Five Pre-Transaction Considerations for the 21st Century Medical Practice

Physicians, worried about the changes spurred by healthcare reform, are increasingly shifting from solo / small / independent practices to other practice models and affiliations. Rather than shoulder rising malpractice costs, declining reimbursement rates, and the increased regulatory and administrative burdens of post-reform practice, many private practice physicians are considering selling their practice or affiliating with a hospital or health system or other medical groups as a viable exit option. The trend is pervasive. As of February 2014, approximately 25 percent of surgical subspecialists, 50 percent of surgeons, and 60 percent of internists were employed by hospitals or health systems. In 2013, Merritt Hawkins, the nation’s leading physician placement firm, reported that 64 percent of its placements involved hospital employment compared to 11 percent in 2003. The forces driving consolidation are undeniable and the opportunities to sell or affiliate abound.

Yet, physicians should resist the herd mentality and not rush blindly into alternative practice arrangements too quickly. Selling a medical practice, or affiliating with a health system or other medical practice through a joint venture, professional service agreement (PSA), medical directorship, co-management agreement or otherwise, is a significant undertaking that should only be done with careful planning — including but not limited to internal due diligence by and of the practice.

Below are five action items that the modern medical practice should consider prior to evaluating and entering into a sale or affiliation transaction.

1.  The importance of a robust compliance program (not just a plan)

Over the last 15-20 years, most medical practices have heard, read and been told of the importance of a compliance plan — a specifically designed plan that would assist the medical practice to address privacy, fraud and abuse concerns. In 2000, the HHS OIG published guidelines for individual and small physician practices – – http://oig.hhs.gov/authorities/docs/physician.pdf — yet 14 years later very few medical practices have a written compliance plan and even fewer have a robust, actively engaged compliance program, which includes training, testing and a forward-facing proactive stance regarding compliance. All medical practice purchasers will conduct due diligence to determine the status of the practice’s compliance program, but so will other savvy partners. Hospitals and other medical practices considering joint ventures, professional service agreements or even medical directorships place significant value on medical practice partners who place compliance efforts as a demonstrable cornerstone of the business operations.

Action items:

    • Establish a robust privacy, fraud and abuse compliance program; or revisit the current compliance program.
    • Schedule periodic (at least annual, and part of every new hire orientation) training and updates to the compliance program. In-service / lunch and learn lessons can be easily organized and demonstrate to practice employees the value of compliant operations.

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