Private practice under pressure: 5 financial threats you can’t ignore (and how to tackle them)
Industry Buzz
It’s important to know the numbers. Just as important as tracking revenue, physician owners should also look at expenses and ways to optimize their processes.
—Brittney Anderson, MD
The biggest financial challenge, by far, and the one that has led most to the erosion of independent practice, is that payments from insurance companies—and especially Medicare—have failed to keep up with the cost of doing business.
—William E. Fox, MD, MACP
Operating a private practice can involve numerous financial challenges. Rising practice overheads and operational costs are just some of the financial problems physicians face in private practice.
MDLinx spoke with three private practice physicians about the financial challenges physicians in private practice may face—and what to do about them.
Related: The financial reality of owning a private practice: What docs wish they knew before going independent“The greatest challenges are the lack of adequate reimbursement for services, insurance companies that artificially lower prices, artificially narrow networks and prevent physicians from contracting, lack of access to insurance contract and the ability for the system to lower reimbursement and change payment structures without consent or notice,” Jason M. Goldman, MD, MACP, president of the American College of Physicians (ACP) and an internist in private practice in Coral Springs, FL, tells MDLinx.
Dr. Goldman argues that it’s crucial for physicians to advocate for themselves in order to address these problems.
“Only with large-scale systematic changes can these challenges be addressed. In addition, physicians need to […] make connections with various hospital systems [and] elected leaders and create relationships to be able to help the practice survive,” he adds.
Rising practice overhead costs are a challenge
A recent MDLinx survey found that nearly a quarter of physicians reported that rising practice overhead or operational costs were their biggest financial challenge. []
Brittney Anderson, MD, a family medicine physician and owner of a private practice, says it is crucial for physicians to be clear about their expenses from the beginning.
“It’s important to know the numbers. Just as important as tracking revenue, physician owners should also look at expenses and ways to optimize their processes. Regularly reviewing vendor contracts, insurance participation, staffing models, and workflows can reveal savings,” Dr. Anderson says.
“Efficiency is often more impactful than volume. … Better scheduling, reduced no-shows, and optimized staffing can significantly improve margins without having to add a ton more patients,” she adds.
Some challenges beyond our control
William E. Fox, MD, MACP, Immediate Past Chair of the Board of Regents of the ACP and a partner at Fox & Brantley Internal Medicine in Charlottesville, VA, says that some of the biggest financial challenges in private practice can sometimes be beyond an individual physician’s control.
“I think the biggest financial challenge, by far, and the one that has led most to the erosion of independent practice, is that payments from insurance companies—and especially Medicare—have failed to keep up with the cost of doing business,” Dr. Fox tells MDLinx.
“We know that physician payment from Medicare has remained essentially flat for decades, failing to keep pace with inflation by some 34% since 2005. How do you keep the lights on without adjustments for inflation? How do you continue to pay rising rents or give your employees cost-of-living increases year after year if payments don't keep up?” he adds.
"A big part of the physician payment problem is out of our control. We are subject to the payment policies of Medicare and other insurance companies, with limited leverage to negotiate favorable terms. Nonetheless, there are some options out there,” Dr. Fox coninues.
The 5 Biggest Financial Threats to Private Practice
Inadequate reimbursement that fails to keep pace with inflation
Insurance restrictions that limit contracting and lower rates
Rising overhead and operational costs
Cash-flow instability and accounts receivable delays
Limited financial literacy and business training
Dr. Fox suggests a few strategies to overcome this: joining a private practice with a larger entity, such as an independent practice association, or partnering with a medical services organization can be beneficial.
Participating in an advanced alternative payment model, such as joining an accountable care organization, or providing cash-only ancillary services, can be helpful for some.
I have been performing minimally invasive cosmetic procedures—Botox, soft tissue fillers, skincare products, and sclerotherapy for spider veins—in my practice for over 20 years. These services are not subject to the typical issues that plague traditional insurance.
—William E. Fox, MD, MACP, Immediate Past Chair of the Board of Regents of the ACP and partner at Fox & Brantley Internal Medicine in Charlottesville, VA
"Acupuncture or individualized nutritional services are other ancillary services I have seen in practice,” Dr. Fox adds.
Financial literacy in medicine
Dr. Anderson argues that a lack of financial literacy among private practice physicians can also pose a challenge.
“Many physicians are excellent clinicians, but [they] were never taught how to read financial statements or forecast revenue. If not learned quickly, this can be a huge problem in private practice,” she says.
Staffing costs, turnover, and cash-flow lags are other problems that Dr. Anderson says can arise in private practice.
“Physicians can mitigate many of the financial challenges by understanding their numbers early and often,” she says.
“I recommend to physicians that they take some ‘CEO time’ every week to review their clinic numbers. That includes knowing revenue per visit, fixed vs variable costs, and realistic break-even points. When in practice, it involves knowing your accounts receivable and monitoring and tracking other important metrics directly related to revenue,” Dr. Anderson adds.