"The megagroup can bring real value to insurers," says Ron Mullahey, a senior vice president for NAPA Management Services Corporation, a group of 500 anesthesiologists.
The movement started out west and is well established in California. Paul Temby, a wealth manager who focuses on doctors in San Diego as part of his firm Dowling & Yahnke, says three or four megagroups dominate medical economics in the city. And the trend is just now sweeping the East Coast, says Stimpfl. "Out west, they're a bit ahead of us and they've been forming these groups for some time, and now it is making its way east," she says. "Certainly, it's happening in New York."
However, the business proposition isn't compelling everywhere. Since fewer doctors serve less-populated areas, it's less attractive to launch groups in those places for economies of scale. Ben Utley of Physician Family Advisors in Eugene, Ore., which derives 75% of its revenue from doctors, says private megagroups aren't as common in smaller cities like his. And Temby says doctors working alone in rural areas can still make a lot more money than those in the cities.
But even if private megagroups are not all that common in Eugene, Utley says hospital megagroups are scooping up some practices. A hospital can afford to pay doctors more than they would make on their own in small practices. The physicians may give up control of their business and become employees, says Utley, but when they join a megagroup, "it's a win-win situation."
Those groups unaffiliated with hospitals come in two varieties: One type of megagroup is run like a cooperative, and each doctor is entitled to an equal vote in governance. The other type is run by a controlling shareholder who may or may not give the doctors equity stakes. ProHEALTH Care Associates LLP in Lake Success, N.Y., for example, is controlled by physician David Cooper, and according to two sources, the group is no longer offering equity stakes to doctors joining its ranks. Some smaller groups, meanwhile, will give a young doctor a contract saying he can buy an ownership stake after three or five years and will offer the doctor a loan to purchase his stake at that time.
ProHEALTH is a multidisciplinary group with doctors of different specialties. Other megagroups are specialty-specific and might gather together obstetricians and doctors from other specialties.
The advantage of multidisciplinary groups is the referrals that can be made among doctors. Federal law and some state statutes normally prohibit certain kinds of fee-splitting and referral fee arrangements among physicians. So when a doctor in a family practice refers you to an orthopedic practice, Perlson explains, no referral fee can be passed along. In a multidisciplinary megagroup, on the other hand, revenue between different disciplines can be split because the different practitioners are under the same tax identification number.
As physicians are enticed to sell themselves to these organizations, advisors may want to consider offering them an analysis of the benefits a megagroup can offer. An advisor can post content on her Web site or develop marketing materials, for instance, that say she can help doctors evaluate the compensation or benefit packages offered by these groups.
When a doctor sells his practice to a group, for instance, he faces the choice of whether to roll his 401(k) assets into the group's plan or into an IRA. Dick Bellmer of Deerfield Financial Advisors in Indianapolis says rolling the assets into an IRA will give the doctor much more freedom and choice to manage those retirement assets.
But the advisors will have to actively communicate that kind of advice to doctors thinking of joining the group practice. Being proactive in that way demonstrates to doctors that you know what's going on in the medical field.