By: Dr. Rock Rockett
The healthcare provider landscape has been shifting as of lately and vibrations have been felt across the country. In the past few years, multispecialty clinics have grown to a thousand or more physicians. Other large multispecialty groups remain housed within large hospital systems and include hundreds of physicians affiliated with tertiary care systems. As these groups were being developing and acquiring more and more primary care practices other specialties became acquisition targets long before multispecialty groups came knocking on the doors of gastroenterologists. Cardiology practices have largely been subsumed under the umbrellas of large health systems. As well as many orthopedic groups. In the Chicago area alone, for instance, there are two large GI groups each with 45+ Board certified gastroenterologists plus additional midlevel providers. Chicago’s large health systems, including Advocate, Northwestern, Northshore University, and Amita, are competing to attract or retain GI’s within their employed physician groups or within their affiliated physician partners. Timing was right in the past few years as independent GI groups saw the storm clouds forming around them and felt that there was safety in numbers. Member physicians purchased shares in the new mega groups in order to be voting members and to participate in decision making. So what’s involved in merging multiple GI practices together? How is the leadership of the group established? And are they effective in reducing costs per practice, achieving better rates with payers and maintaining their volume of referrals from PCP’s in their area? STRUCTURE By consulting with health law attorneys experienced in mergers, you’ll find several options for how best to structure a mega group, depending on physicians’ goals, regulations in your state, etc. A popular approach is one which minimizes control from the top and maximizes independent decision making and control locally. Each practice typically has two representatives on the Board of Managers and each physician has an equal ownership share in the mega group organization. As it’s being formed the founding members make decisions about all the detailed provisions of the group’s Operating Agreement. These include size of board, officers, authority level of the Board on expenditures, etc. FINANCIAL INTEGRATION Financial integration is required to show that the group is functioning as a single entity and not just trying to exploit the use of a single tax identification number (TIN) to gain certain benefits. To demonstrate financial integration the practices must combine their accounting, banking, payroll, employee benefits program and retirement programs. Over the course of several months, the mega group must select vendors for the above services and reach consensus within the Board of Managers to implement the integrated financial services for all SBU’s. This should be accomplished within the first twelve months following formation of the group. REVENUE & EXPENSES Of the significant reasons for forming a mega GI group, is the advantage of owning their own pathology lab and of gaining reductions in medical malpractice coverage are two of the most significant advantages. The pathology lab can be formed within one of the practices and then purchased by the new mega group’s corporate entity from the practice in which it was spawned. Assuming the base global reimbursement fee for pathology is about $60 and that there are about 2 specimens per GI procedure, the gross revenue opportunity for a group of 20 or so GI physicians is in the range of $2.4M to $3.0M. Not as significant of an impact to the financial statement are the discounts achievable from medical malpractice premiums. Nevertheless, the reductions of 15% to 25% per practice are significant for GI physicians who had been paying $20,000 to $30,000 each per year for such insurance. In addition, there is coverage at the group level which also carries its own premium. Malpractice insurers seeing the consolidation trend among physicians are willing to discount premiums for the newly consolidated groups who now are under one TIN instead of previously operating as separate practices. SYSTEMS.....UGH! Merging onto a single EMR platform is a substantial task for multiple practices. This is one of the most important decisions. It needs to be made very carefully and requires the endorsement of all participating groups. The Board must consider the systems that are in place with the current practices and the advantages of using one of the existing systems or selecting a completely new system. Important questions that must be answered include how the EMR will function as an enterprise wide system for all the groups, will the system be easily interfaced with hospital systems for auto transmission of medical records between the practices and the hospitals, and what costs will be incurred for license fees, data conversion costs, system interface programming costs, etc. BILLING.....UGH, UGH!!!! In addition to challenges on the EMR side of the practice, there also is the issue of billing system and practice management system capabilities. Is the preferred EMR sufficient to support a mega group on required EMR as well as billing capabilities? Should there be an internal billing department or does the group prefer to outsource billing and collections? Every practicing GI physician has their own nightmare billing experiences, which actually allows the physicians to compare notes and perhaps reach consensus on the best route to proceed. As most physicians know, there are no easy answers to this question, but there are a number of ways to reduce the risk as you negotiate with billing services, if that’s the decision the group makes regarding billing. Setting up an internal billing unit requires selection of the right leader, coordinating with all the SBU’s and providing a vision of how the billing unit will develop from the merger of existing practices. Certainly there are advantages to having an internal billing unit and you should be able to gain greater control, track and report expenses transparently and more easily allocate billing costs based on a per member basis or on a percentage of collections basis. PARTNERSHIPS As GI mega groups overcome their inevitable growing pains they may begin looking at more opportunities to solidify their position in their market and grow revenues. It’s important to identify key partnerships with major payers as well as with major health systems. Founders or select Board members may take the lead in enhancing relationships with major payers through bringing value to the payers that they aren’t getting from small independent practices or from large practices that are controlled by a health system and which the payers deem not to be not trustworthy. For health systems there are increasing competitive pressures to consolidate provider groups and to expand geographically across large markets, such as in Chicago with its population of about 9.5 million. Perhaps there are opportunities to be anointed by the health system as the preferred GI group or perhaps there are opportunities to sell a minority interest in the mega group to the health system, thereby generating cash for the mega group and its member physicians and building long term referral relationships. Whether they form alliances with a single health system or multiple systems, there are significant benefits to be gained from doing so. NEW RECRUITS Along the course of the initial years of the mega group other GI physicians should be attracted to join. The Board members and the lead Administrator make calls to interested GI physicians to explain the process of joining the mega group. There is a modest capital investment required of each participating physician, signing of the Operating Agreement and signing the Membership Agreement in order to gain the benefits of belonging to a mega GI physician group. Many of the corporate integration projects listed above should be developed during the first year along with recruitment of additional groups. New groups joining the mega group will need to convert their data into the mega group’s EMR system and therefore this affects the timing of bringing new groups into the mega group and realizing the mutual benefit of having them participate and spreading the startup costs across more physicians. NEW VENTURES In less than two years mega groups can successfully expand their number of physician members, set up reliable infrastructure of EMR and billing, take advantage of new revenue opportunities and reduce expenses in certain key areas. So, what’s next? Initiatives that may come up or discussion include recruitment of new members, pursuit of specialty pharmacy capabilities, creating a group purchasing organization, creating an anesthesia group to serve all the endocenter locations, and more. All these new ventures should generate additional revenue and offset the startup costs and overhead expenses associated with a large single specialty group in a major metropolitan area. OUTLOOK FOR MEGA GROUPS The outlook for mega GI groups in the US is strong. Many have been formed and benefits of these mergers are being realized, although there are challenges in doing so. Success depends on a variety of factors. Leadership is a key consideration as much work is involved in forming a mega group and considerable time and money have to be invested to achieve the gains they all hope to realize. Compatibility of the practices is another consideration. Practices should have similar goals and similar practice structures to begin with. As with any other partnership, being compatible at the outset and having common goals are key considerations and should be discussed and evaluated openly at the outset. Timing in each market is also an important consideration. As each market develops and local health systems consolidate, determining whether the time is right also helps to determine potential for success for physicians interested in forming a group. * * * * * * * * * * * * * * Rock Rockett, PhD is Principal Consultant of Rockett Healthcare Strategies and operates his business out of Chicago. He works with GI physician groups around the country and provides his insights on mergers as well as strategies for increasing revenue and making the independent GI group sustainable over time. Like to learn more? Contact: rock@rocketthealthcare.com or visit, www.rocketthealthcare.com |
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