Mike Collins

Here’s the current mantra, perpetuated by the media and others: Reimbursement is down, and it’s no longer fun to practice medicine because of the administrative headaches.

Therefore, physicians are selling their practices, usually to hospitals these days, and relieving themselves of the management hassles.

There may be some truth in that, but Michael E. Collins, CEO and managing member of 2^nd Generation Capital in Nashville, sees it differently. “I would counter that … those practices that tend to be acquired tend to be those that cannot address the day-to-day management issues and have not recognized the difference between the practice of medicine and the business of medicine. The hospitals are offering a solution.”

Yes, a hospital might better manage the practice that has failed to evolve into a business. However, Collins said, “Those practices that have become a business can compete very well and can be much more profitable than the hospital-owned model, but those are still a bit of an exception.”

Medicine is big business today, whether the provider is HCA or a few physicians who’ve been partners for years. Some Nashville medical groups, Collins said, boast annual billings of several hundred millions of dollars. “Sadly, their billings and collections are not the same thing, but the level of activity is,” he said. “These have become very complex businesses.”

That’s why the collegiate practice of old isn’t a sustainable model today, Collins explained. Many practices once rotated the unwanted management duties from doctor to doctor, each forced to serve his or her time in the administrator’s chair. Today, however, business professionals are necessary to tend to the complicated challenges of practice management. For practices that don’t take the business bull by the horns, their future could be dim.

For succession’s sake

Practice succession is a much more challenging proposition than it once was. Physicians can’t afford to bow out slowly … gradually handing their life’s work over to a younger colleague they’ve mentored for years who they hope won’t substantially alter the practice. Succession, Collins said, should be a business transition, pure and simple.

Successful business practices have corporate structures that mimic those of any other business. Such practices, Collins noted, are the ones most attractive to younger physicians and, thus, are the ones most likely to achieve long-time success.

Under this typical corporate structure, the physicians of the practice serve as a board of directors, and one physician is chosen as chief executive officer. This physician “determines the direction, philosophy and mission” of the practice, Collins said, and that’s why it’s important that the CEO slot be filled by a doctor – and a doctor whose compensation isn’t negatively affected by the time he or she spends wearing the CEO hat.

“That’s one of the keys,” Collins said. “If you’re going to bring the right person along, and you are going to want a physician in the role, you have to make certain that the value of their administrative role is recognized and is equivalent to the senior-tier physicians.” Then, non-physicians are employed as the chief operating officer, chief financial officer and, perhaps, chief technology officer.

Tennessee Oncology, Collins said, employs this model and last year successfully transitioned to a new CEO. One of the largest oncology practices in the nation, Tennessee Oncology has more than 60 physicians and locations in 16 Middle Tennessee counties.

Charlie McKay, MD, was Tennessee Oncology’s first CEO. With a master’s in business administration from Vanderbilt University, McKay was a natural fit as CEO, Collin said. Yet McKay insisted on one thing before he took the job: that the practice would continue as a business and not end with the retirement of the original physician partners. Succession problem solved.

Ten years before McKay stepped down, he identified the younger Jeff Patton, a practicing medical oncologist, as his successor. Thus, Patton became increasingly involved in the business decisions of the practice, leading a rigorous quality program, developing best-practice medical protocols and implementing an electronics medical records system. Patton took the reins on Jan. 1, 2010.

“You’re not in the dynasty business. You’re not naming your son king or your daughter queen,” Collins explained. “What you’re doing is saying, ‘I trust this person’s judgment.’ They must be free to carry on and execute their vision of the business.”

Collins is Tennessee Oncology’s independent director and financial adviser, and he called the practice’s model “a textbook example for other healthcare organizations.” In a white paper he wrote about Tennessee Oncology earlier this year, Collins said, “The successor CEO is like a new head coach who may find it necessary to recruit talented assistant coaches who will loyally implement the new coaching scheme. This is especially true in any healthcare organization where market forces, government policy and regulatory changes can require a management team to adopt new strategies rapidly.”

Even for small practices, this business model still applies. “They may not be able to afford someone inside, but they can certainly outsource the day-to-day functions and assume the role of a CEO or of a board of directors,” Collins said. “That is a successful model, and in those cases, succession is not terribly difficult.”

When Collins speaks to a room full of doctors, he asks them, “Would you invest in a venture without a CFO or a full-time CEO? So why are you investing in your practice? Do you have a practice or a business? Which is it?”

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