Key Factors to Consider Before Joining a Mega-Group

The benefits of joining a “mega-group” medical practice—such as shared call duty, better bargaining power, and lower administration costs—are difficult to deny. Formed when smaller practices and specialties combine into one large integrated entity, such business structures are often touted as the best of both worlds: they enable physicians to expand their “in-house” ancillary services and hand over administrative duties at a lower per-clinician cost while continuing to maintain their own practice. Indeed, mega-groups are designed to permit a greater degree of autonomy than a traditional merger or hospital employment would typically allow.

Besides the ability to focus on patient care without having to manage billing and collections, human resources, or technical support, the biggest perk to joining a mega-group is the ability to negotiate more-favorable contracts with hospitals and health plans, says Reed Tinsley, a certified public accountant and medical practice analyst in Houston, TX.

Because mega-groups bill and operate under one tax identification number, they boast a bigger patient panel size, which helps them secure higher reimbursement rates. “Obviously, mega-groups have a more level playing field with payers than smaller practices do,” notes Tinsley. “They have the size and leverage that allow them to negotiate successfully.”

Yet another upside to joining a mega-group, he says, is the “easy out,” which is often overlooked. Most mega-groups have buyout provisions that enable physicians who wish to retire (or decide that they no longer want to practice medicine) to sell their practices quickly and with little hassle.

“I get calls every year from physicians who are ready to retire and want me to help sell their practices,” notes Tinsley. “When I tell them it’ll take 6 months to a year, there’s usually silence on the other end of the phone.” Because transitions take time, he says, some physician owners simply walk away from their practice when they’re ready to sell, losing out on any would-be proceeds. “Mega-groups generally provide a protection mechanism that allows for some form of buyout,” he says.

Potential Drawbacks
Centralized management can be a double-edged sword, though, warns Nick Fabrizio, a consultant for MGMA Health Care Consulting Group. In many cases, physicians who join a mega-group later find that they must surrender more control than they initially intended.

“Mega-groups have advantages, but they also have drawbacks,” explains Fabrizio. “I always counsel practices to first consider why they want to join a mega-group. What are they looking to improve? Is it a lifestyle issue, call issue, negotiating strength, compensation, or governance? Because all of those factors are important.”

Many physicians, for example, value the ability to call their own shots when it comes to hiring and firing or selecting hospitals with which to affiliate, says Fabrizio. But mega-groups play by a unique set of rules. Decision making related to operations management often requires a committee vote. “You may have limited input on those decisions or no input at all,” he underscores.

Consider Various Paths
If you’re looking to leverage economies of scale, Fabrizio recommends that practices consider all of their options. Depending on how a given mega-group is structured, practices could maintain even more autonomy by joining a hospital.

Medical services organizations (MSOs) also provide many of the same benefits as a mega-group, but possibly without requiring practices to surrender control. MSOs, which are owned by a group of physicians or investors, provide practice management and administrative support services to individual physicians and group practices.

Because they purchase goods and services as a group, they often receive better rates and benefit from a stronger bargaining position with hospitals and payers. Practices can cherry pick the services they desire, including payroll, billing and collections, electronic health record support, or human resources. “They can choose the services that fit them best,” Fabrizio adds.

When evaluating whether to consolidate or remain independent, physicians must consider both personal and professional interests, says Elizabeth Woodcock, a medical practice consultant with Woodcock & Associates in Atlanta, GA. Joining a mega-group or an MSO may make sense if you dislike the business of running a practice, such as managing revenue and personnel. You may also benefit from being part of a larger group if you enjoy collaborating with colleagues or sitting on governance boards.

Supply and Demand
Market demand may ultimately determine your direction. “If you are overwhelmed with demand and there’s a limited supply of physicians in your specialty, you can thrive as an independent. But, if demand is limited and you’re one of many in your specialty,” notes Woodcock, “you may have an issue thriving without joining a larger health system.”

Fabrizio and Tinsley recommend that physicians perform careful due diligence before joining any group and consider how joining forces could benefit them—or hold them back. Although mega-groups may promise physicians a higher salary because of cost and risk sharing, physicians should also confirm the fee schedule for the top current procedural terminology codes billed in their practice.

“Sometimes practices jump in and say, ‘I’m going to make more money,’ but they don’t consider the things they’re going to have to give up,” says Fabrizio. “I really caution practices to take a step back.”