This HSG article covers mistakes hospitals often make when merging physician networks and lays out five areas that merit scrutiny.
The recent spate of hospital affiliations and mergers/acquisitions combined with a decade-long acceleration of physician employment (hospitals now own nearly 75 percent of physician practices in the country) has created a new challenge for hospitals and health systems that are coming together: How should employed physician networks be merged?
While it’s tempting to treat physician networks like any other hospital department, employed physician groups are unique strategic assets that require special attention and consideration during the due diligence process.
Why Employed Physician Networks are Critical
Why give an employed network special attention? Because a high-performing physician network is critical as health systems look to thrive in this new era of the Affordable Care Act. A high-performing physician network is crucial to:
- Responding to the evolving marketplace, by allowing you to defend your market and build service lines.
- Feeding specialists.
- Growing your regional presence and capturing tertiary volume.
- Direct contracting with payers through mechanisms such as ACOs, PCMHs, bundled payments, risk sharing and tying increased reimbursement to outcomes.
- Managing the full continuum of care and increasing care coordination capabilities.
- Developing relationship with employers through onsite clinics and direct contracting.
Common Mistakes
The most common mistakes we see organizations make before, during, and after the affiliation/merger process include:
- Underestimating the importance of physician networks in merger due diligence;
- Not considering or underestimating the impact and value of culture;
- Insufficient communication to physicians;
- Not knowing the ultimate goal, e.g., Will they be two distinct networks or one network?;
- Not understanding what drives physician compensation or the revenue that supports it;
- Not knowing when and where to standardize and when to preserve uniqueness;
- Not being creative or knowing when to say no; and
- Not thinking about independents or the impact of the acquisition on referrals.
Five Areas That Deserve Close Attention
Below are five key areas of a physician network that require close attention by merging/affiliating hospitals, or hospitals acquiring existing physician practices:
1) Culture and Leadership
- There are significant challenges in merging cultures – do NOT underestimate this fact.
- Don’t believe in the myth that physicians resist change. Like the rest of us, they resist the unknown, and when presented with a lack of information, fill the holes with negativity.
- Involve your physician leaders in the process. You need physician champions and they need to hear it from a fellow physician.
- Have the right mindset – physicians are our partners, not employees.
- Be creative if a group isn’t culturally a good fit – think Professional Services Agreements (“PSAs”).
- Communicate, communicate, communicate.
- Be clear on your culture and philosophy.
- Define team member expectations.
- Don’t say, “Your life won’t change.” Why lie? It will change!
- Be specific in your communications by answering Who, What, Why, When and Where. Complete the feedback loop by asking, “Okay, what did you hear?”
2) Compensation
- Understand the existing compensation and benefits structure. How do benefit levels differ? Is compensation driven by production, quality or a combination of the two, or is there any incentive structure?
- How much revenue is available to support compensation? Often revenue differs, so compensation differs as a result. Compensation components and variables are not always one size fits all.
- What are the contractual requirements if changes are desired?
- Understand the menu of terms and conditions. This is an excellent place to start standardization.
- Put together a matrix summarizing the important elements.
- Consider adopting best practices.
3) Revenue Cycle and Reimbursement
- Are they on a single tax ID or multiple? What should they be in the future? What are the advantages and disadvantages of both?
- Are billing and collections outsourced or accomplished in-house by a central billing office? How effective is their billing function?
- Beyond a CBO, what other economies of scale can we achieve?
- Do they use provider-based or traditional 1500 billing? Are we considering the provider-based technical revenue in our assessment?
- What is their payer mix? What are their commercial payer rates? How is revenue impacted by both?
- What is their involvement in direct contracting and Value-Based Care, such as ACOs, PHOs and PCMHs?
- What are their policies and procedures for follow-up, charity care and collections?
4) Perception and Relationship with Independents
- Is the group seen as high quality or as physicians who couldn’t cut it in private practice?
- Are the independents and employed physicians adversarial and intensely competitive or collegial and cooperative?
- Are they working together on quality, efficiency and growth or independently toward their own goals?
- How will the merger/acquisition impact referrals?
5) Information Technology
- Is their practice management system (PM) based on a hospital system platform or a physician practice platform?
- Does their electronic medical record (EMR) communicate with the practice management system? Do physicians feel the EMR is easy to use? How long have they been using their EMR and how has it affected their production?
- What steps were taken to maximize production?
- Did everyone receive appropriate training on both PM and EMR?
- Were the systems set up appropriately for the most efficient use?
- Use your IT personnel…DO NOT let them use you!
