The ophthalmology industry is in a state of change. Historically, the field has been full of smaller, family-owned practices where eye care providers wore many hats and might be responsible for scheduling, handling claims, managing payroll, performing human resources (HR) tasks, and more. With ongoing shifts in regulations and reimbursement requirements in the health care industry, however, some practices are finding this model unsustainable. In the face of these changes, many ophthalmologists are turning to private equity (PE) or consolidation as a way to remain competitive and operationally successful. Here’s a look at each of these models and some of the benefits and considerations for each.

The Shifting Model: Consolidation and Private Equity

These days, ophthalmologists are no strangers to the terms “consolidation” and “private equity.” What may be lesser known is how they differ. Consolidation is the merging of practices with another competitor practice or another medical entity, like an insurer. Many ophthalmologists find consolidation to be an attractive option. They typically feel that sharing resources and streamlining office management tasks by merging with another organization will help allow them to remain competitive and financially sound in the face of market changes. This can include sharing of equipment, technology licenses, and administrative tasks. In such a model, practices may be jointly run, or one practice may take over decision making for some or all aspects of the other. Private equity involves the purchasing of a practice by a PE firm. In this model, the PE firm typically has management and decision-making power and provides the practice with access to resources and funds.

The increasing pressure to sell or join forces with another health care provider is often fueled by the rising complexities of owning a solo practice and the security that comes from access to equity. Both of these models have individual drawbacks and benefits. It’s important to note that as patient needs and health care habits evolve, there will likely continue to be a place in the market for these various models to thrive.

The Power of Patient Preference

Patients have a wealth of choices when it comes to their health care. Gone are the days of going to the same primary care physician and specialist as our parents out of familiarity. With more options and increased access to consumer reviews and information, health care is becoming consumerized, allowing patients to seek out and receive care that fits their lifestyle and preferences. Some patients prefer the experience of a small, family-style practice, where the ophthalmologist and front office staff know their medical history first-hand and inquire about their job, children, or recent vacation.

Other patients prefer a fast-paced, standardized experience that allows them to get in and out as quick as possible, and that close-knit feel is not a top priority. The good news is that with private practices, consolidation, and PE, patients are able to select the experience that best aligns with their preferences.

While some patients prefer to take advantage of the one-stop shop offered by larger, PE-backed practices, there are many who still desire a boutique experience. The white-glove service that smaller practices can provide to patients is often unachievable at larger offices and can allow physicians to more easily develop meaningful relationships with their patients.

Considerations

Consolidation might be a viable option for some practices, because sharing costly equipment and dividing scheduling and billing tasks is desirable, but the merging process is a large undertaking. Both entities must come to an agreement on operational workflows, what brands to stock, and which electronic health record solution to use, along with other day-to-day details. With many practices having long-held preferences, these decisions can be challenging, but ultimately a merger can result in cost and resource sharing that many find beneficial.

For a physician, the large practice setting allows them to focus on seeing patients, while the management team takes care of the rest. The benefit of this is less responsibility and less risk, while the trade-off may be less control, although this is not always the case.

Data from the American Academy of Ophthalmology (AAO)¹ show that large ophthalmology practices, such as those formed through the merging of smaller offices, are particularly appealing to younger ophthalmologists, as they crave work-life balance and may not want to take on the added responsibilities associated with solo ownership. Private equity is a little different and comes with its own challenges and benefits. Through consolidation, PE firms can leverage economies of scale to make group purchases and manage admin-based operations, which can cut costs and provide a more efficient use of resources. Additionally, consolidation theoretically results in a larger market share, which can enhance a practice’s negotiating power with payers and can strengthen reimbursement rates, not to mention increase access to patients that need their care.

Selling to a PE firm can be appealing to ophthalmologists considering retirement who would rather focus their remaining years on their patients, rather than the high-pressure logistics of running a medical group and staying up-to-date with market changes. Additionally, thus far, the economics have often been much better than selling to younger ophthalmologists.

Both consolidation and PE models typically bring more specialists and capabilities under one roof, providing patients with increased offerings and convenience. Both models tend to provide increased business stability and peace of mind, but typically require that providers relinquish some of their decision-making power.

Finding the Best Fit

While more and more ophthalmologists decide to sell or merge, 26 percent of ophthalmology practices remain independent,² proving it is still a very viable business model. One of the other major benefits of an independent practice is the ability to be operationally nimble. Often, independent practices can more easily refine operations and approaches based on staff needs and patient feedback. Take technology for example, which is typically one of the more expensive purchases a practice makes. If an ophthalmology practice is dealing with late cancellations or “no show” patients, but is currently using an EHR system that doesn’t have customizable patient engagement features like text-based appointment reminders, it may be easier for an independent practice to change course and implement a new technology, rather than a larger, PE-backed practice with more executive players involved.

At NYC Retina, we have chosen to remain independently owned and operated. We use Modernizing Medicine’s EMA, an ophthalmology-specific EHR system that can be easily customized to fit our preferred workflows, has enhanced reporting capabilities, and comes equipped with tools that benefit patients, like a patient portal for self-scheduling appointments, viewing test results, and communicating with our on-staff physicians. We made the decision to stay independent for many reasons, and full control over the technologies that we use was one factor in that decision.

Now, as we are in the middle of a pandemic, that adds another angle where PE or remaining independent both have their pros and cons. For example, having a PE partner has been beneficial to some as practices (and the rest of the world) have seen their patient volume and thus revenue plummet. Having a PE partner may give that financial backup that otherwise would not be there. Alternatively, in a PE setting, the decision to furlough or keep employees and physicians may no longer be the sole decision of the physician owners. This reinforces that having a PE partner may provide more financial support, but the physician owners may have less input in decision making.

The more variety there is in the ophthalmology field, the more opportunity there is to treat and best meet the ever-changing needs of patients. If you’re considering consolidation or PE, take the time to thoroughly weigh the pros and cons and converse with everyone at your practice. It’s a decision that will affect everyone, and while there is no wrong answer, it should be a personality fit for what you would like out of your practice. At the end of the day, it’s all about weighing physician and patient preferences in your area, considering financial benefits and challenges, and making a decision that allows you to provide the highest quality of care possible.

References

1. American Academy of Ophthalmology. Thriving in a solo or small practice group. https://www.aao.org/practice-management/article/thriving-in-solo-small-practice-group . Accessed August 24, 2020.
2. Williams RD. Can my practice remain independent? https://www.aao.org/eyenet/article/can-my-practice-remain-independent?march-2020 . Accessed August 24, 2020.