We are working within one of the most dynamic episodes in the evolution of US Health Care and more specifically the practice of cardiovascular medicine. In fact, one could even state that we are experiencing revolutionary changes in the delivery of cardiovascular care. Industry projects that more than 2/3s of the nation’s cardiologists will be employed or otherwise “integrated” with hospital systems by the end of 2011. With this seismic shift from private practice to integrated practice, cardiology providers are balancing time and energy to continue to deliver quality patient care while simultaneously developing a strategy to meet the business imperatives in a shifting landscape. Ultimately this landscape is dictating that coordination and continuity of care is not only the best business model, but it is simply the right thing to do.
Integration
The process of integration does not de facto lead to alignment. In fact, the process of integration is mainly focused on the transactional elements of valuation, compensation and legal structures. Yet, constructing productive decision making and accountability systems while ultimately unifying cultures is what leads to alignment. The information included in this document outlines both the transactional and alignment considerations of integration from a very high level.
Strategic Assessment
Before embarking on integration, a practice should have a good foundation of knowledge and consensus amongst its stakeholders. Exploration and understanding of the following areas is important.
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What is the current market position of the practice?
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How is the practice performing strategically, operationally and financially?
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What are the imperatives for the practice today and in the future? (Strategy, Operations and Governance)
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Who are the potential partners for the practice that represent the best cultural and professional fit (both hospitals and other practices)?
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What are the available models for integration and applicability to the practice and local market?
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What national trends and forces could influence your integration?
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What market forces exist today and what market forces could develop in the future?
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Competitive practices and hospital
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Partnership landscape
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What is the future picture/vision for the practice?
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Is there consensus across the practice as to the move forward strategy?
Partner and Model Due Diligence
Taking the time to vet each partner and model and establish a collective position as a practice in advance of external meetings is valuable. It will hone the focus of your efforts; make your time with prospective partners more productive; and most importantly it increases the perceived value of your group. As your practice begins discussions with potential partners, controlling information becomes critical. In addition, selecting the best partner is a challenging phase of the integration process from multiple perspectives: carving time out from clinical schedules; developing a logical approach as to who to meet with first; setting the agenda for each meeting to learn enough about the prospective partner without giving too much away; and keeping matters/meetings confidential.
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Who will comprise the work group for these activities and how will they communicate back to the practice?
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Who is the most appropriate partner (strategically – culturally – professionally)?
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Which integration model fits the strategic direction and behavioral realities of the practice?
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How will the market respond to the various integration scenarios?
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As you meet with prospective partners, how will you gauge/measure the alignment of each entity the imperatives of the practice?
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Will the parties engage resources to support the integration process independently or collectively?
Letter of Intent
Upon mutual agreement between your practice and the selected partner, a letter of intent/memorandum of understanding will be executed. The construct of this agreement is important in setting the stage for the balance of the integration work. This is the onset of integration work and marks a period of time of dedicating time a resources to vetting then constructing the integration.
- What are the expectations from both parties as the structural and financial constructs to be considered?
- What will be the methodology to conduct the financial analysis?
- What will be the key responsibilities/activities for each party?
- What will be the framework for decision making and negotiation?
- Will a common vision or future picture be developed at the onset to align objectives and actions?
Analysis and Valuations
After execution of the letter of intent /memorandum of understanding, you enter a time of significant data sharing, due diligence and meetings to develop consensus on financial and structural matters.
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Have you prepared your practice to maximize its fair market value before beginning the negotiation process?
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Which valuations firms will be used for asset valuation and compensation valuation?
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Will the hospital agree to tangible and intangible asset valuations?
Negotiations
- Upon review of the first valuation reports and legal opinions, discussions and negotiations will be conducted to insure the development of a mutually agreeable practice acquisition, compensation methodology and governance structure.
- How will the new entity be structured: wholly owned subsidiary or through MSO (employed), leased or clinical co-management alone?
- How will these entities report into the hospital organization?
- How will decisions be made?
- Are all attributes regarding practice valuation and acquisition agreeable to both parties: win – win?
- Is the compensation model agreeable to both physicians and hospital alike?
Implementation
Once the transaction is complete and the ink is dry, the real work begins: how to set into operation and realize the potential of this new entity. There are many considerations in implementation. Some are universal to all transactions and others are specific to the employment model.
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How will the practice convert provider based reimbursement?
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What steps need to be taken to actualize the governance system?
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Is there a need for a physician compact or actions to insure cultural and professional alignment?
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How will compensation pools be distributed?
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How will incentive constructs be measured: productivity, quality, cost containment, patient satisfaction?
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How will conversion activities be managed for clinical standards, credentialing, marketing, operations, payer relationships, human resources, IT, financial systems, quality and strategy?
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How will marketing activities support brand development?
Compensation Renegotiation
Most compensation structures are defined for only the first few years of the contract. Hence, it is imperative that certain provisions are made in advance.
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Is there a clear methodology defined for determining compensation in the transition years of the contract?
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How will the hospital deal with migrating compensation constructs from production basis to quality or other future designs?
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Are there development activities and communication plans aimed at building the practice’s brand internally and underscoring the contributions to the value of the integration?
New Deal or Exit Plan
It is never too early to consider the exit plan for the contract. Each agreement has a defined beginning and end point and the term of the five year agreement will pass by at an alarming rate.
- What is the practice’s exit strategy?
- What are the unwind provisions in the agreement (for both parties)?
- What is the process for negotiation of the new deal?
- How will the integration’s outcome be measured a success by both parties?
- How will the practice build value in the eyes of the hospital to insure the relationship is worthy of a new deal?
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