Is Your Practice Selling to a Health System? A few considerations...before you cash the check

Oops!  There goes one.  Oops!  There goes another one!  We hear about it every week.  Shrinking Medicare and private payer reimbursements,  increasing regulatory demands, and high cost technology are just a few of the reasons that many physicians are crying "Uncle" and actively looking to sell their practices.  As quickly as they can, many are relinquishing the freedom of being their own boss and are becoming employees of a hospital or health system.

Of course, for some docs, selling to a hospital system may make a lot of sense.  You may be overworked, under capitalized or ready to soon retire.  There may be a problem with billing, taking call or, dare we say it, you just want to take care of patients and HATE the business side of medicine.  Regardless of the reason, you, your accountant and your attorney need to evaluate several issues before making the big decision. And, if you decide to take the plunge, be careful to make sure that you have an “out” if the deal isn't all both parties expect..

Due diligence review (discover your own dirty laundry)

Don't even think about entering into discussion about the sale of your practice until you've conducted an internal due diligence review.  This allows you to be certain the the practice is in the condition to be sold. 


Make sure you identify billing and coding problems, contractual arrangements, or legal issues including potential litigation. Take a look at leases, employment contracts, service agreements, and other contractual arrangements should be current and meet present regulatory requirements. Finally, the review should also include a verification of accurate and complete medical records (and it doesn't matter how much you hate documenting!) and a billing audit.


If there are any problems, fix them before beginning negotiations.  

Personal and professional areas to think about

This may be a little too touchy-feely for some, but you must consider your own personal practice philosophies and professional goals:

• How does selling your practice and becoming an employee fit with who you are as a physician? 
• What if the arrangements don’t work out?  Will you be back looking for work after only a few years? 
• Do you expect to practice beyond the initial employment contact agreement?  
• How hospital employment fits with your career goals?  
• Can you go from being a boss to being the worker?  Selling the practice you built can be a traumatic for some doctors, and more than one clinician used to "doing it my way" may find the transition to being an employee difficult at best.

Pick the right buyer
When making the decision to join a health system, remember that what works for a large, corporate hospital may not work an individual practice. These are some questions you should ask:

• What is the hospital’s strategic plan?  
• Will it support your specialty’s growth after the ink is dry on the contract?   
• What is the health system's physician employment model? Some hospitals may already have other clinics formed and in place to employ physicians. 
• Does your practice has unique features that the buyer will want to preserve?   If it does, the hospital might be willing to establish a new model for your practice.
• What about its current technology?   An electronic medical record (EMR) system that meets the needs of the system's employed FP and IM doctors may be mind-numbing for your specialty practice.

The final step: the purchase agreement 
If your group recently put a substantial investment into technology (EMR, equipment, computers), you may want to make sure to be reimbursed or that you can continue to use it after the sale, and that the existing license agreements can be assigned to the hospital. What about the transfer of  medical records? 

Is your medical practice a corporate entity?  If it is, you may be able to handle the sale as a stock purchase, and simply transfer all your stock to the hospital system.  However, its important to remember that most corporate health care entities will only want to purchase the assets, and a stock purchase transfers liabilities as well. 

What should be in an asset purchase agreement?
 Legal experts say that the asset purchase agreement should address the following issues: 

1. The purchase price and terms
2. The handling of technology issues (EMR, compatibility, etc)
3. The transfer of medical records, and disengagement if the arrangement doesn’t work out
4.  Should include a mechanism to disengage from the arrangement, and should address your ability to reacquire your assets and return to private practice
5. It should dovetail with employment agreement and restrictive covenant provisions. The provisions should also clearly spell out when and how the unwind option can be exercised.

The employment agreement
So now you have gone as far as reviewing the hospital employee agreement.  This agreement sets the stage for your practice's arrangement with the health system and should address issues such as term and termination, compensation, and dispute resolution processes.  The agreement should also include an adjustment mechanism if performance targets set by the hospital system aren't met.  


Most hospital employment agreements will have a term of not more than 5-years, and  3-year terms are fairly typical. However, the typical employment agreement can allow for early termination by the hospital, the doctor, or both. If the agreement can be terminated “for cause,” make sure the grounds for cause are spelled out clearly and are as objective as possible. Also, if the agreement can be terminated prior to the end of the term without cause, adequate notice should be required to permit you to make new practice arrangements.  Be sure you have a lawyer review your contract and these terms very carefully.  

Watch for more:  What do do after the contract is signed


Note:  The thoughts and opinions on Training Wheels are my own, unless otherwise referenced, and are to be food for thought.  If contemplating business changes, these blog posts are not a substitute for consulting your lawyer or accountant. I"ll bet you already figured that out, didn't you?  

Options for Practices Regarding Accountable Care Organizations

These days physicians, medical practices and health systems around the country are debating requirements of becoming an Accountable Care Organization (ACO), and are often wondering where their organizations can accomplish the task. Health care consultants and other experts point out that this is a critical time to develop strategic plans, implement some operational initiatives and update a business' direction.  So while the issue is important to discuss and consider for many groups, it's also critical to take look at all the options in this time of ongoing health care reform.


We're all aware that to survive every doctor must deliver cost-effective care to patients.  Consequently even large systems have been scrambling to update their electronic medical records beginning to try and implement a stronger clinical integration.  However, it's important to have a clear framework for practice changes and and both a mid-range and a long-term plan.


Recent articles on health care trends and the transformation of the health care industry suggests other options to ACOs will emerge as well  They include the following: low-cost leader, niche clinical service provider, research/innovation institute, island, virtual health organization, and vantage integrated provider.  Understanding these opportunities and niches, can help practices to put down a  plan to outline goals, make action plans, and decide the resources necessary to achieve them.


Below are descriptions of these other potential roles:


1. Low-Cost Provider

• Very selective scope of services
• Based on low cost and patient convenience
• Care is provided in low cost settings
• Minimal administration
• High patient volume with reduced cost per patient
• Will build volume via contracts and "word of mouth"
• Little to no investment in aggressive marketing
• Operational standardization and efficiency are maximized
•  Mid-level providers used to reduce the number of MDs and RNs providing care

2. Niched Provider

• Narrow array of services
• Standardized, efficient operations
• Practice identity based on clinical expertise and ongoing innovation
• Structured means of developing and managing patient referrals
• Targets patient base due to  market size, usage patterns, value sought and decision criteria used to select care
• Thorough understanding of competitors
•  Proactive in establishing and managing new strategic relationships 
• Able to recruit and retain a clinical team with area respect

3. Research/Innovation Institute

• Focused on bench and translational research
• Can implement services and products more quickly and cost-effectively than competitors  
• Targets patients specific to the services and products being developed
• Can anticipate multiple trend to identify new services and products
• Open innovation network attractive to physicians, scientists, and others
• Strong relationships with public and private funding sources
• Minimal bureaucracy

4. Island

• A sole provider in an area.
• May be any size.
• Able to protect practice from competitors
• Strong relationship with local community
• Strong outreach strategies and resources
• Services meet the majority of the needs patients and is supplemented with patient transfer agreements, tele-medicine, and coverage agreements for needed specialists
• Ability to limit out-migration by patients via meeting their needs (access, clinical skills, service)
• Financially stable
•  Creative in recruitment and retention of clinical staff

5. Virtual Health Organization

• Contracts to support other providers.
• Does not own or operate a care delivery site.
• Delivers health care resources
• Strong marketing and sales capability 
• Large, geographically dispersed network of resources available 
• Strong network management  
• Strong IT and telecommunications resources compatible with a diverse array of providers

6. Vantage Integrated Strategy

• ACO "plus"
• Provider, payer, or other party that assembles and coordinates a network or system that consists of providers, finance and other strategic alliances.
• Strong IT and telecommunications resources compatible with a diverse array of providers
•  Access to capital
•  Legal skills to form network relationships and manage within the regulatory guidelines
• Understanding of the businesses and the management strength necessary to integrate the operations and cultures of diverse members of the network

It may seem that a "wait and see" attitude may be best until all of these aspects are determined, but doing so is risky as other more proactive providers will carve out their position and limit another practice's options. However, it's also risky to just select a path because it seems to be your only option, or because it's what everyone else in your market is doing!


Take some time, read more than one opinion and continue to map out re strategies for practice growth and success.


Note:  The thoughts and opinions on Training Wheels are my own, unless otherwise referenced, and are to be food for thought.  If contemplating business changes, these blog posts are not a substitute for consulting your lawyer or accountant. I"ll bet you already figured that out, didn't you?