An article in Futurescan 2012: Healthcare Trends and Implications 2012-2017 outlines the huge shift in favor of hospital-owned medical practices. Those of us who’ve been around the block a time or two can’t shake the déjà vu of the 1990s or the disastrous outcome. This time, though, the outcome of a medical practice acquisition plan can be different as hospital systems vow to heed Santayana’s adage, “Those who cannot remember the past are condemned to repeat it.”
Some big factors in favor of a positive medical practice purchase experience include: the healthcare landscape looks almost nothing like it did in the ‘90s; physicians appear less resistant to hospital employment, perhaps due, in large part, to demographic factors; the market is open to novel compensation programs such as pay for performance/outcomes; and hospital management teams are adapting to the new normal by including physicians and embracing technology specific to the physician practice realm.
However, no different than undertaking any investment, knowledge is power, and it helps to know what you’re getting into. A successful medical practice acquisition plan must include a thorough assessment of the ‘acquiree’ before the deal is done – in fact, before the deal progresses much past the early stages.
Business metrics can vary widely and be completely unrelated to the technical proficiency or clinical quality of the physician and his or her patient care.
Some medical practices are well-oiled machines and the owner’s motivation for acquisition is a win-win; the transition is smooth and the result is a high-performing practice that causes no headaches for its parent organization. At the other end of the spectrum are distressed medical practices that have closeted skeletons disguised as inefficient operations, poor physician engagement, improper or ineffectual management and perhaps even clinical deficiencies. Their keen interest in new ownership may stem from years of mistakes and neglect, culminating into trickling cash flow, liability issues and an unwillingness to change. The bulk of practices, however, lie somewhere in the gray area in between: they provide good care, are financially satisfactory in the provider’s eyes, but the lure of the parent organization’s benefits is hard to resist. These businesses can still present acclimation challenges to the parent which may result in substandard financial performance for well beyond the traditional three-year grace period.
A solid review, conducted by a skilled practice manager with a solid track record and who is external to the parent organization, can pay dividends to:
- The physician in understanding the strengths and weaknesses of the practice’s operations in concrete, financial terms. An external assessment paves the way for the parent org to begin the transition to a different operational model and can help the physician thrive in a bundled payment or P4P system.
- The hospital in having a blueprint of prioritized issues to target for optimal performance and profitability. In addition, an external eye can assess the physician’s and staff’s willingness to become part of the hospital’s care continuum and conform to the parent’s requirements. A smoother transition and aquiree acclimation are likely to result as well. After all, a protracted battle between the practice and the parent will certainly have ripple effects that impact patients and employees, in addition to the parent organization’s image and reputation.
Any assessment worth its salt must cover financial areas, such as fee schedule and revenue sources; billing and collection policies, practices and processes; accounts receivable; managed care contracts and performance; and coding compliance. The operational assessment should include a review of all processes and patient flows in addition to staffing levels and composition.
Caveat emptor may be the operating principle when buying a car, but fortunately, Florida’s laws can protect us from a lemony Cadillac. Obviously, no such law exists in the complex world of health care acquisitions. The outcome of a practice assessment may not influence the hospital’s strategic decision to acquire a practice, and it’s certainly possible to rebound from a ‘nightmare’ purchase. However, forewarned is forearmed; our patients deserve the best chance for high quality care and service and to avoid the fallout from a troublesome acquisition.