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Healthcare Acquisitions: A Continuing Conversation

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On January 14, 2016, I had the pleasure of moderating an ECG Management Consultants webinar titled “Healthcare Acquisitions: The Key to Integrated Care in a Value-Based Environment.” Presenters Matt Sturm, a Senior Manager at ECG, and Laura Hennum, Chief Strategy Officer with Dignity Health Nevada Service Area, explored the evolving healthcare landscape, in which the formation of integrated provider networks will be vital to organizations’ ability to successfully deliver value-based care.

The webinar audience, composed of numerous CEOs, CFOs, and business development leaders, shared valuable insight into the way they’re managing their organizations in this climate of ongoing change. In response to a polling question during the session, more than 70% of the audience indicated their belief that within the next 36 months, their markets will experience a fundamental shift from fee-for-service reimbursement. Furthermore, over 55% of respondents are currently focused on acquiring or affiliating with primary care/retail medicine providers.

Laura and Matt explained that they are seeing similar focus areas across the country, and they agree that primary care remains a crucial way of bringing patients into a network of care and retaining them.

Webinar attendees had a number of additional questions, several of which I posed to Matt in this follow-up conversation.

We currently have many physicians who are aligned through vehicles such as Professional Services Agreements (PSAs). Are these adequate, or do they need to be transitioned to employment arrangements?

Well-designed PSA arrangements may perform similarly to an employment arrangement. Key attributes of high-performing PSAs include well-defined performance expectations, non-compete and/or restrictive covenants, and financial incentives. These elements should be constructed in a manner to align the hospital’s and physicians’ interests. But the more complex issue is one of physician culture. If the organization successfully fosters a culture within the physician enterprise that is collaborative, supportive of providers within the network, and raises the bar from a clinical quality perspective, the non-employed physician organization may be able to achieve high levels of performance.

Yet, if an organization is crafting a physician alignment strategy and/or has PSA relationships that are not performing well, the employment model should be strongly considered (if not prohibited by local corporate practice of medicine laws). Among other benefits, it allows the health system to more strongly influence the culture of the physician organization.

If there are no viable provider targets for acquisition or alignment in the market, how long should an organization allow for an organic (i.e., build) strategy?

Local market forces will greatly affect this. For instance, are there competing providers in the market, and if so, what is their reputation? Do you have an adequate primary care base to support the new physicians? How desirable is your market from the standpoint of recruiting providers into it? The answers to these questions will ultimately determine how long a build strategy will take. However, in many cases it will take at least 2 years to reach a point of critical mass through this approach.

How should competitive responses from independent primary care practices be addressed?

It is important to make reasonable efforts to work with established community providers. If this is not possible, an alternative strategy should be enacted as quickly as possible, whether that is employment of existing providers or recruitment of new ones.

What is the sequencing of physician group acquisitions? Should we start with primary care, or subspecialties such as oncology and cardiology? If we have gone down the path of one or the other, should we switch midstream?

Ideally, organizations would begin by developing their primary care base and then adding subspecialties once there is an adequate PCP base to support them. However, the reality is that market forces are dynamic and health systems need to be able to adapt. If subspecialty acquisition opportunities present themselves, organizations should carefully evaluate them, asking questions such as:

  • Do these providers have an adequate referral base?
  • Will the referral base continue to support the providers if they become employed?
  • Do we have the clinical capabilities to support this program?
  • Is the specialty in line with priority areas for our organization?

If the answer to these questions is yes, then it likely makes sense to proceed with the acquisition. Similarly, acquisitions that are already in process may be reevaluated based on these same questions to ensure they make sense for the organization.

What if the providers in the community are not willing or interested in being acquired or employed by the hospital?

If your organization is committed to preparing for value-based reimbursement, it will need to have a critical mass of aligned providers. This does not mean alignment with all providers in the market, or that those who are aligned need to be employed. Rather, the health system needs enough physicians in the applicable specialties to serve its patient population. If physicians are not interested in employment, health systems should endeavor to align with them through other contractual arrangements, preferably arrangements that are as tightly integrated as possible (e.g., a PSA). If health systems are unsuccessful at aligning with providers, they should strongly consider building their own program to compete with them.

If you weren’t able to attend this webinar, you can view the recording here. ECG’s transaction experts will host another webinar on February 11, titled “To Acquire or Not Acquire That Physician Practice.” We hope you’ll join us. For more on this topic, download your copy of “Build, Buy, or Align: Creating Clinically Integrated Health Systems.”

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