7 maneuvers for independent practices to weather the storm

In light of continually increasing administrative burdens, fee schedules that barely keep pace with inflation, and competition from the recruitment capabilities of large hospital systems, many independently practicing physicians are aware that they must change their current model, but they are unsure about their options: build? buy/sell? affiliate/align?There is no one-size-fits-all approach, and there are frequently more choices than physicians realize, with corresponding degrees of autonomy along a sliding scale.Before agreeing to the terms of a transaction or entering into a contractual arrangement, it is important to conduct due diligence to clearly understand the terms of the deal, and to compare the proposal to actual or potential alternative options.

Here is a brief summary of some common maneuvers employed by independent physicians whose practices feel unsustainable in the current climate:

The Maneuver option 1: Forming a New Super Group or Joining an Existing Super Group

A Super Group is a clinically integrated group practice that operates under a single Tax Identification Number.As a single legal entity, a Super Group can negotiate with third-party payors without running afoul of antitrust regulations, and can more easily implement alternative fee structures, such as bundled payments, episodes of care, and shared savings.Owing to its size and centralized business functions, a Super Group is typically able to achieve operational efficiencies that are not available to solo practitioners or small groups.

A solo or small practice may seem like a speedboat that can quickly pivot, and a Super Group may seem like an ocean liner that has tremendous power, but cannot easily change course.In fact, solo and small practices often struggle to pivot because their resources are stretched thin. An effective Super Group is a powerful network that also has sufficient agility to maneuver and respond to change.

Benefits: Solo practitioners and small groups that by themselves, are growing weary of working harder just to maintain the status quo, become part of a larger network that typically enables them to increase their productivity and profitability.Forming a Super Group is a multi-step process that requires an initial commitment of time and resources. Starting from scratch to create a Super Group enables the core providers to form a coalition of like-minded partners and establish a governance that reflects their shared vision. By contrast, an existing Super Group already has an established infrastructure and track record.

Challenges: Culturally, solo and small practitioners need to adjust to not being entirely autonomous and/or significantly involved in the day-to-day operations of the practice.Super Groups have a formal governance structure, and typically, only certain types of decisions are subject to a vote of the members or shareholders. Super Groups must be properly structured and operationalized to avoid antitrust and other regulatory concerns.

Maneuver option 2: Private Equity Investment/Management Services Organization (MSO) Model

Private equity partnerships and recapitalizations offer medical practices growth opportunities, ranging from streamlining their operations to increasing a practice’s ability to offer and/or optimize its provision of ancillary services.Some private equity transactions involve selling the practice’s assets to a business entity that may be legally owned by non-physicians (an “MSO”).The MSO furnishes all necessary administrative, non-clinical services, and the physician(s) continue to furnish clinical services through a separate, professional entity. The private equity infusion of capital creates opportunities for aggressive growth in practice revenues.

Benefits: By consolidating the non-clinical functions of one or more group medical practices, the administrative burdens on physicians are reduced and economies of scale can be achieved with respect to IT, EHR, and revenue cycle management.Physicians who have received rollover equity as part of the transaction financially benefit from future growth.

Challenges: Without an effective go-to-market strategy, practices may not receive maximum value in a private equity transaction.Moreover, an improperly structured arrangement may violate corporate practice of medicine prohibitions, which can have wide-ranging consequences, including but not limited to payor allegations of submission of false claims.

Maneuver option 3: Forming an MSO as an Asset Protection/Estate Planning Tool

While MSOs are useful in a variety of contexts, there are 2 sometimes-overlooked applications: (i) as an asset protection vehicle to reduce the overall exposure of a medical practice to malpractice liability; and/or (ii) as an estate planning tool.

Benefits:Forming an MSO as an asset protection vehicle and/or an estate planning tool can be advantageous in its own right, but if the MSO is efficiently run, it may also position the practice for a future private equity acquisition, even if that is not the present intention of the physician(s).

Challenges: As noted above, an improperly structured MSO arrangement may violate state corporate practice of medicine prohibitions, so care must be taken to ensure that the contract between the MSO and the practice, and the actual operation of the clinical and non-clinical entities, meet all regulatory requirements.

Maneuver option 4:Hospital/Health System Affiliation/Employment/Alignment

One strategy involves the Hospital or Health System acquiring a physician practice and directly employing the physician, but there are other affiliation and collaboration opportunities, such as Professional Services Agreements (PSAs), in which a Hospital engages a physician practice to provide professional services, and bills the services under the Hospital’s enhanced fee schedule, enabling the Hospital to pay the physician practice a higher rate than it might otherwise receive under the fee schedule the practice negotiates for itself.

Benefits: Hospitals and Health Systems are generally well-equipped to provide streamlined operations and reduced administrative burdens on physicians.

Challenges: Hospitals and Health Systems are primarily concerned with ensuring referrals of patients, and may pressure providers to achieve volume targets or otherwise influence their clinical decision-making.When physicians are compensated in excess of fair market value for their services, the arrangement may be found to violate the Anti-Kickback Statute and False Claims Act.

Maneuver option 5: Clinically Integrated Networks (CINs) and Accountable Care Organizations (ACOs)

A CIN is a formal collaboration among physicians and hospitals to develop clinical initiatives that improve the quality and efficiency of healthcare services.CINs can provide an avenue for joint managed care contracting without running afoul of antitrust laws.CINs also provide a platform through which its members can more easily form an ACO. An ACO allows eligible groups of providers to work together to manage and coordinate care for a payer specific population, with payments tied to outcomes.

Benefits: CIN participants contribute to data-driven, evidence-based best practices, and may receive shares savings and bonuses, as well as the possibility of enhanced payor fee schedules. ACOs coordinate a patient’s care across settings with the goal of producing quality outcomes while spending less.Participating providers may share in the savings.

Challenges: CINS require a substantial commitment of time and resources from their members. ACOs must meet eligibility criteria and follow the rules of the applicable shared savings programs.

Maneuver option 6:Organic Growth

An existing practice may seek to expand by increasing the number of providers and/or its breadth of service offerings.

Benefits: Growing the practice may afford more negotiating clout with payors and/or make the practice a more attractive target for a merger, acquisition, or other affiliation.

Challenges: Organic growth typically occurs at a slower rate than the growth that would occur from a consolidation with one or more other practices, but for some physicians, particularly those who intend to practice for 15+ years before retirement, it may preferable to slowly and steadily build a practice on their own terms.

Maneuver option 7: Creating a Concierge Practice

For physicians whose patient population can afford to pay out-of-pocket for medical care, a concierge practice may be an attractive option for remaining independent.

Benefits: Physicians can limit patient volume and spend extra time furnishing care than is typically feasible for providers who are paneled with a large number of third-party payors in a traditional practice model.This may lead to greater satisfaction for both the physician and the patient. Absent payor restrictions related to utilization management, prior authorizations, etc., the physician may be better able to customize treatment plans to patients’ needs.

Challenges: Because very few people are able and willing to pay out-of-pocket for their health care, the concierge model is impractical for most physicians. It is also important to remember that the concierge model implicates a number of potentially significant legal considerations, including but not limited to the Federal Anti-Kickback Statute, Medicare payment rules, and state insurance regulations. Charging patients for concierge services may preclude the physician from participating in the patient’s health insurance plan, and many states’ regulations prohibit the charging of excessive fees.

Conclusion

Even the most stalwart of independent physicians recognizes that surviving in the current healthcare climate requires adaptation.One or more well-considered maneuvers can position independent practices to navigate the waves of transformation occurring in healthcare.Physicians are well-advised to spend time understanding and deliberating their options, and to confer with experienced healthcare counsel and CPAs while charting their course.

Daniel B. Frier, Esq., is a founding partner of Frier Levitt and Theresa M. DiGuglielmo, Esq., is senior counsel with Frier Levitt.