Consider these questions about mergers before you jump

Issue: January 2019

ByWathen Strong, MBA, CMPE, CCS-P, CPC

The shift toward hospital or health system ownership of physician group practice has been on a steady pace of growth for several decades. From July 2012 to July 2016, the number of physician practices employed by hospitals increased an astounding 100% according to data from Physicians Advocacy Institute.

Although we may be seeing a leveling-off of hospital system practice mergers, mergers have altered the landscape of physician practice to the point that no longer are the majority of physician practices privately owned. If you have been contacted by a local hospital system about a possible merger, are you and your organization ready to be part of a larger, consolidated structure or are there other options that might allow your practice to thrive and to simultaneously allow your relationship with the hospital health system to strengthen?

The following questions warrant serious consideration, not to mention a measure of frank introspection.

Autonomy vs driving strategy

Historically, private practice physicians have had a strong independent streak. As you work through the pros and cons of merging, be sure to ask questions of hospital leadership regarding your group’s future level of autonomy. How will decisions be made that might affect your patients, staff and providers? This is a broad topic, but one that demands thoughtful conversation. Hospital leadership should be able to convey to you, with a level of assuredness, their approach regarding what constitutes “local” decision-making and what the threshold is for issues that require the broader level of involvement of the hospital system.

The dialogue regarding autonomy provides an opportune segue to discuss how you or members of your group might participate in physician leadership roles within the hospital system. This demonstrates a high level of engagement and also positions your interests to have a voice. For instance, if the hospital is considering acquiring a practice that includes orthopedics, it is in your best interest to have a seat at the table.

All-important referrals

Physician-owned practices take managing their referrals personally. It takes years of cultivating strong relationships with providers to get them to refer patients to your group. How would this life-blood of your practice view a merger with a hospital system? Would private groups seek to carry the banner of independent physicianing by shifting their referrals to another private practice or are you confident their allegiance to your group is solid?

The converse also warrants careful attention — if you are a referring physician, it is safe to assume that there will be some level of preference for you to consider keeping your referrals in-house. Blunt mandating of referrals may not be the stated tactic of the hospital system, but it is to be expected that your referred-to data will be monitored. For those hospital systems with high quality standards, where they are selective as to which physician groups they choose to acquire, this may not pose an issue. But, for those whose mergers appear to be more about the volume than the quality, this can be detrimental. Ask the hard questions, so you are empowered to make informed decisions. You should possess a solid level of comfortableness regarding the do-or-die impact of any key bidirectional referral patterns.

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Provider compensation: The fine print

Whether the basic construct of compensation is based on work relative value units (wRVU) or productivity, profit and loss, collections, or some type of salary guarantee, usually the devil is in the details and not with the overarching model. It is prudent to ask about what could trigger a change in the compensation, as well as whether changes in productivity are measured at the individual provider level or at your group level. If the applicable survey data used to set up the compensation levels drop significantly, is there is a guardrail in place that protects you from any strong vacillations year-over-year? What about any caps compensation? Are they absolute, contractual comp-limiting clauses, or soft caps designed to assure that even at high productivity, there is verifiable alignment between compensation and work performed.

At a time in which value-based reimbursement structures are gaining ground on traditional fee-for-service, a sign of a forward-thinking hospital or health system is if they include quality (patient outcome) metrics and citizenship components in their compensation structure.

Another area of compensation to consider is advanced-practice providers (APPs). How will their productivity be measured and is remuneration involved for physicians who provide supervision of nurse practitioners and physician assistants? If physicians’ compensation is based on wRVUs modeling, it is critical to have a clear understanding of how services provided by APPs, but billed under the physician (whether incident to or split/shared), impact both the compensation due to the physician and what is due to the APP.

Aligning practice, hospital cultures

Differing cultures between practices and hospital systems are hardest to gauge, yet they are integral to a successful merger. Poor cultural alignment can singlehandedly lead to failure. As you think through the cultural fit issue, consider that same independent streak in privately practicing physicians also can reside in their staff members. The transition to having their paycheck come from what may feel like a corporate entity may be unsettling to the team and lead to a chronic sense of us vs. them. If the merger is undertaken, it is imperative that physicians and leaders of the group guide staff through the initial transition with a strong, unified voice. The group will follow your lead, and this is critical to a merger being successful.

Other options

Although you may be tempted to think that you must maintain the status quo or take a leap of faith with the hospital, there are other alternatives to consider. If your inclination is to have a stronger relationship with the hospital, but you are still hesitant about a full merger, you can consider a co-management arrangement, which allows you to lead service line-type programs for which compensation is based on time invested, as well as achievement of defined quality metrics. If you are feeling ambitious, another option is to create your own physician-sponsored clinically integrated network (CIN). There are increasing numbers of these entities managed by physicians vs. the traditional model in which hospitals lead and request physician participation. The CIN structure can drive quality and value initiatives, provide financial incentives and allow collaboration with your hospital system in a way that is autonomous.