When lightning strikes private practices

Today there are far fewer private cardiology practices in the U.S. Why – health reform? No, much simpler; the vulnerability of the independent medical practice business model to “lightning strikes”; especially those with “high voltage” financial effects. 

Interviews of physician leaders of private cardiology practices revealed a business model vulnerability that is not reserved to cardiology alone. A number of the practices that decided for sell and integrate demonstrated common business model characteristics, such as:
  • a high percentage of W-2 income available to the physician, derivative of office-based imaging diagnostics (e.g. nuclear imaging). One cardiology practice reported that 23% of physicians’ take-home pay was from the margins on these services.
  • a high percentage of operating revenue to cardiology practices come from Medicare. When CMS and other payers reduced utilization and revenues for office-based imaging, cardiology practices reported high five-figure reductions in physician income, all at a time when hospitals were accelerating upward the compensation rate for employed cardiologists; especially the interventional subspecialists. Result, sale of practices to hospitals in exchange for higher, more secure incomes; at least for a while.
Other clinical subspecialties vulnerable to lightning strikes (i.e. those accustomed to high-margin ancillaries):

  • Urology
  • GI
  • Orthopedics
  • Others?
Hospital and health system CEOs that depend upon the private practice model of physician services supply, should critically evaluate the vulnerabilities of the model across clinical specialties of high-importance to their strategies. 
Daniel Zismer, Ph.D.2013