Using Concierge Medicine to Add Value at Retirement, Sales, or Mergers

For the past few decades, physicians have gradually moved away from entrepreneurship (ownership and self-employment) and toward employment (working for a large group or corporation without ownership or partnership). There are many reasons for this evolution. However, the driving force is that the benefits of ownership have been eroded over time while the burdens of owning a practice have grown. The downward pressure on practice revenue shows no signs of abatement. The future does not bode well for Medicare or commercial reimbursements as the competitive environment grows.

If a practice generates just enough revenue to support physician salaries, then the practice may not have a lot of sale value.  For a large healthcare group looking to acquire medical practices, there is no profit to warrant paying a premium for the actual practice. This may mean disappointment for private physicians approaching retirement or thinking of selling.

Here are two questions to consider:

What can be done now that will grow the long-term value of a private practice, and even offer a financial benefit to the practice in the short term? 

The solution may well be found in a hybrid concierge model. Concierge programs enhance a practice's revenue and profitability. It is this addition to the bottom line that creates a bonus to a practice when a physician retires, sells, or merges.  The concierge program also becomes a key selling feature as it creates a vehicle for realizing additional practice value in a way that secures the investment and a payout over time.

Membership models seem to be built around a relationship between a particular physician and their patients. But the model is really only in part based on physician loyalty.  Otherwise, concierge programs could easily start from scratch which is certainly not the case at this time.  The truth is, there continues to be an erosion of primary-care physicians and specialists who provide primary care services to patients. It is this shortage that drives patients to join, and helps concierge programs successfully transfer, from one physician to another.

How can concierge programs add value?

Traditional practices generally transition well to an acquiring physician or group. So, too, can a concierge program when properly presented and marketed to existing members.  This is one of the reasons physicians use professional concierge management companies to provide ongoing marketing and membership services, especially those firms with experience and a proven track record.

While it is challenging to make sure that a large portion of the existing membership continues with the new physician, it can be done.  

The benefits are many and the value becomes a win-win for both the seller and the buyer.  Exiting physicians get to realize the extra value of their concierge program in terms of practice profit at the time of sale or merger, in addition to the years of enhanced revenue they received from the membership model while they were serving.  The acquiring practice feels their investment is secure, particularly when a third party is managing the membership program and has a stake in its successful transition.

It may seem that in today's world of mergers and acquisitions, acquirers are still focused on the volume and market share of medical practices and ignore the benefits of a practice's hybrid model, but as concierge programs continue to increase in popularity, that is changing fast. Many acquirers are seeing the advantages a concierge program can offer and are continuing the programs, using the additional revenue the membership model generates to offset the cost of acquisition and transition.  

While there still remains a reimbursement advantage to larger entities in the commercial insurance world, that advantage will soon be fading. As it does, the need to tap into private revenue will continue to grow and doctors with a hybrid concierge program will be well situated when it comes time to sell.

How to add value to a practice continues to be one of the hottest topics for physicians today. It's one that always generates lively discussion and debate when I talk to physicians nationwide. If you'd like to find out more, please e-mail me for information on a free webinar in January.