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A. MERGERS & ACQUISITIONS
The last several years have witnessed a resurgence in the acquisition and consolidation trend of physician practices. Most of the interest has come from hospitals or related organizations (i.e., hospital foundations or IPAs). This increased trend stems from two sources:
1) hospitals recognize the increasingly complicated nature of health care reform and the challenge of physicians being able to achieve market competitive compensation on their own; and
2) physicians close to retirement recognize that they can monetize their value in a practice, should the practice be acquired, and their “share” of the practice can be turned into a valuable commodity in the value of their “stock” or their equity interests in the new organization that may have gone unrecognized at retirement without the acquisition.
Many forces are driving up the number of acquisitions, such as cost efficiencies, better competitive positioning in the market and reimbursement, and an increasing number of physicians looking to retire. Each of these forces impacts the decision to make an acquisition.
DUE DILIGENCE
The Due Diligence phase is a critical phase of an acquisition, as it involves gathering information and evaluating whether the practice in question is strong enough to withstand a successful acquisition.
The following should be evaluated closely:
- Corporate Filings and Operational Documents (Bylaws, Articles of Incorporation, Buy/Sell Agreements, etc.)
- Managed Care Agreements and Rates
- Vendor Contracts
- Any current, pending, or potential litigation, judgments, or tax liens
- Workforce (HR policies and procedures, accrued benefits, pay, non-competes, employee handbooks, performance evaluations, roles of current leaders or supervisors post-acquisition, union activity, etc.)
- Provider licensing/credentialing
- Compliance Program & Code of Conduct
- Overall pay and incentive compensation
- Regulatory Issues (regulatory audits or investigations)
- Reimbursement issues (days A/R, delinquent accounts, etc.)
- Assets & Liabilities (real estate, leases, inventory/products, supply contracts, etc.)
- Leadership involvement during Due Diligence, pre-acquisition, and post-acquisition role.
LETTER OF INTENT
The Letter Of Intent comes during the post due diligence phase. It usually involves a non-binding Letter of Intent and outlines the price to be paid, the transaction's timing, and the transaction's conditions (pre- and post-acquisition). It broadly outlines the details of the transaction, including: whether there is an asset or stock purchase agreement, post-transaction employment agreements, a merger agreement, financing agreements, lease transfer agreements, and other paperwork to finalize the transaction details.
B. CONTRACT RENEGOTIATIONS
Throughout a physician's lifespan, many life changes can cause a physician's contract to no longer align with his or her professional and personal goals. Employment contracts and group PSA Agreements renegotiated periodically, usually every 2-3 years or upon a market change that causes a material impact that renders the current contract outside of Fair Market Value and untenable going forward. The Brake Group works on your behalf to negotiate a new contract with the provisions that align with your highest values.
Typically, because both parties are familiar with each other and most often have a healthy respect for one another, it is easier to request modifications or renegotiations in the current or future contract. After all, it's easier to negotiate additional considerations for an existing physician than to go out into the market and recruit a new physician who may not be as productive, need time to build a patient base, or may not be a good fit.
Several items to consider are:
1) What is most important to you (i.e., compensation, work-life balance, paying off student loans, call coverage, scheduling, etc.)?
2) Where are you at in terms of timing on your contract? The most optimal time to renegotiate is 30-90 days before your contract renews.
3) Have there been any issues in your ability to meet productivity goals? Is the productivity formula reasonable and attainable? Have your colleagues been able to achieve their productivity goals?
4) Are there responsibilities you've had added without additional remuneration?
5) Are your collections and compensation consistent with Fair Market Value?
We use MGMA data, other salary surveys including "gold standard" (data widely accepted in the industry), and our proprietary database to advocate for fair and commensurate compensation, especially regarding your workload and productivity.
C. EXIT STRATEGY
50% of Physicians leave their first practice within 2 years. This can be hugely disruptive to these physicians, their families, colleagues, patients, and hospital. Negotiating the right terms from the beginning can eliminate the need to leave or start over again elsewhere.
Typically, Physicians leave because of two factors:
1) they have a new or better opportunity elsewhere
2) they feel unappreciated, under-compensated, or overworked.
There is a lot to consider before initiating this process. We can help you assess the potential risks of leaving a contract early. These risks include:
1) Repayment of start-up costs advanced to you by the hospital or practice (including Income Guarantees)
2) Malpractice tail coverage that might be your responsibility
3) A non-compete clause implications
4) You may have to pay back any bonuses, advanced sums, etc. It's essential to decide if the new opportunity can compete with the existing opportunity after adding up these potential costs or paybacks.
The Brake Group can help you decide on the best course of action for approaching your employer or hospital about exiting the organization. We can negotiate on your behalf to remove you from the back-and-forth.
D. SHAREHOLDER & PARTNERSHIP AGREEMENTS
It's important for a physician joining a practice to understand an agreement's key benefits and drawbacks. This includes:
1) Is there a partnership track and how long is it?
2) How much equity does each physician or partner have?
3) What happens when the practice recruits a new physician who will be eligible for partnership status (will the rest of the group give up equity)?
4) Who determines if the practice is to merge with another practice (is there a vote)?
5) How is the patient load shared amongst the group?
6) How is the patient load with regard to payor source distributed (do all new physicians have to accept Medicaid patients)?
7) How is time off to be shared, scheduled, or distributed?
8) What happens if the practice dissolves, closes, or goes bankrupt?
We'll review your partnership contract to evaluate the individual partnership agreement, the Operating Agreement, the organizational structure (bylaws, operating agreement, etc.), buy/sell agreements, assets (real estate, leases, etc.), practice financials, etc. It's important that each partner be privy to all the items listed above both for new physicians and existing partners. We'll help you make sense of it and help you to negotiate a fair deal.
We customize our services to what you or your organization needs, including a complete analysis of:
1) compensation and benefits
2) financial health and viability of the practice
3) current or future potential issues facing the practice (i.e., questions about whether the practice will achieve incentive compensation with a successful compliance program)
4) whether there is enough patient load to support a new physician both initially and long term
5) the status the leadership of the group
6) turnover rates in physicians and staff
7) whether the group's physicians and partners meet their productivity thresholds regularly.
In our representation of you and/or your organization, we'll help negotiate a package that will help you achieve your goals and protect your interests. We recognize that a physician's career influences almost every aspect of their life and we help them secure the practice they desire so they can lead excellent, fulfilled lives.
E. Negotiate Managed Care and Payor Agreements
The Brake Group negotiates accelerated reimbursement to be competitive with industry standards and makes it easier to work more efficiently and productively rather than benchmarking based on total number of patients served.
A common issue with hospital-based physician groups is that hospitals often require them to accept all managed care contracts that the hospital receives. While a contract may make sense for the hospital (e.g., the money they “lose” on certain services can be made up of other services, such as diagnostic testing), it may burden the physician's practice significantly.
Many of our physician groups have never negotiated a managed care agreement, let alone have an in-depth understanding of all the contracting rates and changes in reimbursement that have become more prevalent with all the ACO changes and health care reform.
It is imperative to negotiate a reciprocal agreement, as both parties share a common interest in serving the community, including a mutual duty to ensure the best practices and industry protocols are implemented and followed. This is compromised when a practice's financial viability is at issue. Both a hospital and practice should be able to negotiate their reimbursement rates independently to protect their interests. Should those rates be too low; however, hospitals should allow the physician group to opt out of any unreasonable contracts.
F. Risk Management Services
A hospital or physician practice risk management plan is a comprehensive strategy designed to identify, assess, and mitigate risks within a healthcare setting to enhance patient safety, reduce liability, and improve overall quality of care. Key elements of a hospital risk management plan typically include:
- Incident Reporting Systems: Encourage staff to report any adverse events, near misses, and unsafe conditions.
- Risk Assessment Tools: Use tools such as Failure Mode and Effects Analysis (FMEA) and Root Cause Analysis (RCA) to evaluate potential risks and their impacts.
- Data Analysis: Regularly analyze incident reports, patient complaints, and claims data to identify trends and areas for improvement.
- Policies and Procedures
- Standard Operating Procedures (SOPs): Develop and maintain clear SOPs for clinical and non-clinical processes to minimize risks.
- Staff Training: Provide ongoing training programs on topics such as patient safety, infection control, and emergency response.
- Simulation Exercises: Conduct drills and simulations to prepare staff for handling critical incidents and emergencies.
- Patient Safety Initiatives
- Safety Culture Promotion: Foster a culture of safety where all staff feel responsible for and empowered to improve patient safety.
- Checklists and Protocols: Implement evidence-based checklists and protocols to prevent errors, such as surgical safety checklists and medication administration protocols.
- Effective Communication: Promote clear and effective communication among healthcare providers, patients, and families.
- Accurate Documentation: Ensure all patient interactions, treatments, and incidents are thoroughly documented in the medical records.
- Risk Financing
- Insurance Coverage: Maintain appropriate insurance policies to cover potential liabilities, including malpractice insurance.
- Claims Management: Establish a process for managing and responding to claims and litigation efficiently.
- Continuous Monitoring and Improvement
- Performance Metrics: Track key performance indicators (KPIs) related to risk management and patient safety.
- Quality Improvement Programs: Implement and support continuous quality improvement initiatives based on performance data and incident analysis.
- Emergency Preparedness
- Disaster Response Plans: Develop and regularly update plans for various emergencies, such as natural disasters, pandemics, and mass casualty incidents.
- Coordination with Authorities: Ensure coordination with local, state, and federal emergency response agencies.
G. Compliance Program & Services
The Brake Group ensures compliance with and training on the Compliance Workplan, the Code of Conduct, and monitors regulatory trends to address them timely while maintaining the trust and confidence of patients, payers, and regulatory authorities.
We monitor adherence to regulations and standards set by bodies such as The Joint Commission, OSHA, and CMS.
H. Practice Administrator Services
The Brake Group provides Interim, Part-time, and Full-time Practice Administrators that can be attentive to managing just certain administrative services (e.g. Payroll) or the whole continuum of practice administration. Our professionals have such extensive experience that most of their work can often be done several hours to several days/week at a lower cost than a full time Administrator while drawing on a greater skill set. Our professionals aren't having to learn core aspects of the job while on the clock. They draw from a deep skill set that puts their talents to good use on Day 1.
Other Services Offered By The Brake Group
Hospital Considerations
explore the many service benefiots for hospitals
Risk - Revenue - Cost
The Brake Group has a unique advantage, with our CEO having negotiated hundreds of hospital physician contacts over the last 25+ years as a Hospital General Counsel and health system CEO/CFO/COO. She has also negotiated hospital contacts for many Physician Groups, including employment contracts and partnership agreements. She has expertise as a Corporate Officer of many Joint Ventures, Independent Physician Associations (IPAs), nonprofit hospitals, and a large publicly traded for-profit organization. As a hospital leader, she fully comprehends the flexibility necessary to structure and negotiate the best overall contract to achieve a competitive and equitable agreement for both parties. In her prior roles as a Compliance Officer, she gained a keen understanding of how to avoid the potential pitfalls of the Anti-Kickback Statute and Stark Law issues. None of our competitors have 24 years of experience in hospital legal and senior hospital operations roles. It's a niche market and we love advocating for hospitals and physicians!
Our Approach
We endeavor to achieve a win-win philosophy when working with Hospital Administrators. Hospital administrators are complex problem solvers. Managing a hospital or healthcare system is not easy! Reimbursement (or the lack thereof) is becoming more challenging and confusing every day, and hospital administrators must make decisions based on incentives that keep the hospital running, not necessarily based on whether a particular physician group contract can operate in a fiscally sustainable way.
If a department (or contracted service) is bringing in sufficient revenue or serving an organizational mission, often the hospital administrator assumes that there is a fair exchange for both the physician(s) and the hospital. However, more often than not, this is not accurate. ‘No margin, no mission' applies to the hospital and its physicians.
Engaging the hospital in a mutually beneficial collaboration yields results in which both parties emerge better off, not at the other's expense. Hospitals need each specialty to provide care across the continuum of specialists. If one specialty or group can't sustain itself, this jeopardizes hospital care and sometimes community care, resulting in patients traveling long distances to receive specialty care.
Managed Care
The Boilerplate Trap
Hospitals typically require physicians and groups to utilize their boilerplate or templated contracts for Professional Service Agreements, Hospital Service Contracts, and Employment Agreements. They have their attorneys draw up these contracts to utilize contact language that favors them throughout the contact, often beginning with a version highly prejudiced against them. They may say, “We don't negotiate contract terms or language,” but in our experience, 95% of the time, there is room to negotiate at least some, if not all, of the terms or language to reflect better terms.
This can sometimes involve the corporate office for large groups, especially for significant increases in subsidies and stipends. For example, a local hospital CEO might need the health system CEO or designee to agree to fund an anesthesiology stipend that puts the anesthesia group back into a range from 50% to 75%. Sometimes, contact changes require the Corporate Legal team to approve any modifications.
For them, it's easier to have every contract be the same, but each hospital's key indicators are different. For example, in areas with low health insurance coverage, ERs take up the slack and become the default providers for patients without insurance. Paying a higher rate for ER physicians in these areas is justifiable because ER care is how many patients access a system and those services that make more money for the hospital.
Another example is in areas of the country where malpractice liability is higher (due to either a lack of tort reform or other issues) or hard to get, you see those specialties becoming rare. This means more patients are leaving that geographical area for specialty care. Then, the hospital misses out on other “downstream” ancillary revenue. In these situations, hospitals can subsidize some of the malpractice cost or provide this coverage themselves (sometimes, they can get better rates, and sometimes, they use self-insured products or offshore captives to limit exposure).
We ensure that productivity formulas and other contractual obligations start with a good foundation based on fundamental fairness. We make sure physicians have a strong understanding of what it's going to take to achieve those contract terms, especially in achieving their productivity bonus or incentives. One item we review is whether prior physicians in those roles have completed some or all of the productivity incentives. If it hasn't happened for the last three physicians in that same role, is something wrong with the required terms or environment that makes it impossible to achieve those goals?
Hospitals and physicians come out ahead when both are highly effective and efficiently working together in collaboration. Often, we can restructure agreements to achieve the goals of both parties for a win-win outcome.
Payor Mix Concerns
It is important for physicians and physician groups to understand challenging payor mix ratios before signing a hospital contract. In areas of the country where there is access to care issues, physicians often end up seeing a higher ratio of emergent patients or patients who need stabilization because these patients lack insurance, which is a requirement of EMTALA (i.e., ER Physicians, OB/GYNs, and other specialties).
Sometimes a payor mix stipend or various types of subsidies can be used to make up the difference between uninsured rates or under-reimbursement rates. Additionally, if a specialty physician sees an adversely large number of uninsured patients, there should be a stop-gap agreement that reimburses that provider or group consistent with market rates applicable to that geography and specialty.
This ensures no one provider or group sees more than their share of low—or non-paying patients, especially in elective or non-emergent care.
Manage Hospital Risks