selling your practice to a health system mgma precon
TRANSCRIPT
Selling Your Practice to a Selling Your Practice to a Health SystemHealth System
MGMA National ConferenceMGMA National ConferenceASGPA Pre-ConASGPA Pre-Con
Daniel H. Friend, Ph.D.Daniel H. Friend, Ph.D.CEOCEO
Culpeper Medical AssociatesCulpeper Medical AssociatesCell: 540/423-2739Cell: 540/423-2739
AgendaAgendaIdentify the pros and cons of a practice Identify the pros and cons of a practice selling itself to a health system selling itself to a health system Identify the opportunities and threats to Identify the opportunities and threats to the Administrator’s positionthe Administrator’s positionRecognize the major areas of negotiation Recognize the major areas of negotiation for the practice and the administrator for the practice and the administrator with take-away’s you can usewith take-away’s you can useDiscover the cultural differences likely Discover the cultural differences likely when going to a system owned practicewhen going to a system owned practiceLearn from a real-life case studyLearn from a real-life case study
Pros and Cons – Physician’sPros and Cons – Physician’sSWOT - STRENGTHSSWOT - STRENGTHS
Money Issues:Money Issues:– Income GuaranteeIncome Guarantee– Signing BonusSigning Bonus– Sale of AssetsSale of Assets– Assumptions of LiabilitiesAssumptions of Liabilities
Insulated from Business Risks like HR, Stark Laws, etc.Insulated from Business Risks like HR, Stark Laws, etc.Lower Insurance Risks for Med MalLower Insurance Risks for Med MalAbility to “Cash Out” as partnerAbility to “Cash Out” as partnerNo need to “Buy In” as non-partnerNo need to “Buy In” as non-partnerBetter Benefits?Better Benefits?Increased ability to recruitIncreased ability to recruit– Use system’s pocketbook to fund new hiresUse system’s pocketbook to fund new hires– Can generally afford to pay better to compete in Can generally afford to pay better to compete in
marketplacemarketplaceBetter ability to survive swings in economic and political Better ability to survive swings in economic and political changeschanges
Pros and Cons – Physician’sPros and Cons – Physician’sSWOT - WEAKNESSESSWOT - WEAKNESSES
Issues of AutonomyIssues of Autonomy– Business issues Business issues – Generally not clinical in natureGenerally not clinical in nature
Need to work from within the systemNeed to work from within the system
Need to partner with other Need to partner with other physicians – now as pseudo-partnersphysicians – now as pseudo-partners
Many times benefits are not as goodMany times benefits are not as good
Lose identity as a private practiceLose identity as a private practice
Pros and Cons – Physician’sPros and Cons – Physician’sSWOT - OPPORTUNITIESSWOT - OPPORTUNITIES
Potential for better contractsPotential for better contracts
Ability to add new physicians with Ability to add new physicians with limited costs to existing partnerslimited costs to existing partners
Access to capital for expansion, capital Access to capital for expansion, capital purchases, EMR, technologypurchases, EMR, technology
Can participate in economy of scale Can participate in economy of scale areas: rent pools, lab, imaging…areas: rent pools, lab, imaging…
Potential to tie income to items other Potential to tie income to items other than revenue: RVUs, Industry Avg…than revenue: RVUs, Industry Avg…
Pros and Cons – Physician’sPros and Cons – Physician’sSWOT - THREATSSWOT - THREATS
What if this does not work, ability to What if this does not work, ability to opt outopt out
Changes in hospital/system Changes in hospital/system administrationadministration
Changes in government regulationChanges in government regulation
Strategic plan changes for system to Strategic plan changes for system to detriment of physiciansdetriment of physicians
Pros and Cons – Pros and Cons – Administrator’s SWOTAdministrator’s SWOT
StrengthStrength– Access to capital, staffing resources, HR help, benefits Access to capital, staffing resources, HR help, benefits
packages, vendor management, etc.packages, vendor management, etc.– Full vesting of retirement benefits of old practiceFull vesting of retirement benefits of old practice
WeaknessesWeaknesses– Lose part of job (HR, Contracting…)Lose part of job (HR, Contracting…)– Report to system personReport to system person– Learn new systems: billing, accounting…Learn new systems: billing, accounting…– Have to close out old business operationsHave to close out old business operations– Autonomy in new system?Autonomy in new system?
OpportunitiesOpportunities– Participate in signing bonus, buyout?Participate in signing bonus, buyout?– Expand administrative reachExpand administrative reach– Learn new skillsLearn new skills
ThreatsThreats– Are you needed in new system short or long-term?Are you needed in new system short or long-term?– Ability to deal in system politics and bureaucracy?Ability to deal in system politics and bureaucracy?– Authority long-term?Authority long-term?
Handout ChecklistHandout Checklist
See handout at this point.See handout at this point.
Note any additions as we discussNote any additions as we discuss
Give me your card or email and I will Give me your card or email and I will email this presentation and the email this presentation and the checklist. checklist.
Areas of Consideration Areas of Consideration & Negotiation& Negotiation
Definitive AgreementsDefinitive AgreementsAutonomyAutonomyAbility to Terminate (both sides)Ability to Terminate (both sides)Non CPT incomeNon CPT incomeAdding staff, capital expenditures…Adding staff, capital expenditures…BenefitsBenefitsLiability IssuesLiability IssuesBoard ParticipationBoard Participation
Areas of Consideration Areas of Consideration & Negotiation (cont.)& Negotiation (cont.)
Payout of Existing PartnersPayout of Existing Partners
Insurance Issues (med mal)Insurance Issues (med mal)
Tax IssuesTax Issues
Ancillary IncomeAncillary Income
Closing out the old practiceClosing out the old practice
Cultural IssuesCultural Issues
It is important to consider how your It is important to consider how your practice worked in the old system practice worked in the old system versus what may happen in a new versus what may happen in a new system. In this section I will break system. In this section I will break down issues from my experience down issues from my experience based on the physicians and the based on the physicians and the administrator’s perspectivesadministrator’s perspectives
Cultural Issues - PhysiciansCultural Issues - PhysiciansGenerally no major cultural problemsGenerally no major cultural problems
Had to “scold” physicians that they still Had to “scold” physicians that they still report to the Administrator, not the VP of report to the Administrator, not the VP of the medical groupthe medical group
Had to get used to the benefits and way Had to get used to the benefits and way things are reimbursed in new systemthings are reimbursed in new system
Committee mentality for everythingCommittee mentality for everything
Had to understand they don’t have the Had to understand they don’t have the final say on everything!final say on everything!
Cultural Issues – Cultural Issues – AdministratorAdministrator
Potential for various areas of concern/joy:Potential for various areas of concern/joy:Stepping back in time potentialStepping back in time potentialDifferent pace of everything – going Different pace of everything – going
from a do it system to a can/how do you from a do it system to a can/how do you do it systemdo it system
Committee mentalityCommittee mentalityCash basis to accrual basis accountingCash basis to accrual basis accountingPotential to run multiple systems like Potential to run multiple systems like
billing, accounting, EMR, payroll…billing, accounting, EMR, payroll…
Cultural Issues – Cultural Issues – Administrator – cont.Administrator – cont.
Asking permission/forgivenessAsking permission/forgivenessMajor change in procedures for everything – Major change in procedures for everything – purchasing, benefits, etc.purchasing, benefits, etc.Accounting issues for budgeting when answering Accounting issues for budgeting when answering partially to a health system and partially to a partially to a health system and partially to a medical groupmedical groupTook 6-8 months to figure out who to call for Took 6-8 months to figure out who to call for what, plus the forms. Health systems apparently what, plus the forms. Health systems apparently run on forms!run on forms!Major documentation issues for everythingMajor documentation issues for everything
Norfolk Surgical GroupNorfolk Surgical GroupCase StudyCase Study
Players: Players: – Norfolk Surgical Group Norfolk Surgical Group
9 surgeons, 7 partners, 2 others9 surgeons, 7 partners, 2 othersPractice at three hospitals (two owned by Sentara)Practice at three hospitals (two owned by Sentara)Only general surgeons at one hospital (Sentara)Only general surgeons at one hospital (Sentara)40 years in business, community faculty for 40 years in business, community faculty for Eastern VA Medical School, major league Eastern VA Medical School, major league reputationreputation
– Sentara Healthcare – Sentara Healthcare – $2.2 billion dollar health system$2.2 billion dollar health system7 Hospitals7 HospitalsOwns its own health insurance companyOwns its own health insurance companyFully integrated health systemFully integrated health system250 docs in Sentara Medical Group (98% PCP’s)250 docs in Sentara Medical Group (98% PCP’s)
Major IssuesMajor IssuesNorfolk Surgical GroupNorfolk Surgical Group– Program developmentProgram development– Recruiting new doctorsRecruiting new doctors– Ability to practice at existing facilitiesAbility to practice at existing facilities– Clinical AutonomyClinical Autonomy– Taking care of employeesTaking care of employees– $’s: Salary, Guarantee Period, Signing $’s: Salary, Guarantee Period, Signing
Bonus, Asset PurchaseBonus, Asset Purchase– Production guarantee/minimumProduction guarantee/minimum
Major IssuesMajor Issues
Sentara Medical GroupSentara Medical Group– Expanding physician baseExpanding physician base– Expanding specialist baseExpanding specialist base– Lock up major surgical group as Lock up major surgical group as
“domino” for other specialists“domino” for other specialists– $ Issues$ Issues
RVU minimum guaranteeRVU minimum guarantee
Guarantee Amount and time periodGuarantee Amount and time period
Final Score after 1 YearFinal Score after 1 YearSentara Medical GroupSentara Medical Group
Adding NSG created domino effect, Adding NSG created domino effect, they now have 500+ physicians and they now have 500+ physicians and extenders (from 290 when joined)extenders (from 290 when joined)
Practice losing significantly more Practice losing significantly more money than budgetedmoney than budgeted
Making up for loss with increases in Making up for loss with increases in OR utilization, imaging, etc.OR utilization, imaging, etc.
Happy with outcomeHappy with outcome
Norfolk Surgical Group Norfolk Surgical Group Sentara Medical GroupSentara Medical Group
Deal TimelineDeal Timeline
Time Line (Months) Day 1 3 5 7 9
ActionStart
Discussions1st
Proposal1st Counter
Proposal Deal DeadTop Brass
MtgNSG Lawyers XSentara Lawyers X X X X
Time Line (Months) 10 12 14 16 18 19
Action2nd
Offer
2nd Counter
OfferDeal Dead
3rd Offer Signing Conversion
NSG Lawyers X X XSentara Lawyers X X X X X
Final Score after 1 YearFinal Score after 1 YearNorfolk Surgical GroupNorfolk Surgical Group
Added three new docs which we Added three new docs which we could not have done in old systemcould not have done in old system
Each doctor made out well from $ Each doctor made out well from $ perspective and reduced callperspective and reduced call
No day-to-day impact on doctorsNo day-to-day impact on doctors
Lots of new “paperwork” issues for Lots of new “paperwork” issues for staffstaff
Everyone generally happy with dealEveryone generally happy with deal
I have reproduced the ASGPA I have reproduced the ASGPA survey on this topic in the final survey on this topic in the final
slides for your review.slides for your review.
ASGPA SurveyASGPA Survey
Questions?Questions?
Thank You For Your AttentionThank You For Your Attention
Assembly of Surgical Group Practice Administrators (ASGPA) Ad-Hoc Survey - 2008
What is your practice type?What is your practice type?
0
10
20
30
40
50
60
a. Single specialty b. Multispecialty withprimary and sp...
c. Multispecialty withspecialty care...
Specialty Type
39%
14%8%
3%
5%
2%
7%
5%
7%
5%
3%
2%
General Surgery
Orthopedics
General Surgery/Vascular
Pediatric Surgery
ENT & Head/Neck Surgery
Cardiothoracic Surgery
Multispecialty
Urology
Oral/Maxillofacial and PlasticSurgeryOB/Gyn Surgery
Ophthalmology
Dermatology
What is the ownership status of What is the ownership status of your group?your group?
0
10
20
30
40
50
60
70
a. Independentpractice
b. Owned byhospital/health
system
c. Academicpractice owned
If owned by a health system or If owned by a health system or academic center, for how long?academic center, for how long?
0
2
4
6
8
10
12
a. Less thanone year
b. 1-5 years c. 5-10 years d. 10+ years
Has a hospital or health system Has a hospital or health system come to your group to discuss come to your group to discuss
being acquired?being acquired?
0
10
20
30
40
50
60
Yes No
Have you contacted a Have you contacted a health system to discuss being acquired?health system to discuss being acquired?
0
10
20
30
40
50
60
70
Yes No
What are the major considerations What are the major considerations for discussing being acquired: for discussing being acquired:
8%
18%
9%
20%19%
13%
4% 7% 2%
Ability for physicians to sell assets
Ability to attract new physicians
Competition from similar groups
Decreased reimbursements
Increased costs of doing business(st...
Malpractice Insurance
Retirement of physicians
Serious financial considerations
Other:______________________________...
What are the major considerations for discussing What are the major considerations for discussing being acquired: (Other responses)being acquired: (Other responses)
Rising Costs, Lower Volumes, Not increasing Rising Costs, Lower Volumes, Not increasing reimbursementreimbursement
Stability, Marketing and Financial ImpactStability, Marketing and Financial Impact
Maintaining income levels and autonomy of Maintaining income levels and autonomy of physicians.physicians.
Increased physician income with less practice Increased physician income with less practice investment risk.investment risk.
Compensation modelCompensation model
independence, quantity of work, physician independence, quantity of work, physician compensation, employee benefitscompensation, employee benefits
Call Coverage and Management HelpCall Coverage and Management Help
LongevityLongevity
What are the major considerations for discussing What are the major considerations for discussing being acquired: (Other responses)being acquired: (Other responses)
Maintaining Practitioner Autonomy Purchase price to include Maintaining Practitioner Autonomy Purchase price to include amount to cover 22+ years of sweat equity Administration and amount to cover 22+ years of sweat equity Administration and Size of group Placement and retention of many long-term Size of group Placement and retention of many long-term employeesemployeesCapital partner - degree of autonomy for the shareholders - Capital partner - degree of autonomy for the shareholders - governance structuregovernance structurePhysician compensation guarantee periods reduced malpractice Physician compensation guarantee periods reduced malpractice premiums reduced health care premiums for staff the need for a premiums reduced health care premiums for staff the need for a larger primary care referral base (owned by the hospital)larger primary care referral base (owned by the hospital)Assistance with recruitment expenses. Assistance with trauma Assistance with recruitment expenses. Assistance with trauma call coverage. Assistance with development of an acute surgical call coverage. Assistance with development of an acute surgical service.service.FinancialFinancialloss of controlloss of controlHospital sees opportunity obtain additional reimbursement by Hospital sees opportunity obtain additional reimbursement by billing provider based for Medicare services and wants that billing provider based for Medicare services and wants that additional revenue to offset the amount they are paying our additional revenue to offset the amount they are paying our physicians for call and directorship contracts.physicians for call and directorship contracts.Reduced reimbursement; competition; ability to grow the groupReduced reimbursement; competition; ability to grow the group
What are the major considerations for discussing What are the major considerations for discussing being acquired: (Other responses)being acquired: (Other responses)
We are committed to remain an independent practiceWe are committed to remain an independent practice
Did not desire acquisition- hired consultant to help stop Did not desire acquisition- hired consultant to help stop action and discussionaction and discussion
Physician compensationPhysician compensation
Physicians are told they would "receive an increase in Physicians are told they would "receive an increase in reimbursement by 30 to 40%"reimbursement by 30 to 40%"
Physician Compensation Governance AutonomyPhysician Compensation Governance Autonomy
Financial stabilityFinancial stability
Payer reimbursement / Payer constriction of patient Payer reimbursement / Payer constriction of patient population to Big Systemspopulation to Big Systems
Decision making, efficiencyDecision making, efficiency
Market share among three competing hospital systemsMarket share among three competing hospital systems
MoneyMoney
What are the major considerations for discussing being What are the major considerations for discussing being acquired: (Other responses)acquired: (Other responses)
Ability to influence insurance contract Ability to influence insurance contract negotiations, fight decreasing negotiations, fight decreasing reimbursement.reimbursement.
We are not interested in being acquired. We are not interested in being acquired. One of the Hospital's would like to acquire One of the Hospital's would like to acquire us to maintain control and direct its us to maintain control and direct its growth through outsourcing our physiciansgrowth through outsourcing our physicians
ED coverage, hospital politicsED coverage, hospital politics
CompensationCompensation
How likely is your group to sell to a How likely is your group to sell to a hospital systemhospital system
39%
35%
13%
6% 7%
Will not sell to ahospital
Not likely to sell
Considering theoption
Likely to sell
Seriously consideringa sale74% Not likely or will not74% Not likely or will not
13% Considering13% Considering13% Likely or Seriously Considering13% Likely or Seriously Considering