By Jeffrey D. Brunken
President, The MGIS Companies
Every industry has its cycles, and the healthcare industry is no exception. The current merger & acquisition trend we are seeing among physicians and hospitals has happened before-at least in similar fashion. In the 1990s, larger corporate entities, such as PhyCor and various hospital systems, aggressively acquired physicians groups to build integrated delivery systems (IDS).
The experience of the 1990s ended with mixed results. The acquisition strategy worked for some healthcare delivery systems, but many lost significant amounts of money, causing them to divest their purchases, which accelerated the end of the consolidation cycle.
Is Healthcare History Repeating Itself?
The jury is still out on whether the current acquisition cycle will be a repeat performance of the 1990s. But recent data released by the MGMA suggests that avoiding losses may not be any easier today than it was 20 years ago. (1)
Other data points to additional potential “cracks in the wall” in the physician acquisition craze. A recent Medscape survey (2) of 24,000 physicians clearly shows a compensation disparity between physicians employed by hospitals and those employed in group practices. Group practices come out ahead. Similarly, a recent article in Modern Medicine (3) indicates only 12% of physicians currently employed by hospitals would do it over again, if they had the choice. The same article indicates most young physicians are interested in joining smaller groups, not larger systems, as many of us have heard and assumed.
Regardless, today’s reality is that there is a lot of acquisition activity, primarily among smaller practices. The question is whether and how insurance providers can show value to their clients who may be on either end of a transaction. While acquisitions can be disruptive on many levels, group benefits providers can play a significant value-added role that can improve the chances of acquisitions succeeding – or mitigating risks of those that don’t.
How Creative Group Benefits Make a Difference
As pointed out by Mr. Gans, IDSs need to provide competitive compensation packages for physicians, but often have smaller margins from which to fund these expenses. This is where group benefits can play an important role.
Physicians from smaller groups need to be enticed to stay and work as productively with their new owners as they did when they were independent; but, IDS’s need to accomplish this at the lowest cost possible. Enter group benefits with a win-win proposition to this dilemma.
For example, many docs and administrators are unaware that group LTD benefits are 100% additive to individual coverage – Group LTD does not offset with individual coverage amounts. We are continually amazed at the number of savvy, experienced doctors and administrators who dismiss this potential benefit out of hand because they have heard that group benefits offset the same way individual benefits do. Not true.
The clincher is that these group benefits are typically about half the cost of comparable individual coverages. That’s a significant sweetener administrators can offer that won’t break their bank.
The Voluntary Twist
Even greater savings can be realized for the IDS by offering LTD coverage as a voluntary benefit. Physicians still save significant premium cost, compared to individual, for high quality added coverage. The IDS incurs virtually zero cost, and the administrator looks like a star.
Repeat or Not, Everyone Wins
Regardless of how the current consolidation trend ultimately shakes out, doctors, IDSs and administrators will all be better served by using group benefits creatively. Doctors will have higher quality, more affordable coverage, and IDSs will operate more profitably, with a greater chance of succeeding. Administrators will have another powerful tool for keeping their providers happy and productive. And the smart group benefits provider can be the link, driving value to their clients.
(1) “Why Hospital Owned Medical Groups Lose Money,” David N. Gans, MGMA Connexion Magazine, April 2012.
(2) Medscape Physician Compensation Report: 2012 Results, Medscape Today News,http://www.medscape.com/features/slideshow/compensation/2012/public?src=ptalk&viewnow.
(3) “Young doctors eager to own practice, join small groups,” Morgan Lewis Jr., Modern Medicine, April 19, 2012.