As cold and flu season kicks into high gear around the holidays, a lot of folks find themselves in doctors’ offices. But perhaps you should consider making an appointment to call on these practices to win their banking business! With over 210,000 physician practices operating in the U.S., this may be a “healthy” niche industry for you to pursue.

As you probably know, physicians are more or less lumped into two categories: primary care (for example, family medicine, internists, and pediatricians) and specialists (like cardiologists, psychiatrists, and general surgeons). There are also a number of so-called “alternative medicine” specialties that are categorized under the physician practice umbrella, such as acupuncturists and neuropathic physicians.

The big-picture numbers

  • The average physician practice brings in $217,000 in revenue each month, with net revenue per doctor averaging $50,000 to $75,000 monthly.
  • Fifty percent of patient visits are paid for by private insurers, and Medicare and Medicaid pay for over 34 percent of visits. Payments by patients account for nearly a quarter of practice revenue.
  • The payment collection period averages 17 to 23 days, but 15 to 19 percent of receivables are over 120 days old. This delay in payments is often caused by billing errors and disputes.
  • Reimbursement delays from third-party payers (insurance companies) may cause temporary cash shortfalls.
  • A practice’s payroll accounts for about 46 to 47 percent of their revenue; rent averages 4 to 5 percent of revenue. Other expenses include things like medical and office supplies, lab fees, and malpractice insurance. Operating margins average 5 to 6 percent. 

A few trends within the healthcare industry…

Growth in demand

Adults over age 65 are projected to account for over 15 percent of the nation’s population by 2020, an increase of about 35 percent over the decade. This graying population will drive growth in demand for physician services—for primary care as well as specialty practices. Elderly adults average over seven doctor visits per year, which is about three times the rate for adults under age 45.

Rising costs put reimbursement rates at risk

Since the 1960s, spending on healthcare in the U.S. has been rising faster than the overall economy and is now about $10,000 per year for each U.S. resident. The Centers for Medicare and Medicaid Services projects that spending will rise to over $13,000 per resident by 2018, accounting for almost 20 percent of GDP.  Since physician and clinical services is the second largest category of healthcare spending (topped only by hospital care), attempts to reduce this growth in spending will likely have financial impacts on physician practices. To contain rising healthcare costs, payers have been reducing reimbursement rates for medical services and exploring alternatives to the current “fee for service” reimbursement model.

Expanded role for hospitals

In the past few years, there has been an increase in hospitals purchasing physician practices to grow both their revenues and their medical staff. This trend has been spurred by a late 2007 change in federal law that put an end to joint ventures between hospitals and physicians to own and operate medical facilities. Rather than compete with physician practices for outpatient services, some hospitals are opting to instead acquire them. For physicians, becoming a hospital employee can provide benefits such as more stable work hours, less administrative work, less worry about practice expenses, and a salary that isn’t dependent on reimbursement rates.

Uncertain impact of healthcare reform

Primary care physicians are expected to play a central role in healthcare reform as calls for the repeal of the Affordable Care Act (ACA, also called “Obamacare”) continue. The American Academy of Family Physicians supported the original ACA but expressed concerns that it “might not accommodate privately owned, small- and medium-sized physician practices.” The potential revision or replacement of the ACA being debated under the Trump administration will impact physicians, but the extent is still very unclear. 

How bankers can help physician practices

  • With payments from private insurers covering half of visits and Medicare/Medicaid paying for a third of visits, practices must find ways to ensure they receive timely payments.
    Solutions to consider: Lockbox, ACH services with blocks and filters, line of credit
  • Managing payments from patients for co-pays and deductibles (with receivables averaging 21 to 22 percent of revenue) can be a challenge for practice administrators.
    Solutions to consider: Merchant services, remote deposit capture, line of credit
  • Practices must find ways to fund investment in technology (such as patient portals and electronic medical records), equipment, and facilities to improve patient flow and the quality of care.
    Solutions to consider: Real estate loans, term loans, equipment financing
  • With fees for patient care services accounting for 46 to 47 percent of the average practice’s “sales,” attracting and retaining high quality staff in imperative.
    Solutions to consider: Payroll service, line of credit, workplace banking solutions

Whether a practice is made up of a solo practitioner or a large group of physicians with multiple locations, a primary care provider or a specialist, physician practices are likely to continue their growth, making them a solid industry niche for bankers to pursue.

Want this kind of in-depth analysis on more than 300 other industries?

All of the industry information in this post came directly from the Vertical IQ Industry Profile on Physician Practices. Reviewing this profile, or even doing a quick five-minute review of the industry’s Call Prep Sheet, gives you valuable insights into your physician banking prospect–their opportunities as well as the issues that may be keeping them up at night.

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