By Deborah R. Mathis, CPA, CHBC, CPAmerica affiliate Cowan, Gunteski & Co., P.A.
The physician landscape has changed significantly over the past 10 years. Across the United States, more and more physicians are leaving private practice to become employees of healthcare systems or larger medical groups.
There are many forces driving the decision for physicians to align. These include:
- Decreased reimbursement
- Performance-based reimbursement
- Escalating practice overhead – staff, benefits, technology
- Aging demographic
- Greater focus on work-life balance
- Healthcare reform and regulatory environment
- Payment recovery
- RAC – Recovery Audit Contractors Program
- CERT – Comprehensive Error Rate Testing
- MAC/MIC – Medicare Administrative Contractors/Medicaid Integrity Contractors audits
- Fraud and abuse
- Patient Protection and Affordable Care Act
As physicians consider the future, the forces causing rapid change make joining a larger practice or alignment with a health system appealing alternatives.
Some doctors have decided to ride the tide and maintain their independence. Physicians electing this option should develop a proactive succession plan.
The sale of a medical practice no longer generates sufficient money to fund a doctor’s retirement. Consideration should be given to transitioning ownership to the next generation of physicians while the retiring physician is still in practice.
Other options for physicians not looking to align include practicing concierge medicine, changing to a nonparticipating status with insurance carriers and looking for new revenue sources that are not dependent on third-party reimbursement.
For physicians who want to align, options include either a large group practice or a health system. Large group practices typically fall into two categories – single specialty or multi-specialty.
Some of the benefits of joining a large group practice include reduced call coverage, leverage in negotiating rates with third-party payers, purchasing power for supplies and benefits, and centralized billing, accounting and human resources. Some of the risks in joining a large group practice include loss of independence, increased administrative costs, change in practice culture and the potential loss of referrals from outside providers.
Physicians looking to align with a health system face a wide variety of models that differ by degrees of alignment. Models with a low degree of alignment include directorships/stipends, gain sharing, and leasing of space. Models with a medium degree of alignment include management services organizations, physician hospital organizations, joint ventures, co-management of service lines, professional services agreements and physician enterprise models. The highest level of alignment with a health system is typically full employment.
There are benefits and risks to each type of alignment, and they must be considered carefully prior to making a decision.
As hospitals have begun to employ physicians, they are determined not to repeat the mistakes of the past. The impetus behind the hospital’s new initiative in purchasing practices is the increasing competition between health systems and the desire/fear of independent practice physicians to have a more secure future.
The approach of hospitals to buying practices and employing physicians has changed dramatically since the 1990s. Today, the purchase price of a medical practice is based on the fair market value of the identifiable tangible assets. There is usually no longer a significant component of the purchase price associated with goodwill.
Physician compensation is no longer set on a guaranteed salary but, rather, based on productivity, usually a specific dollar amount per work relative value unit. Compensation must be based on fair market value for the specific specialty. A great deal of attention has been paid to alignment regulatory compliance to ensure that the agreements in place do not violate the federal anti-kickback statutes or the Stark Law.
Physicians who elect to align with a health system, especially in an employment model, should anticipate changes to the way they practice. Administrative control of their practice will now be in the hands of the health system.
The health system will make decisions on staffing and purchasing. There will be efforts to redirect referrals from the practice to specialists and ancillary services that are part of the health system.
The decision about whether to align or ride the tide will be one of the most important that physicians will make in their careers. A detailed financial analysis is necessary for physicians to understand the monetary impact of their decision.
Consultation with advisers who specialize in health care – consultants, accountants and attorneys – may provide significant insight and help physicians to make the best decision for their future.