Advice/experience in Healthcare/Primary care provider space
December 13, 2024
by a searcher from Florida State University - College of Business in Birmingham, AL, USA
Evaluating an acquisition opportunity of a primary care practice in a smaller market. Short story, it was started by a cancer center because so many of the patients did not have a primary care provider, but it has grown exponentially and needs full time leadership focus and management. Would like to talk to someone that has experience in this market who can advise on how to approach and evaluate an opportunity like this.
from INSEAD in San Francisco, CA, USA
(1) Practice Infrastructure: this focuses on how well the practice is run internally. Key considerations include:
- Staffing: Are nurses being leveraged effectively, or is it overly reliant on physicians?
- Revenue Diversification: Do they dispense oral medications or rely solely on CPT codes and procedures?
- Purchasing Power: Do they participate in a GPO to benefit from bulk pricing on supplies and drugs?
(2) Practice Environment: this addresses the external conditions the practice operates in — factors that can’t be controlled but must be navigated.
- Labor Market: Rural areas often face higher labor costs to attract/retain physicians.
- Patient Mix: Are most patients on Medicaid (lower reimbursement) or commercial insurance (more profitable)?
- Competition & Referrals: How do they attract new patients? Is there competition from local Academic Medical Centers?
(3) Practice Controls: this focuses on how well the practice aligns physician behavior with practice economics.
- Prescribing & Procedures: Do they encourage in-house prescription fills, focus on high-margin visits/procedures?
- Operational Oversight: Do they have systems/processes in place, or is it a "Wild West" approach where each doc does their own thing?
- Tech & Financials: Are they using an EMR that supports operational control? Do they monitor AR aging to ensure insurers are paying on time?
(4) Practice Incentives: this looks at alignment with value-based care initiatives. Are they actively participating in any programs that reward better patient outcomes or cost management?
from Vanderbilt University in Denver, CO, USA
I'd highly recommend reading this short article that's focused on primary care innovation, not because you're looking to engage in non-standard B&M care, but because it contains a few good notes on macro conditions for primary care: https://www.healthy-debate.com/p/primarycare
Notably, a couple of key items:
1. 75% of health networks operate their primary care business at a loss. Large players use primary care as a loss leader for other services: CVS for prescription drugs, Walmart for consumer retail, and Kaiser for surgical services. For you, this means that unless you can also acquire access to revenues from these other sources, your competition is willing to operate at a loss, which is a touch market to be in.
2. Due to financial incentives highlighted in that document, primary care clinicians are facing severe burnout, and it's becoming increasingly difficult to balance care quality and outcomes against profitability.
I don't know the location and condition of the practice you're reviewing, but one potential path forward is to increase the scope of your services to become an Advanced Primary Care clinic and engage in direct contracting with local employers to improve reimbursement rates. However, this requires significant capital investment and negotiating expertise. And this sector is not immune to large-scale competition either.