How Doctors Can Use Financing to Ensure Independence

How Many Independent Doctors Are Left?

Increasingly complex insurance reimbursement requirements; the increasing costs of medical technology, student debt, and the headaches of accessing and sharing electronic health records (EHR) systems are some of the factors that have driven independent doctors, including specialists, to seek the safety of large hospital systems. These hospital systems, however, are often bureaucratic for employees and control the pay of the doctors they employ.

The AMA study also found that private practice ownership rates were in the high 30% to low 40% range for the primary care specialties of pediatrics, internal medicine, and family medicine. The medical specialties with the highest precentages of independent doctors are:

• Ophthalmology—70.4%.

• Orthopedic surgery—54%.

• Radiology—46.9%.

• Anesthesiology—46.4%.

• Obstetrics and gynecology—46.3%

Fewer independent doctors can put patients at risk, according to a recent study from Harvard T.H. Chan School of Public Health especially when private equity groups acquire hospital systems. When patients are under the care of a doctor working for a private equity fund, this could lead to:

Lower quality of care: A private equity group may seek shareholder value and may therefore look to cut costs. This could lead to cutting expensive procedures, lower quality equipment and cutting salaries. This could lead to a 10% increase in the chance of mortality at nursing homes, one research paper found.

Higher costs: Private equity acquisitions frequently lead to higher out-of-pocket costs and insurance premiums for patients, as private equity firms will seek to maximize revenue.

Decreased personable care: Independent family (primary care) doctors often have repeat patients who they get to know and to whom they can give personable care. When these family doctor practices become part of a larger, private equity-owned healthcare system, however, their new mandate may be to focus on shorter, impersonal visits. They may also see higher staff turnover given that assistant salaries are now being determined by the private equity group.

How Can Financing Help?

Independent doctors who want to stay independent can use financing options to negate the most common reasons for doctors seeking to sell to private equity firms or hospital consortiums. Some of the most common reasons independent doctors sell to a private equity group or large hospital consortium include the increasing complexities of payment reimbursements and high overhead costs. Here are some financing options that may be able to help physicians in the U.S. stay independent.

1. SBA 7(a) Loans. Some independent doctors choose to sell to a hospital or private equity consortium due to lack of capital to scale their operations, or because they want compensation stability. An SBA 7(a) loan may provide a doctor with a large amount of capital to grow, either through acquisition or organically. 7(a) loans are given through SBA-approved lenders and are partially guaranteed by the SBA. 7(a) loans often offer lower interest rates than other types of loans. A 7(a) loan can provide up $5 million to grow or merge or acquire another private practice.

7(a) loans usually require a good amount of application paperwork, but many SBA lenders may look favorably upon medical practices, generally viewing them as high-margin, low-risk businesses. Obtaining an SBA 7(a) loan may offer independent doctors a chance at financial stability and growth.Obtaining an SBA 7(a) loan may offer independent doctors a chance at financial stability and growth.

2. SBA 504 Loan. A SBA 504 loan allows qualified, independent doctors to borrow up to $5 million to renovate their office, purchase commercial real estate (typically 5% down with a fixed rate), buy new equipment, and hire additional employees. It may be a good option for family doctors who are seeking to purchase their office and establish themselves in their community. Like the 7(a) loan, a 504 generally offers a lower interest than other lenders because it is partially guaranteed by the SBA. It is a versatile loan that is usually intended to contribute and improve the community it operates in.

3. Healthcare Practitioner Lending Programs. Many private lenders have lending programs dedicated to healthcare practices, often referred to as healthcare practitioner loans. These programs typically offer favorable rates on the most common types of financing that medical practitioners take, including term loans, equipment financing, commercial real estate loans, partner buy-in/buyout loans, and working capital lines of credit. Some lenders even offer specialized credit cards with easier application requirements and high limits to medical practitioners. Bank of America, PNC Bank and Live Oak Bank are among the most popular.

4. Term Loan. Some practitioners sell because they may not see a way to grow their practice and see compensation volatility due to increased competition. A term loan, which may offer an amount to be paid back with interest over a pre-agreed upon term, can assist practitioners in financing partner buyouts, growth plans and acquisitions of other practices to grow and stabilize their businesses.

5. Business Line of Credit. Independent doctors often sell because of the complex negotiation processes with private insurers and Medicaid and Medicare. A business line of credit can give a practitioner quick cash to hire at least one medical reimbursement specialist – certified professionals that are experts in navigating claims reimbursements, claim denial resolution and filling out complicated insurance forms. A line of credit provides practitioners with a pre-agreed upon credit amount that may be up to $500,000 with some lenders. Practitioners pay interest only on what is borrowed and must agree to certain terms.

6. Equipment Financing and Leasing. Not having to worry about purchasing, maintaining and upgrading expensive medical equipment can be another enticing reason for independent physicians to sell out. Equipment financing and leasing, however, can assist doctors in purchasing some of their most expensive machinery, such as diagnostic imaging equipment. Equipment financing can pay for the entirety of a machine while the doctor pays it back with interest over a pre-agreed upon timeframe, while leasing allows doctors to pay at intervals for the use of a machine and allows them to upgrade when the newest models come out. Doctors may be able to take advantage of section 179 tax benefits for both leasing and financing. Doctors should consult with a tax professional before taking the 179 deduction.

7. Revenue-Based Financing (RBF). Independent doctors with a history of high patient volume can use revenue-based financing to grow and purchase new equipment. While RBF may be generally more expensive than many other types of financing, its repayment structure is tied to future patient volume and other business receivables and therefore is very flexible.

Is there Student Debt Relief?

Some doctors sell, in part, because they want steady income to manage student debt and because some hospital conglomerates and private equity firms offer their employees student debt relief programs. There are, however, public medical school debt relief programs that independent doctors may want to turn to:

• Public Service Loan Forgiveness (PSLF): Forgives remaining federal direct loan balances after 120 qualifying payments (10 years) while working full-time for a non-profit or government employer.

• NHSC Loan Repayment Program (LRP): Offers up to $75,000 (full-time) or $37,500 (part-time) for two years of service in an approved NHSC site, with potential for more in high-need areas.

• NHSC Students to Service (S2S) Loan Repayment: Provides up to $120,000 for medical students in their last year, requiring a three-year commitment in HPSAs of greatest need.

• Substance Use Disorder (SUD) Workforce LRP: Offers up to $250,000 for six years of service in qualified addiction treatment facilities.

• VA Specialty Education Loan Repayment Program (SELRP): Provides up to $160,000 over four years for physicians in specific specialties working at VA facilities.

• National Institutes of Health (NIH) Loan Repayment Programs: For physicians in biomedical or behavioral research, offering up to $50,000 per year.

Securing the Future of Independence

Maintaining a private practice in an era of hospital consolidation and private equity acquisitions is challenging, but it is far from impossible. By strategically using financing - from SBA 7(a) loans for expansion to equipment financing and leasing - physicians can maintain their autonomy and continue providing personable care. Staying independent isn’t just a business decision; it’s a commitment to patient outcomes and professional freedom.