Leo Tolstoy once wrote that "Everyone thinks of changing the world, but no one thinks of changing himself." In this era of great change in the healthcare industry, stakeholders point fingers at CMS, at the Obama administration, at the payers, at the hospitals. The successful individuals, however, look at themselves. Physicians will survive in these changing times if they look at changing their own practice settings, their groups and their relationships to fit the times.
I have spent the last 17 years working with physicians organizing their individual practices and internal corporate group structures and aligning them in the greater healthcare market to lay the proper foundation and structure - legally - for my physician group clients to flourish. In this three-part series, I will share ways that practices in Florida are adapting to the changing market. These are structures that you can learn from, and modify to fit your own needs and goals.
This first article will address the issue of alignment. Alignment and consolidation are not the same thing. As more and more physician groups sell their companies to hospitals and become hospital employees, the distinction between alignment and consolidation is important. A group can consolidate into a hospital system but never truly align. Reciprocally, a group can align with a hospital without consolidating with it (or selling out to the hospital). An experienced healthcare attorney can help you restructure your practice and align it within a loosely-integrated delivery system without the sacrifices that becoming an employee involve.
Incentives to stay Independent
When a physician sells a practice and becomes a hospital employee, that physician sacrifices a number of important things. First, long term profits from his or her direct and indirect labor become profits of the hospital. Recent cases involving hospital excessive payment to physician employees have put great pressure on health systems to pay very conservative salaries to employed physicians. The Halifax case made hospitals very wary of giving physicians any type of bonus based on profits from his or her division or subspecialty. Other cases have impacted the industry such that many hospital systems are not paying physician employees any bonus unless it is directly tied to his wRVUs. Astute physicians know that they are not going to get ahead in life if all they are earning is based solely on the direct patient care they provide. Employed physicians cannot be paid for work they refer to the hospital without violating the Stark Law. Employed physicians cannot be paid for diagnostic work, lab work, prescriptions, and therapy that goes through their practice setting without violating the Stark Law.
The fact of the matter is that even though physician groups are selling out to hospitals in epidemic proportions, there is great incentive for physicians to retain their own groups. Not only are there financial benefits, most physicians agree that their practices are more effective in patient care when they are operated by physicians rather than mid-level hospital administrators.
So how does a physician group survive without selling out to a hospital? Let's take a look. First, I guide clients through a process of identifying what is their biggest threat and what strengths and power they have in the market.
If the self-evaluation process reveals that reimbursement rates are the biggest threat, I ask my client to look closely at that. It seems that it's a knee jerk reaction for my physician group clients to say "I'll make $20 more per 99214 if I join the hospital." This is a very narrow way to look at things. First, sure the hospital contracts with payers may be better than the group's payer contracts, but what about collections? Can the hospital properly capture the work, bill for it, and collect on it as effectively as the physician group? I've been involved with a number of groups who consolidated with a hospital with better payer contracts, only to find that the hospital wasn't collecting well, which impacted the physicians' collections-based bonuses.
Instead of consolidating with a hospital by selling outright, many of my clients examine ways to align with other providers - including ancillary providers. If there's one mantra that's true in 2016 in healthcare it is: "what's old is new again." HMO enrollments are on the rise, for example. Another example, in the alignment arena, is the IPA, for Independent Physician Association. IPAs are loose (but not too loose) associations of independent practices that organize to negotiate contracts with the payers.
The IPA concept could take a tighter approach by actually merging groups together in some degree. One approach is to join already-existing physician groups together by way of a jointly-owned parent company. We form the parent company as an umbrella company, owned by individual physicians. The existing physician groups become subsidiaries of the new umbrella company. The umbrella company has the volume in terms of physicians that the payers want in order to give good reimbursement rates. And the physicians still operate somewhat independently in their individual subsidiaries in terms of the day to day operations.
These are just a few of the many variations that alignment can take to retain a good amount of independence for the physicians from the hospitals. Next month's article will explore ways that are a little closer to integration of the hospital and group without constituting a full-fledged sale of the practice.
Ann M. Bittinger specializes in advising healthcare entities in their business transactions. Her particular expertise is in legal relationships between hospital systems and physicians or physician groups, such as co-management agreements, joint ventures, clinical integration arrangements, practice acquisitions and employment agreements. Board certified by The Florida Bar in health law in 2005, she is in particular demand from companies located outside Florida that are expanding their businesses into Florida. She has serviced client companies headquartered in Dallas, Nashville, Boston, New York City, San Francisco, Los Angeles and London, U.K. She can be reached at Ann@bittingerlaw.com.