As reimbursement shifts to outpatient care, cardiologists are reexamining private practice—here’s how to build one that lasts.

Amid shifting reimbursement models and growing interest in outpatient care, many cardiologists are rethinking their alignment with hospitals—and exploring the return to private practice.

In this Q&A, Andy Colbert, senior managing director at Ziegler, breaks down what drives practice valuation and offers practical guidance for cardiologists looking to build sustainable, scalable practices that are well-positioned for long-term growth and market value.

Q: We’re going to focus on practice valuation here, but first, what trends are driving many hospital-employed cardiologists to want to move back into private practice?

A: Cardiologists have a unique opportunity today that did not exist because historically the majority of procedures had to be done in an inpatient setting, really consigning them to hospital employment. Roughly 80% of all cardiologists today are hospital-employed. Until recently, it wasn’t economically viable for cardiology groups to earn market salaries in a private practice when all of their procedures were performed in hospital.

However, today Medicare and private payors are moving to reimburse for many of these procedures in outpatient settings, thus creating a brave new world for many cardiologists. This includes several cardiac imaging and minimally invasive interventional procedures. So, for the first time, cardiology groups have an opportunity to build, invest in, and grow their own ambulatory surgery centers and position themselves as independent outpatient groups. That obviously brings a lot of complexity and multiple challenges compelling cardiologists to have to develop intelligent and sustainable business models. Some large groups have formed and partnered with private equity to build out these national cardiology platforms and, along the way, had to make serious choices.

Others have bootstrapped pooling capital from the partners, while some have a hybrid approach, such as entering into a joint venture with a health system to create outpatient centers

Q: OK, that’s really a shift. Let’s get down to business then. How do you determine the valuation of a clinical practice?

A: Fundamentally, there are six main pillars that drive valuation for every clinical practice. First, does the market dynamics support continued growth, and are there favorable tailwinds? Second, is the strength of the leadership team to execute on the growth plan? Third, is the individual group’s competitive differentiation, and how well they fare against other local and national competitors? Fourth is the investment in technology capabilities that will be required for scale. Fifth is the financial performance and historical trending of revenue growth and profit margins. Sixth is the group’s strategic organization, ability to communicate their strategy, and organization of the data and information. All of these pillars together are analyzed to determine the exact valuation that outside parties would ascribe.

Q: How important is leadership in building a practice that has long-term sustainability and high valuation?

A: Leadership is crucial. No matter the size or success of the practice, it is only as strong as the leader who is executing on the business plan. Leaders who are focused on short-term gains or who fail to make critical investments in growth are unlikely to position it for long-term success. The right leader combines business acumen, credibility both internally and externally, and the ability to bring together a strong management team. They also need to effectively navigate differing perspectives within the practice, especially between older and younger physicians.

Q: What qualities make for the “right” leader of a clinical practice?

A: Key qualities include credibility, strong business skills, the foresight to assemble a capable executive team, and the ability to address the different interests and concerns of physicians at varying stages in their careers. For example, older physicians may be hesitant to invest in new technologies, while younger physicians, with more time on their side, may see these investments as crucial for long-term success. An effective leader must find a way to unite these perspectives.

Q: How can a leader effectively make the case for new investments in the practice?

A: Leaders can make the case for new investments by conducting a thorough analysis of the practice’s current standing, using tools like a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. This helps identify areas that need improvement or expansion, such as technology infrastructure, service offerings, or geographic coverage. Once the analysis is complete, the leader can present a clear strategic roadmap showing how investments will benefit the practice over time, even if the benefits are not immediately apparent.

Q: Let’s touch a bit more on the SWOT analysis, and why is it important for decision-making?

A: A SWOT analysis is a strategic tool that assesses a practice’s strengths, weaknesses, opportunities, and threats. It is crucial for understanding where the practice stands in the market, what improvements are necessary, and where there are opportunities for growth. For example, it may reveal weaknesses in technology or service offerings compared to competitors or highlight opportunities for geographic expansion. Conducting a thorough SWOT analysis helps guide decision-making and ensures investments are aligned with long-term goals.

Q: How can practices capitalize on the growing trend of consumerism in healthcare?

A: With rising out-of-pocket costs, patients are becoming more discerning consumers, comparing prices and quality across healthcare providers. Practices that fail to offer modern conveniences, like mobile access to medical records, online scheduling, or flexible billing and payment options, risk falling behind.

Practices that invest in consumer-centric technologies and strategies, such as a user-friendly digital interface and better patient communication tools, can differentiate themselves and thrive in this new environment. This requires upfront investment but is essential for long-term viability and competitiveness.

Q: What role does scale play in building a sustainable practice?

A: Scale is critical for sustainability in the US healthcare system. Without scale, practices lack leverage in negotiations with insurers, who typically spend far more on lobbying efforts. Building scale can take various forms: expanding the number of physicians, broadening service offerings, increasing geographic reach, or strengthening market positioning. Achieving scale is essential for five main reasons including that it gives the practice more negotiating power with insurers, and it allows for the sharing of administrative and technology costs.

Moreover, scale provides access to large data sets for measuring quality and improving value-based care. On the market side, it increases market reach, especially in the context of consumer-driven healthcare. On top of all of this, scale helps the practice manage fluctuations in market or demographic trends.

Q: What are the key areas to focus on when considering how to scale a practice?

A: When scaling, the practice should focus on expanding its geographic footprint, increasing the number of physicians, broadening its service offerings, and enhancing its market position. Additionally, practices should consider the costs and benefits of technology infrastructure, as well as the increasing importance of data and consumer engagement. Additionally, practices need to invest in tools for being successful in a value-based environment.

Achieving scale is about creating a sustainable business model that can weather the challenges of a competitive healthcare market while positioning the practice for long-term growth.

Q: How can scaling help a practice manage market fluctuations or demographic changes?

A: Scaling a practice, whether through geographic expansion or increased service offerings, helps diversify its revenue sources and market exposure. This allows the practice to mitigate the risks associated with local market shifts, changes in demographic trends, or fluctuations in patient volume. A broader geographic and service reach provides more stability and ensures the practice is less vulnerable to changes in a single market or patient base.

Q: What does the approach to sustainability in a practice focus on?

A: The approach to competitive sustainability in an organization aims to expand its geographic reach, offer a broader range of services, and employ more professionals at various levels. It strengthens the leadership team and adds new capacities, ultimately pursuing scale in a way that addresses current weaknesses while building on existing strengths. A strategic approach to sustainability focuses on making the practice viable over the long term—specifically, the next twenty years. The goal is not just to check off boxes to move to the next phase but to make decisions that improve the long-term prospects and value of the practice, which will ultimately increase its market value as a byproduct of these efforts.

Q: What are some common pitfalls practices face in their pursuit of sustainability?

A: There are a few common pitfalls, including forgetting to make long-term investments- too many practices focus on short-term gains (ie, maximizing cash distributions to owners) rather than committing to critical, long-term initiatives.

Many groups do not invest appropriately in their executive management team. Hiring a seasoned CEO and building out a complete executive team is mission critical for the group to execute on their growth plans. Another major consideration is in-house vs. outsourcing decisions: Practices may struggle with whether to develop certain functions (like billing) in-house or outsource them. Often, the right choice is to partner with an external provider rather than managing these functions internally, especially when it’s not a core competency of the practice.

Q: Why is the in-house versus outsourcing decision a critical one?

A: The in-house versus outsourcing decision is important because practices may invest heavily in building functions like billing, only to find they are not equipped to manage them efficiently. In some cases, partnering with external providers who specialize in a particular service—such as billing or technology—can be a more cost-effective and efficient choice, as these third-party companies are more likely to stay on the cutting edge of their respective fields.

Colbert specializes in advising physician groups on strategic and financing alternatives, including professional services agreements, mergers/acquisitions, health-system partnerships, joint ventures, MSOs, strategic partnerships, private equity deals, and capital investments. More information is available at www.ziegler.com/physician-groups.