How Private Practices Become Profitable, Compete With Corporate Rheumatology
Private practice rheumatologists walk a fine line between risk and reward. As they reap the benefits of clinical independence and build deep patient relationships, they simultaneously carry the heavy financial, administrative and legal responsibilities of operating a successful business. And the business challenges are only becoming more acute. Corporatization and consolidation across the U.S. healthcare industry reduce reimbursements, increase drug costs, and heighten competition between independent practices and large health systems for physicians, clinical staff, and patients.
The autonomy, integrity and accessibility of private rheumatology practices have never been more critical. It has also never been more important for private practice rheumatologists to understand how to build and manage a profitable practice to thrive in today’s complex healthcare marketplace.
Market forces change the business of rheumatology.
Private practice rheumatologists face an existential threat as large, corporate and academic health systems become the norm for medical care, threatening to bump smaller entities aside. Integration has secured a select number of companies more significant market share, little to no competition, and more leverage for negotiation across their business. Their size and stability also mean greater resilience to economic changes and more influence over everything from markets to legislation and regulation.
Health System Consolidations & Clinician Mergers
Consolidation and integration across the U.S. healthcare system - from payers and drug manufacturers to pharmacy benefit managers and hospitals - is big business for those driven primarily to profit. From 2010 to 2021, private equity deals in health care increased from 325 to more than 1,000. In 2021 alone, private equity investments in U.S. healthcare topped $150 billion.
Historically, private equity has been invested in specialties like anesthesiology, dermatology, and ophthalmology. However, more recently, rheumatology has also been attracting investors' attention. In the last four years, there were several high-profile private equity acquisitions in rheumatology: Specialty Networks LLC’s acquisition of United Rheumatology, VSS Capital Partners’ investment in the Los Angeles-based Center for Rheumatology, and Corrona - now CorEvitas’- acquisition by Audax Private Equity.
Private Equity and Its Quest for Profitable Private Practices
It is well known that private equity aims to generate profit. The question is who will profit and whether the business of making money can coexist with providing optimal patient care. The American Medical Association has developed several reports indicating that the corporate practice of medicine has the potential to erode the patient-physician relationship, may create conflicts of interest between profit and best practices, and has not been shown to reduce healthcare costs.
When Corporations Because Group Practice Owners
The corporatization of health care has changed the practice of medicine, and doctors are increasingly the scapegoats of systemic problems within the health care system. Despite the industry headwinds, the case for investing in the infrastructure to support independent practices is clear. Dr. Clarissa Meadowsong, a patient advocate and champion of health care diversity, explains:
“The sustenance of private practice doctors, like the survival of small bakeries amidst the sprawling dominion of retail giants, nurtures a tapestry of diverse health care providers, ensuring that patients have access to a symphony of medical options close to their communities.”
- Dr. Clarissa Meadowsong
Rheumatology faces specialist shortages and greater demand.
New research predicts that the existing shortage of rheumatologists will worsen over the next decade while the demand for arthritis specialists will continue to grow. By 2034, experts believe that the shortage will grow to between 37,800 and 124,000 physicians, according to a 2023 article published by the American Medical Association. This shortage is alongside mounting evidence of the growing prevalence of rheumatic disease among the aging population. The care gap will be felt especially in rural areas, as most rheumatologists work in urban and suburban areas, leaving most of the United States underserved.
Dwindling Numbers Increase Need for Building a Private Practice
It is a numbers problem and a pipeline problem, as 50 percent of rheumatologists say they plan to retire in the next ten years, and there aren’t enough younger doctors to replace those retiring. More rheumatology specialists are attracted to large healthcare systems seeking competitive pay and better work-life balance.
It is also a perception problem. Private practice rheumatologists perform a tremendous role in providing rheumatology care to patients nationwide. Although it is a less-followed path for new graduates, these specialists are both front-line providers and entrepreneurs who have the independence to maintain control over the practices’ direction and the quality of care they provide. In today’s healthcare landscape, opting for private practice is a decision to preserve patient choice, promote personalized care, and prevent the potentially detrimental effects of monopolistic hospital systems.
Fight industry headwinds with strategic partnerships that support scalable growth and profitability.
Despite the market complexities and greater disease incidence, independent practices can balance achieving economies of scale and preserving the personalized, patient-centric approach that smaller practices excel at. Those physicians who partner with other rheumatology practices under a medical group or medical service organization offset their overhead costs and increase their profitability while safeguarding their autonomy and focusing on their best work: delivering high-quality patient care.
Increase margins with financial expertise and collective negotiating power
Private practice rheumatologists who want to grow their businesses and increase their margins should consider two high-value services that medical group and medical service organizations often offer their practice partners: revenue cycle optimization expertise and negotiating power with payers and drug companies.
Revenue Cycle Optimization to the Rescue
Revenue cycle optimization (RCO) helps identify areas that hold the potential to increase revenue, reduce expenses, and improve cash flow. To compete with large healthcare organizations, physicians must consider how to build this expertise into their practices or partner with a medical group or medical services organization to gain the benefit of RCO without having to take on the effort themselves.
An efficient revenue cycle optimization process will help enhance patient access to services, speed up the payment processes, and improve denials management and rejections, which ensures productivity and profitability. For example, the issue of declining reimbursement adds a layer of complexity to sustaining the practice's financial health. By leveraging strategies based on specific financial goals, successful private practice physicians can enhance their operations, reduce costs, and increase profitability for long-term sustainability.
Negotiating Drug Costs
Drug costs are another high-impact area for reducing costs and increasing margins in partnership with a medical group or medical service organization. Rheumatology is experiencing rapid development of specialty drugs, some of which use complex technology and require particular expertise to administer. All are costly. The pharmaceutical industry has been able to price therapeutics freely and negotiate confidential discounts and rebates with individual health plans and pharmacy benefit managers for parity or preferential access. The more negotiating power independent practices have, the more equipped they are to secure better reimbursement rates and favorable contract terms, including the potential for more significant discounts and higher rebates.
Achieve financial stability with shared overhead costs and ancillary services.
From financial data analysis to negotiating contracts with payers and drug companies, private practices alone need help to reach economies of scale despite their crucial role in the business aspect of growth. Physicians run the practice more as a clinical entity rather than a business. In an interview with Healio, Adrienne Hollander, MD, a practicing rheumatologist and president of Trabecular Medical Group/Arthritis Rheumatic and Bone Disease Associates in Vorhees, N.J. explained, “Although we excel at using data and outcome measures for patient care, we sometimes fall short in applying the same principles to the business side.
Delegation Leads to a Truly Profitable Practice
Sharing costs for and investing in administrative expertise in billing, marketing, malpractice insurance, and human resources becomes more feasible, contributing to overall operational efficiency.
Smaller practices also compete with larger health systems for patients and staff, and larger healthcare systems with more resources may seem equipped to offer ancillary services that provide additional revenue. Nevertheless, the more streamlined focus and patient oriented tactics of small practices frequently lead to more efficient and higher satisfaction services than those provided by larger health systems.
Managing Your Practice's Operational Strategies
Strategies employed by community practices for generating ancillary revenue include infusions, in-office dispensing, innovative care models such as membership models, and clinical trials. All these programs and services require management, but when centrally managed, the investment is manageable, and the returns significantly boost the bottom line.
Thriving private practices continue to be relevant.
There are so many different ideas about how the American healthcare system ought to work and how it ought to be paid for. The administrative headaches have become so vast that many private practice doctors are ready to wash their hands of the “business” side of medicine, sacrificing autonomy, work-life balance, and more meaningful patient relationships to practice in a corporate setting.
Yet, independent, community-based practices and the entrepreneurial physicians leading them are critical to making healthcare affordable and accessible. Particularly in rheumatology, patients benefit from meaningful, collaborative relationships built over time and the long-term results of working with a doctor invested in their care. Articularis Healthcare Group supports community-based rheumatology care by recognizing and supporting the many strengths of these practices, such as their lower cost, patient focus, and physician satisfaction.