strength compared to their smaller competitors. It might not be fair, but larger practices also have an easier time receiving better / more competitive reimbursements from insurance companies. “The largest portion of the pie goes to provider entities that have the greatest amount of negotiating leverage. Smaller practices get what’s left,” says Dietrich, CPA, member of the National Society of Healthcare Business Consultants in Medical Economics. He argues that larger entities can not only negotiate better fee-for-service rates, but also more lucrative quality incentives for value-based care contracts.
Larger practices also have greater clout to negotiate better or more block time from hospitals, making it easier for surgical practices to schedule and also reduce patients’ wait times.
And it doesn’t stop there.
Larger practices can also negotiate volume discounts for supplies. And since they’re getting better deals on all of these items, it means they are able to allocate budget for other assets like software platforms to automate processes, equipment upgrades, or even offering better compensation to attract talented staff. This in turn allows the practice to process a higher volume of patients, which ultimately helps them make more money, upgrade tech and services, improve customer care… you get the picture!
Sharing Ancillary Services
Another big advantage for practices looking to partner up is sharing the cost of equipment or ancillary services, some of which are prohibitively expensive for smaller surgical practices. For example, an MRI machine, starts at an eye-watering $250,000 and can often run much higher than that. And then there’s the maintenance of running the machine (also big $) and staffing costs on top of that to run the MRI. More down-to-earth are the prices of ophthalmology equipment, or even optometry equipment, which ophthalmic practices generally need, but can still be a financial burden for a smaller practice.
So when a larger practice – who already has an MRI machine in house – merges with a smaller practice who did not previously have this ancillary service in-house, the benefits to the small practice are clear. Generally, the bigger practices already have ancillary services in-house, and the more services they can offer, the bigger they can grow. Another great example is in-house physical therapy. This is another great source of income for the practice, and when it’s in-house, it’s also far more convenient for the patients. Having ancillary services like an MRI machine and PT in-house is a fantastic incentive for a smaller practice to merge with a more established, larger practice.
Greater variety… and greater care
It’s a truth universally acknowledged that the larger the surgical practice, the greater the variety of specialist services they can offer. A large practice will have surgeons who specialize in total joints, spine, elbow, hip hand etc. unlike smaller practices who usually have a more narrow offering. This is helpful because a patient may come into the clinic to see a certain kind of surgeon but then gets referred to a different surgeon. If they can stay within the clinic and see a different surgeon, it’s far more ideal than sending them to a competing practice.
But size does more than that. Another way larger practices offer better care is by offering more hours, including weekends and urgent care. By doing this, larger practices provide a one-stop shop for patients. Smaller practices might want to do the same, but they usually don’t have the demand or cash flow to make these services cost-effective.
Increased efficiency & improve processes
While it might not be as exciting as a brand new MRI machine, what goes on behind the scenes in a practice is just as important as what happens in the lobby. Merging with another business means that both sides have to take a long, hard look at their systems and operations and decide what will no longer work for a bigger practice and what methods will be used as part of the new entity’s workflow.
Practices should look at the whole picture – from how the patient checks in when they enter the building all the way through to the moment the patient exits the building. Each step is critical in fostering a positive patient experience. For example, in a smaller practice, patients may have manually filled out a form when they checked in at the front desk. But with a larger volume of patients to process, an automated check in process will be more efficient.
The same idea would trickle down to other areas at the practice, such as:
- The process and technology the surgeon uses in the examination room
- Who the patient meets after they’ve seen the surgeon
- What EHR is used to document the visit
- What surgical coordination platform is used to manage the future surgery (if recommended)
There are many steps in the patient journey, and each one needs to be mapped out and have a clear process designed. It is also critical to have the right software to support the practice’s workflow, automate the process, and easily share information. Since these processes can be complex, the increased buying power from a merger gives practices the opportunity to outsource management and workflow expertise, so that someone can guide them with building out these processes. Utilizing experts will not only make the practice operate more smoothly, but will also ultimately improve patient care.
It’s hard to quantify the power of advertising, but – like in any industry – advertising is an important marketing tool. As we all know, advertising is expensive and not always accessible or necessary for a smaller business. Very often smaller practices are established by word-of-mouth recommendations, and that is enough to generate business. A larger practice, however, can more easily budget for advertising and this will undoubtedly yield dividends. Creating a local presence in publications, billboards, radio, and on local websites is a very effective way to build up a name and reputation. Additionally, hiring a marketing firm or having someone work in-house to build a social media presence and build online reviews from patients is all the rage these days and we are seeing more and more large practices implement this. And for good reason – it’s powerful! But putting this level of marketing and advertising into effect takes time and effort – and of course, money.
‘The whole is more than the sum of its parts’
Aristotle said it hundreds of years ago, but it’s still relevant today. Whether a merger is the ultimate plan or just a goal on the way to somewhere else, there’s a lot to consider before a merger takes place. Newly formed teams take time to run smoothly and there’s likely to be some initial hiccups as both sides learn to work together. But, once any teething problems are resolved, it’s clear there are benefits of working at scale for staff and patients alike. Focusing on these benefits is why practice consolidation is likely to increase in the next 12 months and beyond, bringing even more changes to the medical industry in the new decade.