It is more difficult to run an eye practice now than it was a generation ago. Most of the ophthalmologists who are now retiring started out in solo practice with a single office and a handful of employees. During the ensuing 30 years, practice models have become increasingly complex, and ophthalmologists have become dependent on greater numbers of assistants who have higher levels of specialization — and higher wages.

Many physician-owners look at the current trends of expense growth and revenue decline and read what they believe to be the writing on the wall. For those who are close to retirement, getting out may be the most appealing option. But for those in the earlier stages of their careers, getting help is usually more appealing.

A few forms of help are prevalent in the eye-care marketplace today, including purchases of independent groups by health-care systems, mergers of separate groups into consortia and mega groups and acquisitions by private equity (PE). Although each of these strategies can be successful, the best strategy for many practices is contracting with a management services organization (MSO), which can offer expertise without the need for handing over ownership.

Here, we explain the recent trends that have shifted the structure of eye-care practices and the benefits of contracting with an MSO.

TRENDS IN COSTS AND REIMBURSEMENT

Since only doctors and opticians can directly generate revenue in the eye-care setting, additional staff add more to the expense side than the revenue side of the balance sheet. Staff wage rates are subject to many market influences, including supply and demand. When multiple eye groups are located in a single geographic area, they must compete for qualified staff.

One downstream effect of this competition is an increase in the cost of hiring and maintaining staff through a combination of higher wages, signing bonuses, finder’s fees and longevity bonuses. Over the last few decades, wages and benefits (most notably employer-sponsored health insurance) have increased at a higher rate than inflation, while third party reimbursement for clinic eye examinations and surgeries has not. The effect is that most eye-care groups are paying more in employee costs for each patient visit while receiving less revenue to do so. The resulting fears of how one’s practice will survive are changing the landscape of how eye care is delivered.

ALTERNATIVE MODELS

Recent history

Shifts in structure started about 30-40 years ago when solo practitioners grouped together to create mid-sized groups to share expenses and risk. Then, about 20 years ago, ophthalmologist-only practices started hiring optometrists in a move that would have been unthinkable in the 20th century.

More recently, those with concerns about the viability of their practices have explored options such as merging or being acquired. Each of these strategies can be successful, with the largest hurdle usually being the creation of a new single culture that everyone can believe in and ascribe to.

Private equity

The strategy that has gotten the most attention in the last decade is the PE buyout. One of the main advantages of being bought out by PE is that practice owners receive cash up front, usually defined as some multiplier of the value of the practice. Those being bought out must keep a percentage of that money in the new entity as an ownership share, thus ensuring that each physician continues to have some “skin in the game.”

Another big advantage of selling to PE is that the PE firm brings a high level of business expertise. Many doctors who eschewed business school for medical school are not hard-wired to make it in today’s business environment. Therefore, those in white coats should benefit from the expertise of those in the gray suits to help “right the ship.”

PE has its disadvantages as well. With the PE model, the strategy of the buyer is to grow the new entity as much as it can over 5-7 years to make it appealing to sell to another, larger entity. Since the next entity is usually looking to do the same, it is possible that providers will work under a different ownership group every 7-10 years. This cycle of recapitalization encourages PE groups to focus on short- and mid-range goals rather than plan for long-term success.

Another potential disadvantage is that providers shift from being owners to employees and run the risk of becoming be less engaged, even though they still have a financial stake in the practice. They are no longer at the top of the decision-making pyramid when it comes to new technology purchases, how many patients per day they will see and other business and clinical choices. New doctors who are just out of training must decide if they want to spend the lifespans of their careers working as an employee of a corporate-owned business or trade that security for being an owner of a more traditional private group.

MANAGEMENT SERVICES ORGANIZATIONS

What is an MSO?

An MSO is a privately owned company that provides administrative expertise to its clients while allowing them to maintain ownership and independence. We are co-chairs of Associated Eye Care Partners, an MSO established in 2019.

Some MSOs have clients all over the house of medicine, while others provide services only to eye-care groups (for a list of some MSOs that specialize in eye care, see below).

Back-office assistance

An MSO can support a private practice in many ways, with the most sought out services being back-office expertise. An MSO can provide management-level assistance with office functions such as revenue cycle, information technology, human resources, wages and benefits and accounting. In addition to management assistance, most MSOs offer higher-level leadership services, such as strategic planning and financial forecasting. Other services offered vary among MSOs but can include practice assessment and evaluations, optical management, design, marketing, physician recruitment, legal, professional development and CE.

Some practices will contract with an MSO to supply these services in an à la carte fashion, choosing which services they need the most help with from a menu of offerings. Other practices may contract with an MSO to place a high-level manager in their practice if they cannot find or afford someone at the level that they need.

Capital

Many MSOs also help client practices by bringing capital to a large construction project, such as a new clinic building or ASC. When an MSO invests money with an eye group, the physician owners maintain full ownership of their group. An MSO typically has no interest in buying practices — their model is based on partnering with providers, not employing them.

This process differs greatly from what happens when PE brings capital to an eye group. In that instance, the PE firm uses the money to purchase the eye group, and with that transaction comes all the pros and cons listed previously.

No commitment

Another advantage to working with an MSO is that the relationship is easy to discontinue at any time. One analogy is that being bought out by PE is like entering into a marriage, while working with an MSO is more akin to dating.

A client and MSO can work together for as long as they both benefit, and can dissolve the relationship at any time without penalty. There are no contracts to unwind at separation — the client merely stops paying, and the MSO stops providing services.

SUMMARY

Running a successful eye-care practice in 2022 is trickier than it was when our senior partners were starting out in the 1980s. Staffs have gotten larger, more complex and more expensive. Salaries and benefits have outstripped inflation, while the revenue we receive for each patient encounter has not.

A lot of physician-owners still manage their practices. But, as expenses increase at a faster pace than revenue, many have concerns that they will not be able to do this for long.

For physician-owners, there are many options to help increase the likelihood that their practices will succeed. Merging, being acquired and being bought out by PE can bring expertise, but these options will change the structure of the practice and may decrease the leadership role and ownership position of the physician-owners.

Working with an MSO is an alternative that can bring valuable expertise and capital to a practice, while also allowing physician-owners to continue to own and run the practice that they worked so hard to build. OM

Gary S. Schwartz, MD, MHA, is president of Associated Eye Care and co-chair and executive medical director of Associated Eye Care Partners.

Daniel K. Zismer, PhD, is managing director of Associated Eye Care and co-chair and executive medical director of Associated Eye Care Partners.