A Success Strategy for Practice Affiliations

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Curtis Kauffman-Pickelle

I have recently been writing commentaries in our various publications about the evolution of the practice model for the radiology group, especially as it relates to what radiologists need to do in order to succeed in a maturing marketplace. It is clear that a new normal exists in which revenue predictability and certainty about practices’ growth trajectories have been replaced by confusion, uncertainty, and discussions about reinvention. There are a couple of reasons that the need for a new strategy has now accelerated. I believe that these new market forces will be unforgiving to those who act as though this is simply another in a continuing series of minor setbacks and annoying speed bumps.
 
In any maturing marketplace, whether it is that of a product or of a service, a certain amount of commoditization eventually emerges, resulting in narrower profit margins and heated competition for market share. Even the most historically successful practices will find it extremely difficult to maintain salary levels and attractive lifestyles for their shareholders in an era of declining reimbursement, utilization controls, desperate competition, and disruptive market forces.
 
As markets move from growth to maturity, shakeouts become commonplace. In this type of environment, innovation and leadership are much more necessary than they are during growth phases. They are always important, but many sins can be forgiven in a market that is growing annually at double-digit rates.
 
An effect of this dynamic, within maturing markets—ranging from consumer goods to industrial conglomerates to retail to professional services (such as health care)—is the type of consolidation (along with its pace) that one sees, at certain points, in saturated economies. One need look no further than the plethora of single-modality imaging centers that were once dominant (just a few years ago)—and their eventual consolidation into multimodality providers of all types—to see how the resulting consolidation model has played out, in various forms, within medical imaging.
 
Integrated delivery systems, regional affiliations, networks, hospital mergers, payor acquisitions of medical practices, health-systems’ vertical integration of specialty providers, and practice mergers: The list goes on, as this market moves (very quickly) to find the ideal model for practice protection and sustainability—while dealing with the realities of consolidation. One model that has revealed itself to have great potential is that of local and/or regional practice affiliation.
 
Assuming that today’s radiology groups can negotiate affiliation agreements in which autonomy and independence are not sacrificed for safety and security, properly structured affiliations can result in two or more groups realizing the benefits of consolidation without the liabilities. It is not easy, but it can be done.
 
It requires, however, a new strategy and a new set of tactics to set the combined entity apart from the competition in ways that will benefit payors, patients, shareholders, and hospital partners alike. Of course, along with the strengths and benefits of such affiliations, there are risks associated with them that can be avoided through a rigorous process of due diligence, by knowing the players involved, and through an appreciation of the need for absolute transparency.
 
It is critically important for shareholders to be aligned and in agreement in three areas: that it is in the best interests of the organization to affiliate and create a more significant market footprint, that there will be a new strength and security in numbers, and that lifestyle and compensation can be protected by building a larger organization. It is also a necessity for groups considering a business combination of some type to enter into any discussions only after establishing the all-important element of trust. Without alignment of the partners—and without trust—it is impossible to envision an affiliation that would succeed, even if the need for it were urgent.
 
It is also clear that the ultimate beneficiaries of an affiliation model that brings together two or more groups in a region will be the respective hospital  partners of each group. The ability to articulate the benefits clearly to these hospital partners will be another determinant of the affiliation’s success. The key driver, in making sure that the hospital partner embraces such an affiliation, is the degree to which the larger entity has the ability to develop