Almost 5,000 additional healthcare providers could benefit from federal small-business assistance programs, thanks to revised final eligibility criteria released last week. But for a number of physicians and hospitals, the effort is simply too little too late.
Responding to changes in the healthcare industry, the Small Business Administration boosted the size standards for 19 of its 30 healthcare service categories, potentially enabling more providers to qualify for federal contracts and small-business loans (See chart). The changes take effect Dec. 18.
Under the agency's previous size standards, which had remained unchanged since 1994, a healthcare business qualified as "small" if its annual gross revenue totaled $5 million or less. A recent review of industry data, however, convinced SBA officials that the revenue cap for many types of providers needed to be raised--some by as much as 400%.
"A greater number of large providers has emerged over the past decade due to all the mergers, alliances and affiliations with HMOs that have swept the industry," said Gary Jackson, the SBA's assistant administrator for size standards. "Our big concern was that with our pool of eligible candidates shrinking, federal agencies and banks were being limited in their ability to support small business." Only for-profit businesses are eligible for SBA programs and services.
Among the 19 changes, the SBA adopted higher size standards of $10 million for skilled-nursing facilities and home healthcare providers and $7.5 million for outpatient facilities and doctor practices. Hospitals and kidney dialysis centers saw the greatest increase, with their revenue caps quadrupling to $25 million.
Industry experts agreed the changes were long overdue.
Fewer than 15% of the 1,326 for-profit hospitals eight years ago had annual revenue of less than $5 million, according to the 1992 Economic Census report. The census profiles the U.S. economy from the national to the local level every five years. The report showed that 62% of hospitals in 1992 had annual revenue of $10 million or more.
The growth trend has continued. The 1997 Economic Census, which the SBA has yet to evaluate, shows only 11% of the 1,180 for-profit hospitals had annual revenue of less than $5 million, while 70% had revenue of $10 million or more.
Still, few hospitals were satisfied with even a 400% size-standard increase.
Last year, the American Hospital Association lobbied for a higher, though unspecified, revenue ceiling.
Many physicians also were less than thrilled with the 50% size-standard increase they received.
The SBA held a three-month public comment period after publishing the proposed criteria on May 4, 1999. According to the Nov. 17 Federal Register, in which the new size standards appear in final form, the SBA had received several letters from medical groups arguing that physician practices with less than $7.5 million in annual revenue were too tiny to win the kinds of "small business" contracts now being awarded.
Each year, the government tries to set aside a certain number of contracts to support small-business programs. But these federal contracts have grown progressively larger and more comprehensive over the years.
Nowadays, government agencies are looking for healthcare providers that can offer an array of health services, not only locally but regionally for thousands of workers.
Physicians argued that by further increasing the size standards, more larger practices would be eligible for the contracts that government agencies earmark for "small" businesses--contracts that tinier practices wouldn't be able to handle anyway.
At deadline, no one from the American Medical Association, the American Medical Group Association or the Medical Group Management Association was available to discuss the new criteria.
Although the SBA's Jackson acknowledged that the size of contracts has grown in recent years, he said the agency wasn't convinced that doctors' small-business opportunities were being significantly limited.
According to the 1992 Economic Census, 98% of the 177,712 physician offices and clinics had revenue of less than $5 million. That percentage hadn't changed by 1997, although the number of practices in operation had shrunk to 168,258.
Other healthcare practitioners, including dentists, chiropractors and optometrists, did not see an increase in size standards.
"(Those sectors') economic characteristics didn't support the need for change," Jackson said.
But in coming months, he added, the SBA plans to evaluate data from the 1997 Economic Census to determine whether further revisions should be considered.