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Alternatives to becoming an employee

By Jeffrey Peters

The bad news: employment isn’t all it’s cracked up to be. The good news: there is life after employment, and physicians can choose from several creative options. This article details why a growing number of physicians may decide to shun employment opportunities in favor of more creative relationships such as equity partnerships with hospitals and practice management companies. Making the right career choice demands that you self-test for solo practice, partnership and equity relationship potential. Following are several of the options physicians can pursue:

Independent Practitioner

As independent practitioners, physicians realize greater freedom but more insecurity by defining their relationship with an organization or system and exchanging a specific set of responsibilities for a set amount of dollars.

While employment typically limits physicians to working with one group, independent practitioner status allows them to provide services to other organizations and groups as well. For example, a group practice could establish a relationship with a head and neck surgeon who would receive all referrals for those procedures.

These days, it’s increasingly common for physicians—especially specialists—to be approached with take-it-or-leave it deals and for specialists to forge relationships with several organizations. Or, in a variation of the independent practitioner relationship, physicians negotiate with HMOs, PPOs or IPAs to receive capitation in exchange for providing services to a defined population.

Typically, the independent practitioner option is best if you’re hellbent on having control over your own life and destiny, want to be your own boss, don’t work well in a highly structured environment and are committed to maximizing your income. Like many business entrepreneurs, physicians who select the independent practitioner option want close relationships with their staff matched by the power to hire and fire, design a physical space and control an office environment. Physicians who fit this mold have the satisfaction of choosing a special brand of surgical gloves, for example, with only a passing thought given to cost.

Partnerships

In many ways, partnership is one step from the independent practitioner toward conformity. A partnership may be for you if you want control over your own destiny and the ability to set your own rules, but also crave a steady source of patients. Physicians who become independent practitioner s to groups or managed care organizations want to balance a sense of mastery and control with the security that comes from working with professional colleagues and being part of a continuum of care. Partnership allows physicians to maintain their independence and autonomy, while reaping the rewards that come from joining forces with other professionals. Because all physicians are equal partners, they benefit from the collegiality and cost savings of a group practice environment, while still maintaining control. A partner is also someone who realizes that success may come only by joining a larger group.

But there are downsides as well. Typically, compensation is based not only on individual performance, but also on group performance. As a result, if the group fails to achieve financial success, the income of its partners suffers.

A group may be for you if you seek a major voice in group operations, but still recognize the reality that you can and genuinely want to work with others. Groups are also attractive if you crave a more balanced approach to coverage. While you might cross cover with other physicians as an independent practitioner, you typically have more call than you do with a group. As a member of a group, you may not need to take as much call. And that, in turn, means being able to take more time for your personal life and family. A group therefore offers many independent practitioner benefits while still providing more control over your lifestyle and family issues.

Also consider a group where physicians from multiple specialities and disciplines come together to care for patients. You’ll benefit from the power of a larger group of physicians as well as the presence of automatic referral channel if you’re a specialist. Because all the disciplines needed to care for a population are within the group, you’ll also be well-positioned to capture capitated lives. Finally, you’ll benefit from the collegiality, financial security, flexibility and more comfortable lifestyle that come from working with a large number of colleagues.

Equity Relationships

In this scenario, physicians form partnerships with managed care organizations, hospitals or health systems or a publicly traded management company (PPMC). Because physicians agree to merge their practices into a larger practice, they typically receive some cash out of the deal while shifting their costs and maintaining clinical autonomy. The result is security balanced by upside financial potential. The downside, of course, is risk and restrictive covenants. If physicians leave the relationship, they’re prohibited from practicing within specific geographic areas.

The equity partnership offers you the experience of becoming an employee, but within a large group whose decisions are controlled by the public markets. As a result, you not only lose control of your practice, but may also worry intensely about how you and your colleagues will meet corporate expectations.

For example, a PhyCor, a Nashville-based practice management company must grow its practice revenue by 13 percent annually to maintain its relatively high price to earnings ratio. This means that for the parent corporation to do well, physicians within each PhyCor group must focus on growth as well as the practice and corporate bottom line. As a result, you begin to focus not only on your own performance, but also the performance of physicians you may never have met and who live hundreds or thousands of miles away.

The performance targets are daunting: historical earnings plus 10-13 percent. The reason is simple: the market is looking for the company to grow practice revenue by a specific percentage. If the corporation fails to do so, it’s penalized in the market.

Also at risk is loss of physician control. The parent company may identify the hospitals to which you can admit patients, managed care organizations to join, optimum length of stay and number of admissions, specialists to use and specialized procedures to perform.

While you have a chance to participate in the decision-making process, all final decisions are rooted in the best interests of the corporation. And while your professional judgment will be valued, it will be carefully evaluated against corporate objectives.

That’s not to say that winners don’t abound in these relationships. If you hold stock in a growing practice management company, you’ll be able to share in both practice and corporate revenues. For example, physicians involved with companies such as Chicago-based Caremark have become very wealthy as the result of the acquisition buyout by MedPartners.

Of course, not everyone has experienced such dramatic success. Equity companies such as Coastal bought physician practices in exchange for stock and ultimately went bankrupt.

It’s a scenario that may be repeated in the future. Despite the fact that practice management companies remain the darlings of Wall Street, many lack the infrastructure to make good on their promises to physicians.

That’s why it makes sense to be suspicious of any start-up physician practice management company and to scrutinize any company for management stability. Because many practice management companies are designed to be sold and merged into other companies, the people you initially encounter probably won’t be the people you’ll work with in three years.

And if that weren’t enough to worry about, expect to see even more government scrutiny of practice management companies. The federal government is heavily involved in investigating how physicians coded in practices purchased by Columbia/HCA. The message is clear: the bigger the company you join, the higher the risk of federal oversight.

MSO Contracting

In this scenario, physicians maintain their practices but contract with a management services organization (MSO) to relieve at least some of their administrative burdens. Support is provided in the form of business development, office management, staffing, billing and collections and managed care.

As a result, physicians can concentrate on medicine, not accounting or marketing, while still retaining the status of being boss. Physicians maintain control as decision-makers but reduce the stress and anxiety involved in operating a practice in today’s environment.

Still, MSO contracts can be costly—ranging from as little as 20 to 50 percent of revenue. Moreover, success depends on the competence of the MSO and expertise of the local practice manager. If the MSO makes mistakes in critical areas such as billing and collections, physicians could suffer economically.

The Bottom Line

In evaluating which practice option is best for you, be as introspective and honest as you possibly can about your personal and professional needs and preferences. For example, how important is financial security, and which option would deliver on that value?

Realize too that what may be meaningful and worthwhile for your colleagues may not work for you and that, like other professions, medicine is full of tradeoffs. While working as a solo independent practitioner may offer less security than employment, partnership or an equity relationship, you may gain the flexibility, autonomy and income maximizing opportunities you crave.

Following are some questions you’ll want to ask before you evaluate options:

• How disciplined are you? With no one to guide you, can you set priorities and do what has to be done? If not, you may want the colleague support provided by a partnership or equity relationship.

• Can you live with variable income? Can you hoard during the good months so you’ll have enough resources in the not-so-good ones? Remember, your income may vary depending on whether you choose solo independent practitioner status, partnership or an equity relationship.

• Can you surrender the perks of your present position or arrangement? Free lunches end the day you declare your status as an solo independent practitioner. From then on, you pick up the tab for many things you may be taking for granted, such as malpractice insurance, pagers and telephone. If benefits and perks are critical to your lifestyle and to your family’s security and well-being, your may want to consider a partnership or equity relationship.

• To what extent do you like to develop business? The more you can develop relationships with other physicians, managed care organizations, hospitals and other referral sources, the higher your income will be.

• Can you be—and do you want to be—a one-person band and lone ranger? The more multi-talented you are, the more you’ll succeed as a solo independent practitioner. If you lack the skills and drive to go it alone, or would prefer to concentrate in one skill area, consider a partnership or equity relationship.

• What are the values, standards or criteria by which you make decisions? If you value freedom and independence above all else, you may want to consider a solo independent practitioner relationship. If you value security and collegiality, you may want to consider a partnership or equity relationship. Security is probably highest in an equity company where you’re guaranteed a job.

• What’s likely to bring you the greatest satisfaction now? What kind of professional relationship will help you satisfy long-term goals? If you want relief from administrative responsibilities and a sense of security, a partnership, MSO or equity relationship might be more appropriate. Just make sure the opportunity matches your short-and long-term objectives.

• Given your family and personal needs and personality, what level of risk are you able to tolerate? Whether you choose to be a solo independent practitioner, partner or a participant in an equity relationship, some level of risk is inevitable. The question is how much risk you can comfortably tolerate and embrace. Finding out the track record of potential partners and would-be employers will help you avoid unnecessary and unexpected risks.

• How critical is maximizing income? Chances are you can boost revenues to their highest levels as a solo independent practitioner, where you have the greatest opportunity for control. But keep in mind that in some specialties, a group can outperform the independent practitioner option.

• How much flexibility do you need? While you may get no flexibility in an equity relationship, you’re bound to get more in partnership and self-employed, independent practitioner relationships.

• What kind of patients do you need and want to attract? What vehicle would work best in attracting these patients? If you’re a super specialist and opt not to join a large group, you may not be able to gain access to patients.

• How important is consistent management and control over your destiny? The smaller the organization with which you develop a relationship, the more control you’ll have over management. As you move into equity relationships, you’re more likely to encounter situations where management resides outside of your immediate geographical area.

Jeffrey Peters is president of Health Directions, an MSO company based in Illinois.

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