The current climate for independent practice is challenging. Expanding overhead, frequent new and modified regulations, shifting payment models, and aging physicians are leading many to consider all options to ensure the sustainability of their group and their careers. 

Some of the paths you can consider include affiliating with a larger platform, contracting with a management services organization, selling to a system, pursuing value based care arrangements, joint venturing, and seeking capital investment to create an off-ramp for retiring providers or to fund expansion through organic growth or ancillary services.

Regardless of the type of transaction, you will want to be sure that you maximize the value of the practice that you have helped to build. The value should not be limited to the salary generated by each of the physicians and APPs. Your group’s enterprise value is based on tangible and intangible assets of the entire practice. This includes recurring income streams, reputation, contracts, and hard assets such as real estate and equipment. All that has been generated by the physicians and leadership over the years of providing services.

When a medical group transaction is planned, the due diligence process will begin. This is where the practice is closely evaluated. If problems are identified, which often happens, then the transaction price or structure will be impacted. It is best to head this off before planning your transaction.  

Five areas that are critical to the optimizing practice value are its primary agreements, operations, coding and billing, governance, and compliance. 

Primary Agreements. There are a number of different types of key agreements of a practice. These can include physician employment agreements, medical director agreements, EHR/PM contracts, leases, payer contracts, loan documents, and physician services agreements with hospitals. The agreements need to be in order, and should contain specific provisions that will not create risk as a result of entering into the transaction. Items such as assignability of the contract in the event of a change in ownership or structure and protections against physicians competing post-transaction will be closely reviewed.

Operations. An organizational chart with the roles and functions and reporting of providers, staff and leadership is a good start. From there a review of optimizing staffing can be completed as well as evaluating outsourcing of services. Things to consider include whether supplies can be purchased at discounted rates through group purchasing or some other source or whether inventory can be better managed, and contracting to have credentialing, billing, pre-authorization, and registration completed by an independent company. 

Billing. Whether the billing function is internal or outsourced, improper coding and billing can result in substantial penalties that create risk for your practice and its successor. Billing at the wrong level for the service provided, notes that don’t demonstrate medical necessity, and billing by unsupervised APPs are all red flags. Commercial payers often conduct periodic audits and practices can conduct random spot checks of charts. This should provide a level comfort in advance of the transaction diligence process, but in some cases more detailed assessment may be warranted. 

Corporate Integrity. As a busy practice, it is easy to neglect the corporate formalities of an organization. Even if that does not create an issue during the life of your group, it could create problems when a valuation is being completed. Minute books should be thorough, demonstrating compliance with organizational documents and meeting requirements, approvals of significant transactions, and due elections of officers and approval of promotions of providers.

Compliance. As you know, regulatory compliance in healthcare is very extensive. Some key focus areas include HIPAA, corporate compliance, Stark and Kickback, inducement arrangements and MACRA. HIPAA exposure is significant. For HIPAA, your practice should have documentation demonstrating that HIPAA Privacy and Security Officers are elected by the board, breach analyses have been completed and appropriate notifications and reporting have been made, and the annual risk analysis has been completed.