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Strategic Planning in the Face of Continued Uncertainty

During the first nine months of 2017, we have provided counsel across a broad spectrum of Physician practices, including specialties such as Orthopaedic Surgery, Radiology, Oncology, Pathology, Obstetrics & Gynecology, Pediatrics and Nephrology.  In addition to issues relating to internal operation (e.g., compensation structure, ownership, tax efficiency, management structure, etc.) and the ever-present regulatory compliance, there has been a pronounced emphasis on proactively addressing the concerns of our medical practice clients surrounding an uncertain future under a broken healthcare system.  This, of course, comes as no surprise in today’s environment, which in that same 9-month period saw multiple proposals and continued debate – along with a heavy dose of partisan rhetoric – all in the name of fixing an enormous healthcare system riddled with problems that transcend sound political ideology.

Strategic Planning – A Coordinated Approach:

The range of options, and the broad-based analysis necessary to recommend an approach tailored to the particular needs of the practice, is anything but cookie-cutter.  We work with each practice in identifying their individual concerns – both those with universal application in the system and those which uniquely affect their practice – without losing sight of their overall objectives.

For most practices, the goal of this strategic planning is to provide the best hedge against whatever fix may be in store for the healthcare system.  As of this writing, Washington has once again made it clear that the healthcare system and any fix are, at best, a work in progress.  With that, the opportunity to move the ball forward on substantive bipartisan reform instead resulted in a cooling-off period for each side to re-tool and focus on other agendas.  Nevertheless, among the few certainties in these uncertain times is that sitting back waiting for clarity to develop will inevitably leave you behind the curve.  However, embarking on a plan that fails to adequately anticipate, identify and properly account for your practice goals in the overall context, or lacks the flexibility going forward to adapt to shifting market influences and regulatory activity, could end up leaving you trapped in an untenable position.

The Hospital Option:

Some practices may view a hospital alliance as the most straightforward path to protect against an uncertain future, and we have guided a number of our clients through that process.  However, navigating the transition from private practice to hospital employee is often more challenging than it may seem.  For instance, while the discussions naturally focus on the initial move into the hospital practice – and related issues involving compensation, duties and employment term – the associated contracts tend to cast a wide net on the relationship that can leave the prospect of renewal terms uncertain and impose obligations on the physicians extending beyond the period of employment.  Careful review and negotiation of the proposed contract is essential in order to guard against unanticipated consequences, and assure adequate safeguards are in place for protection of the physicians’ post-employment options.  It is therefore incumbent upon the practice to emphasize the importance of a reasonable exit strategy for its physicians – in particular, one that does not effectively preclude his or her practice of medicine for any period after employment.  Other points to consider in the transition are the mechanics of winding-down the existing practice, including disposition of accounts receivable and ongoing contractual obligations, as well as tying up potential claims-made exposure with adequate malpractice tail coverage in place.  Incidentally, an intriguing variation on the conventional hospital arrangement involves the group practice remaining intact and leasing itself to a hospital or health system, in lieu of employment.

Transactional Growth within Group Practice – The Practice Integration Model:

For many practices, the strategic plan may focus on transactional growth, whether by acquisition, combination, and/or practice integration.  With this approach, the practice competes in the marketplace by accumulating a larger group of practitioners, often more geographically diverse, and with complimentary specialties or sub-specialties that provide an increased platform for the practice.  Practice integration is often the preferred model to achieve the desired growth because, if properly structured, it provides for the combination of two or more practices as “divisions” of the larger group practice with centralized management, while preserving for each such division a degree of autonomy and accountable cost centers.  In turn, collaboration at the group practice level establishes clinical protocols for best practices to improve the quality of patient care and gain other economies of scale, from procurement to billing efficiencies, to enhance the cost-effective delivery of services.  Structured and maintained carefully to qualify as a “Stark Group Practice,” the physicians in a practice integration model can largely withstand scrutiny on in-house referrals and related regulatory compliance issues, and capture high-revenue services such as outpatient surgeries as well as imaging and other ancillary services on that larger scale.  

Clinical Integration and Network Participation Alliances:

Clinical integration and establishing alliances such as network participation agreements, including hospital/physician joint ventures, can be used alone or in conjunction with a transactional growth strategy to enable providers who are not in the same group practice to engage in joint contracting with third-party payers.  Because of the cost savings that can be achieved by a well-run clinically integrated network that establishes policies and protocols to monitor utilization of services, control costs, and improve outcomes, providers in the network may receive enhanced reimbursement rates from payers.  Note, however, that unlike a practice integration model, these alliances do not meet “Stark Group Practice” standards, and must otherwise comply with limitations imposed under applicable Stark and Anti-Kickback exceptions.

Concluding Remarks

The approaches outlined above are by no means an exhaustive list of available options, but rather intended to illustrate a cross section of alternatives and provide practices and their physicians with a useful framework for informed thought in evaluating their own strategic plan.  In that context, there are multiple variations to each of those we have presented that must be carefully assessed in light of the practice’s objectives and applicable facts and circumstances to provide a prudent path forward to achieve those goals.  

The takeaway – be proactive and informed in your approach to developing a well-conceived strategic plan, keeping in mind it should never remain static or be based on a one-size-fits-all solution.  We look forward to working with you in navigating this critical process and implementing the best solutions for your practice.

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