Practice Management One Size Doesn’t Fit All Do Some Homework When Considering Whether To Add Physicians To Your Practice

Doctors are continually struggling with inflation rates of 2{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 3{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} and reimbursement increases of 1{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} or less. Hospital and managed-care organizations are struggling with patient-access issues and encouraging doctors in private practice to increase their medical staff. Who is caught in the middle? Patients, yes, but also the doctors. Who is looking out for the doctors?


The decade of the ’90s has proven that bigger is not necessarily better. Consider the following:

Managed-care organizations (MCOs), physician practice management companies (PPMCs), and hospitals cannot manage physician-based care as effectively and efficiently as physicians themselves in private practice.

Larger organizations require larger middle management and related overhead. They also distance physicians from control over costs, patient-care issues, and their own destiny. In addition, in virtually all surveys and studies, physicians in private practice outperform those in institutional settings financially and in quality of patient care.

The answer to what is the best size for a physician practice lies within each individual practice. There is no ‘one size fits all.’ Physician-owned group practices ranging from solo practitioners to multi-specialty groups are still the most prevalent and successful providers of patient care.

Why Expand Your Physician Base?

The thought process begins with what your goals are. Typical goals include the following:

• Practice transitioning of senior physicians;
• Covering increasing overhead costs;
• Improving call coverage;
• Better leverage with third-party payers;
• Quality of life issues; and
• Increasing patient volume.
Practice transitioning is an inevitable issue facing all physician practices. In fact, many solo and small-group practices don’t face up to this issue soon enough. A physician should begin this process at least five years prior to the targeted retirement date. In most cases, retiring physicians fare better financially in a practice buy-out by a junior partner than from a practice sale to an outsider.

If your goal is to decrease per-capita overhead costs, you need to run some projections. The direct and indirect costs of adding a doctor to your practice may be greater than the incremental net revenues and result in an unhappy, incompatible arrangement. We will discuss these issues and costs next.

Call coverage is one of the most difficult professional and quality-of-life issues facing doctors. Unfortunately, it is often oversimplified and miscalculated. First of all, call coverage should not always be viewed as a doctor’s problem. For instance, a physician retires who has been in the coverage group of three but not a member of your group practice of two physicians. Now the hospital expects you to go from a schedule of every three nights and weekends to every two nights and weekends.

Don’t let this become your problem alone. This is also a hospital problem, and the hospital needs to step up and be a part of the solution. Also, adding an additional doctor may not necessarily solve the problem. Lets say a three-doctor group adds a fourth doctor. The increased patient load may necessitate a more than one-in-four schedule, so where does that leave you?

Increasing doctor numbers to enhance your bargaining position with third-party payers can backfire on you. First of all, size can be a double-edged sword and can be used against you if a payer makes up 20{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} or more of your revenue mix. You (and the payer) may realize that it is difficult, if not impossible, to replace the lost revenue.

If your goal is to reduce your workload and increase your quality of life, you need to be prepared to take a cut in pay. Physician revenue is increasingly becoming volume- and productivity-driven, and so is your resulting compensation. Do the math and be realistic.

Increasing patient volume is probably the most justifiable reason for bringing on an additional physician. Even so, you need to run some realistic revenue and incremental cost projections to make an informed decision. The following are revenue factors to consider:

• You should do a market analysis and ask for assistance from your local hospital. It is likely in their best interest as well as yours, and you may find out that the hospital or someone else is already planning to bring on an additional doctor.

• You need to allow adequate time for the physician credentialing and enrollment process that may take up to ninety days with some payers.
• You need to finance initial cash flow deficits resulting from accounts receivable turnover and patient volume ramping up. This could take a year or more.
• Be also aware that, if you are on a productivity based compensation system, a new doctor could draw patient volume from existing group members.
• If patient volume is uncertain, look into a risk-sharing arrangement with the local hospital, especially if the hospital has approached your practice to fill a need it has. Income-guarantee arrangements are legal and still widely used.
On the expense side, you need to carefully project the following incremental expenses associated with bringing on an additional doctor. Direct expenses include the following:
• Direct compensation;
• Retirement plan contributions;
• Payroll taxes;
• Health, life, and disability insurance;
• Licenses and dues;
• Professional liability insurance;
• Clinical support staff and benefits;
• Education and conferences; and
• Medical supplies and expense.
In addition to direct expenses, you need to consider other general overhead expenses that may increase due to current capacity, such as:
• Office and patient examining rooms;
• Medical equipment;
• Administrative supplies and expense;
• Billing fees or additional billing office staff; and
• Front office support staff.

Other things to consider include evaluating the alternative of utilizing mid-level providers to leverage less intensive cases and follow-up visits. Another is consideration of limiting new patient visits until timing is more appropriate. There are also situations when downsizing a practice makes more sense. Above all, don’t just hire a body. Be sure the candidate has the chemistry and motivation to be the right fit for your practice.

This feasibility analysis should be undertaken with the help of a qualified health care consultant who can give objective advice on pitfalls and issues you may not have otherwise considered. This is a major endeavor that can have long-lasting rewards or consequences.

James B. Calnan, CPA, is partner-in-charge of the Health Care Services Division of Meyers Brothers Kalicka, P.C., certified public accountants and business consultants, in Longmeadow; (413) 567-6101.