Emergency Medicine Physician Group Services: It’s no longer about size
For much of the past two decades, high-growth companies in multiple industries have been following a similar playback: borrow heavily and expand quickly to capture market share, with the hope that one day in the future you will be able to reap the financial rewards of market dominance.
In our sector, physician services, this translated into many of the largest emergency medicine groups taking on private equity partners to embark on a debt-fueled strategy of growth by acquisition. The idea was to grow large both to better negotiate rates against insurance providers and also to present themselves as the “safe choice” to hospital partners and health systems.
And, for many years, the debt-fueled growth strategy seemed to be working. Over the past year, however, we have seen the largest emergency medicine groups struggling financially—even to the point of threatening bankruptcy. This has affected quality of care, their ability to staff emergency departments, and their relationships with hospital and health system partners.
For those health systems looking for a true partner in physician services, these large groups used to be considered the “safe choice.” But two things have changed to alter the calculus.
The old way is over
The first is the end of the era of low-interest rates. In industry after industry, this has translated to a newfound respect for actually sustainable business models, as opposed to debt-fueled growth to expand market share at all costs.
The second thing that has changed for physician services is the No Surprises Act (NSA), which went into effect in January 2022. The fight over the NSA is ongoing, but so far its net effect on emergency medicine physician groups has been to drive down commercial reimbursement rates, leading to further cost pressures.
Together, these two changes have had a profound impact. As Core CEO Dr. Boykin Robinson has written, “If you take on debt, and something about your business model changes, it may turn out that what you paid for might not be as valuable as what you expected, and now you have trouble servicing your debt.”
This is precisely what has happened to large, private-equity-backed emergency medicine groups. So, if you’re a hospital leader trying to decide between a big group or a small one (or vs. a regional one), it may be better to think less about their respective size and more about their individual growth strategies.
For EM groups, these growth strategies break down into three categories:
- Local groups
- Acquisition groups
- Organic groups
Each has implications for the long-term viability and quality of the services they provide to hospitals.
Local EM physician groups
In the past, many doctors sought the option of a small, democratic group practice where each physician had an equal say in decisions regarding the running of the business. This model offered the opportunity for a more collaborative and democratic approach to healthcare, and many doctors saw it as an ideal working environment.
However, in recent years, the market has become increasingly hostile to small democratic groups. One of the main reasons for the decline of small democratic groups is the increased financial pressures faced by the healthcare industry. The cost of running a medical practice has gone up dramatically in recent years, making it difficult for small groups to remain financially viable. As a result, many small democratic groups have been forced to sell their businesses to larger organizations or simply go out of business.
Another factor contributing to the decline of small democratic groups is the increasing demand for quality metrics from hospital partners. With the emphasis on evidence-based medicine and quality improvement, hospitals are increasingly looking for groups that have the expertise and resources to meet these metrics. For small democratic groups, this can be a significant challenge as they may not have the same level of outside expertise or resources as larger organizations.
On the other hand, there are other local physician groups that operate in a non-democratic fashion. These groups typically have one hospital contract or a small number of contracts and are run by one physician or a small group of physicians. While these local groups may be more dedicated to the community and the hospital they serve, they also face challenges in terms of quality improvement and financial viability.
As mentioned above, the growth of emergency medicine physician groups over the past decade has been largely influenced by growth through acquisition in partnership with private equity firms. Many of the largest groups in the industry have formed through such partnerships, and it may seem like an attractive option for both job-seeking physicians and hospital leaders.
However, growth through acquisition and private equity carries significant risks. The ease of growth by simply writing a check can and has become a burden.
Meanwhile, the recent implementation of the No Surprises Act has significantly impacted the growth strategies of the largest EM groups. The law is likely to lead to a leveling of rates across the industry, reducing the significance of size and scale in the business model of emergency medicine physician groups. Instead, competition will be based on quality rather than pricing, making growth through acquisition a potential liability if not executed with caution and foresight.
The third category of groups is organizations whose growth strategy is focused on organic expansion. Unlike acquisition-based groups, the primary objective of these organizations is to grow organically, and not to grow through mergers and acquisitions.
Core Clinical Partners is one of the few groups that operate under this strategy. Over the last three years, the company has experienced growth through the old-fashioned submission of proposals in response to RFPs, and through winning new hospital contracts based on evaluations determining that Core Clinical Partners is the best option for managing emergency medicine services at the site.
Core does not have a private equity partner, which eliminates the burden of servicing a crushing debt load and eliminates the influence of external board members or decision-makers in the growth and management of the company. This allows for greater flexibility and the ability to make adjustments as necessary.
The foundation of an organic growth strategy is reliance on quality. As a company, Core must consistently deliver exceptional services, as positive word-of-mouth and references from hospital administrators are crucial for securing future business.
In addition, Core Clinical Partners actively sells its business model to prospective hospital partners, rather than to other physician groups for acquisition. This approach to growth emphasizes a partnership-oriented mentality, differentiating the company from acquisition-based groups.
The new safe choice
The changed economic environment combined with the No Surprises Act means that groups like Core’s are now in some respects a safer choice than the large national groups burdened by high debt loads and constrained by outside decision makers.
In other words, it’s no longer about size. The new, and we think more sustainable model, is a partnership-oriented group with incentives aligned toward quality, growing step by step and proving its value at every turn.