As president of PE Gastro, a new division of PE GI Solutions, I have the opportunity to work with a team of healthcare management professionals focused on the administrative side of private practice gastroenterology. My 20-plus years in the GI space has provided a unique opportunity to partner with many leading gastroenterologists and witness firsthand about what has made their respective groups thrive in this ever-changing healthcare environment. Although there are many top private gastroenterology groups around the country, two physicians who stand out for their leadership and vision for the future of gastroenterology are Drs. James Weber and Michael Weinstein.
Dr. Weber is the president and chief executive officer of Texas Digestive Disease Consultants (TDDC). He formed TDDC in 1995 by bringing together a dozen doctors from several different groups in the Dallas area. Over the next 15 years, the super group grew close to 40 doctors. It was in 2010 when TDDC began to pursue a Texas-wide e x p a n s i o n s i n i t i a t i v e . TDDC is now comprised of over 120 physicians, making it the largest gastroenterology group in the country.
Dr. Weinstein is president and chief executive officer of Capital Digestive Care. From 1985 to 2005, he helped grow a single gastroenterology group based in the Washington, D.C., metropolitan area to about 15 physicians. In 2006, Dr. Weinstein witnessed increased consolidation in healthcare and other industries and began meeting with other large groups in the region to explore partnerships.
In early 2009, he helped lead the merger of seven practices into a single group — Capital Digestive Care — with nearly 50 physicians. Since then, the super group has grown to around 60 physicians, with about 15 nonphysician providers. Capital Digestive Care is now the largest private practice gastroenterology group in the Mid Atlantic and Northeastern states. Drs. Weber and Weinstein share their thoughts in response to four questions on consolidation. Answers have been edited for length and clarity.
Q: What do you see as the primary factors driving consolidation in gastroenterology groups?
Jim Weber (JW): It’s a response to the changing healthcare environment. There have been many changes that can make it difficult for a small group to survive. One of the most significant challenges is the increase in consolidation throughout healthcare. Not only are other groups consolidating, but hospitals, accountable care organizations (ACOs) and payers are also merging. When payers consolidate, they often have less interest in pursuing contracts with smaller practices and tend to focus heavily on larger group providers. Other factors include practices of all sizes increasingly finding themselves the target of acquisition efforts.
Physicians coming out of training are looking at a vastly different landscape than I did in 1992 when I started my own practice. Today’s younger physicians are more interested in being employed than ever before, as recent data from AMA’s “Physician Practice Benchmark Survey” highlighted1. There are also increased regulatory requirements, such as the need for electronic medical records and data reporting. Come up short in these areas, and you may face penalties. Small practices are often finding themselves struggling to meet these requirements. It becomes almost imperative that smaller practices do something in order to compete.
Michael Weinstein (MW): What drove our consolidation was the desire for a central infrastructure, the pursuit of ancillary services, and the benefit of negotiating payer contracts as a larger entity. This was true a decade ago and even more so today. In addition, information technology (IT) systems have become more important in driving consolidation because the cost of IT is likely out of reach for anyone but a big group. A really good IT solution is expensive, and a bad IT solution is even more costly.
A newer factor is the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). We’re looking at a value-based payment system in the future. That necessitates the ability to measure outcomes and comfortably take risks, which can be difficult for small groups. Part of the value-based payment system is the bundling of care. Groups need to coordinate physicians, facilities, pathology, anesthesia, infusions — all of the components needed to manage risk, which can only be performed well in larger groups at scale. Finally, there’s the capital needed to build a central infrastructure. Raising significant amounts of money is very challenging for small groups.
Q: What challenges should physicians expect when forming a consolidated group?
MW: Culture, culture, culture. Merging different cultures is rarely easy. The organization of some small groups, where you have senior partners, lesser associate partners and older partners, can cause problems because of the financial relationships between physicians. Physicians are often loyal to older staff, some of whom may not be particularly effective anymore. How do you get rid of legacy staff? Then there’s the question of what you do with extra space. If you want to merge, you would like to do away with space that will no longer be necessary with a central infrastructure. There’s the saying, “Everyone loves progress but nobody likes change.” Everyone loves the idea of more efficiency, better contracts, and new ancillary revenue — as long as they don’t have to change what they’re doing. To achieve benefits, there must be change.
JW: I speak with a lot of practices about how to build a super group. What is always fascinating is they think I did this overnight. They ask for a magic formula, but I’ve been working at it for 25 years. The challenges typically center around the history of these groups. Some have been competing with each other for years. There are often substantial differences in how they practice, view each other, the EMR systems in use, preferred vendors, insurance providers, different hospital affiliations, different personalities — the list goes on.
Doctors’ egos can get in the way, but what I have found is doctors typically buy into the idea of consolidation quickly. They know they will still see patients the way they want to. It’s management who is more likely to push back. You might have a manager who looks at his group as his baby and is suddenly faced with being told what to do and how to do it. When managers feel threatened, they often try to dissuade their doctors. Another big challenge is money. How will it be split? Is the larger group really going to make more money or will it cost more money? Creating a super group requires a lot of time, energy, and dedicated leadership. If you’re not fully committed to the idea, I recommend you find someone who is to lead this effort for your group.
Q: What are the immediate, midrange, and long-term benefits of consolidating into a super group?
JW: You immediately become bigger and usually feel stronger and safer. You might finally feel confident that the hospital can’t take you over or the insurance company once ignoring you will actually speak to you about a contract. Additionally, you may also experience a sense that the group you were once fighting for consults, referrals, or patients is no longer competition. You may sense immediate satisfaction that you have a voice at the table. The mid-range benefits come from using the larger size and strength to your advantage. You can now negotiate on behalf of all of the physicians for the best contracts possible.
You usually have better visibility and coverage, so people are more likely to know about you. That may lead to more opportunities, not only with payers but patients, pharmaceutical companies, and other businesses. In terms of long-range benefits, you can start building efficiencies, standardize processes, work on protocols, and create care pathways. You may choose to bring more expertise in-house, such as human resources or hiring a chief financial officer. You can also start to think outside of the box. What about alternative payment mechanisms? Could you bundle something or take on patient populations? Could you start taking the steps you will need to survive when fee-for service is no longer a viable option? You can look at becoming vertically and horizontally integrated, and determine how to best serve your communities. You can build ancillaries, internal structures, and ultimately a robust business.
MW: Almost immediately, you can save money on overhead costs by merging up administrative functions, particularly billing and collections. You can become really efficient with such functions because you can choose to keep your best staff and have them become experts in specific segments of the process. You can also achieve immediate savings in areas such as office staffing, malpractice rates, and health insurance. A little down the road, you can pursue negotiating better payor contracts. That’s also a good time to explore building potential ancillary revenues. These are patient benefit services that will generate revenue for the group while lowering the cost of care. Examples include ambulatory surgery centers, pathology laboratories, infusion centers, and anesthesia services. You typically need size to make those ancillary services work.
Moving along, it will become easier to attract employees and new associates. A bigger organization can offer better benefits. Physician associates typically rank larger groups higher, which will make it easier to recruit. In terms of IT, there is an immediate benefit in using a shared practice management system that the merged group will need from the get go. There is the question of when to decide on the super group’s electronic medical records (EMR) system. We did not try to tackle a uniform EMR on day one.
Physicians have a great deal of attachment to the systems they are using. It’s a huge benefit to get on a uniform system, but it may take a year or more to identify one that makes everyone happy. In the longer term, you’re looking at further centralized changes. You essentially take away functions from the offices and centralize them, such as a call center, human resources, employee training, and employee hiring.
Q: In the coming years, do you anticipate seeing an increase in consolidation?
JW: I can’t see how there won’t be more in the future. We see consolidation in everything. I often liken it to when our country was young, and everyone had their own shop or farm. Now we have Walmart and huge consolidated farming industries. It’s difficult to open a five-and-dime store or small farm and survive on that income anymore. That’s looking like the case for healthcare.
We were just one of the industries to move later in that direction. With the way the government and healthcare are changing, it’s becoming much more challenging and expensive to run a small practice. I think it has become very compelling for groups to consolidate. Maybe in a small town, a group of one becomes a group of two and that’s the consolidation. In a city like Dallas, you better be in a group of 50 if you want a seat at the table.
MW: There are only a few, large metropolitan areas where we have not seen significant consolidation. New York stands out. It’s an incredibly fragmented gastroenterology market. You see that to some extent in Philadelphia. In almost every other metropolitan area, we have seen substantial physician mergers. I think we will continue to see consolidation as well as continued increases in physician employment. Whoever does not consolidate will end up employed. I anticipate within ten years it will be uncommon to find gastroenterology groups of less than five.