Thinking bigger (MGMA annual meeting)

Whenever the organizers of the Medical Group Management Assn.'s annual conference opened the doors to sessions on physician-hospital integration, a large crowd was always waiting. Hundreds of managers of small and large medical practices, along with hospital administrators, listened intently and took copious notes.

One such manager was Zvi Weinman, the administrator for Central Bucks Specialists in Doylestown, Pa. He wanted to know what many other of the small practices that belong to MGMA wanted to know: What is our practice supposed to do in an age when so many trends appear to be pushing it toward closer alignment with a hospital -- up to and including selling out to one?

"What other options are there for us to maintain reasonable clinical and administrative independence?" asked Weinman, whose practice has seven gastroenterologists and nine cardiologists. "We love the hospital, but we want to stay independent of it as well."

Weinman had just walked out of a session titled "Walking the Tightrope Together -- Structuring and Valuing Hospital-Physician Ventures," one of many physician-hospital relations sessions at the MGMA's Oct. 24-27 meeting in New Orleans.

Experts advised practices to choose hospital partners carefully. Physicians need to evaluate how their practices will be managed and how to prepare for the possibility that finances will be less rosy after affiliation, at least in the short term. However, many experts at the MGMA meeting said pressure to consolidate is building.

Declining reimbursements, increasing expenses and preparation for the implementation of health system reform have many medical practices and hospitals thinking about how to go beyond their own walls. How can they work together and stay in business? Can small practices thrive financially without selling?

Marc Halley, president and chief executive officer at The Halley Consulting Group in Westerville, Ohio, covered some of this ground during his presentation, "Can't We All Just Get Along? Physician/Hospital Integration."

"We know two things for sure," Halley said. "Reimbursement will go down, and the cost of doing business will go up. ... Primary care physicians are consolidating. Hospitals are consolidating. Payers are consolidating. Multispecialty groups are consolidating. Everyone is trying to get bigger."

Learning from history

Those considering integration want to avoid the mistakes of the mid-1990s, when hospitals bought practices outright for what are now viewed as inflated prices, and some physicians became employees. Many deals unraveled as finances didn't work out and physicians chafed under hospital management.

"Hopefully, we have learned from that," said Forrest "Dean" Danner Jr., vice president and chief operating officer at Aspirus Clinics in Wausau, Wis., speaking on a panel during a practice manager open forum. "I see that hospitals are really understanding that to be successful, they have to have physicians at the table as collaborators, not as competitors."

Practices are being bought once again, but the price is the fair market value of hard assets. Goodwill -- the value of assets, such as a physician's name and reputation -- has little, if any, value. Employed physicians usually have some form of compensation based on productivity, but employment is not the only affiliation arrangement or offer. Hospitals also are establishing joint ventures, co-management agreements, medical directorships, professional services arrangements and payment for call.

"Physician and hospital integration is likely here to stay this time," Halley said. "I don't think we're going to see this coming apart like we did in the late 1990s."

Experts say the key is to choose partners carefully and align in a way that works for all parties concerned.

Checklist for successful integration

The first step for medical practices is to consider which hospital to align with, if there is more than one local choice.

Experts recommend taking a close look at each facility. What is the hospital's financial health? What is the hospital's strategic vision, and how does a practice fit in with it? Will the practice's physicians be able to contribute to strategic planning? Is there high turnover among hospital executives? What is the reputation of the hospital among the physicians in the community and patients?

"You need to know something about your hospital and how they manage these things before you sign up," Halley said.

Another issue to consider is how a practice might fit in with an accountable care organization. An ACO is an organization of group medical practices, networks of individual practices, hospitals and others that join together to manage a large patient population of Medicare beneficiaries. An ACO must run for at least three years and care for at least 5,000 patients. Although details are still in development, those who are part of an ACO can get paid bonuses from the Centers for Medicare & Medicaid Services for meeting and improving upon quality benchmarks and for generating savings for CMS.

Many institutions are seeking closer affiliations with physicians to establish ACOs. If an ACO affiliation is a practice's goal, experts recommend that physicians investigate the hospital's ability to track the health of populations, and whether the practice's information technology can work with the hospital's system effectively.

Does a hospital "have a culture of population health management?" asked Don Fisher, PhD, president and CEO of the American Medical Group Assn., which represents large multispecialty practices. "You are not going to be able to be very successful if a hospital cannot look at the bigger picture."

If the medical practice is giving up some management duties to a hospital -- whether it's through joining a hospital-run independent practice association, joining an ACO or selling the practice completely -- then experts said practices need to consider how they will be managed.

Will the practice's current staff stay on? Will the hospital control scheduling, billing or other administrative functions? Experts say many strategies that work for hospitals are not as effective for physician practices. For instance, some hospitals have imposed hiring freezes in response to the economic downturn, but experts say this strategy often can backfire in a physician practice.

"The worst thing you can do at a medical practice is put in a hiring freeze," Halley said. "The first thing we do is add support staff. Physicians should not spend 15 minutes using a fax machine. Have someone else do that, and let the doctor see two more patients."

A changed financial picture

Otherwise financially healthy practices that agree to an acquisition by a hospital may be faced with the shock of being in the red, particularly right after the deal is done. Differences in how income and expenses are allocated can make it appear that a practice is losing money, even if the same number of patients are being seen.

"In some organizations, the doctors become the bad guys who are creating the loss," said Robert Bohlman, an MGMA principal consultant. "If you have a situation of adversity, it is not going to work."

If a practice ends up in the red after an acquisition or other affiliation, experts suggest analyzing practice finances line by line to determine where money is coming and going and compare it with previous data. "You need to step back and look behind the numbers to understand the reasons behind the change," Bohlman said. This information also must be used judiciously to avoid conflicting with antitrust and self-referral laws.

The most important thing for physicians to realize, however, is that closer affiliation, especially an acquisition, will involve change, even if this is not obvious at the outset.

"The greatest white lie a hospital executive can say is, 'Nothing will change.' Everything changes," Halley said.