Optimizing Physician Practice Acquisitions

With the new administration and Congress moving forward at a rapid pace, many in the healthcare industry are looking for consistency amid the tide change. What certainties exist when a new administration is considering a different approach to healthcare reform?

Unquestionably, the pace at which hospitals acquire physician practices is set to continue and potentially increase as the Medicare Access and CHIP Reauthorization Act’s (MACRA’s) Quality Payment Program drives physician practices to operate under a new value-based reimbursement system.

When faced with the need to acquire a physician practice, how can healthcare systems evaluate both the clinical and economic value of the acquisition target, in light of the changing healthcare climate?

Pre-Acquisition Evaluation Phase

Acquiring physician practices often involves purchasing hard assets, such as real estate, furniture and equipment, assumption of existing leases, supplier contracts and payer agreements and more. These considerations should be addressed in the pre-acquisition phase during the determination of the fair market value (FMV) of the targeted practice. In addition to determining FMV, there is more to consider during the pre-acquisition phase. Typically, upon acquisition and employment of physicians by hospital organizations, the following may be observed:

• Reduced productivity and poor compensation alignment;
• Increased practice expenses (e.g. increased support staffing levels);
• Reduced practice revenue streams (e.g. ancillary & technical services); and
• Other impacts to profit or loss.

In addition, penalties and bonuses under the Merit-based Incentive Payment System (MIPS) follow the physicians. Health systems will need to develop internal mechanisms for evaluating performance and estimating financial impact, as well as potentially creating employment contracts that take these issues into account, or be prepared to absorb the impact post-acquisition.

Post-Acquisition Optimization Phase

After your organization has closed on a newly acquired physician practice, how do you assess whether or not the acquisition is creating the synergies needed for the expected return on investment? Several key metrics can help you assess your performance, including:

• Physician Productivity
• Practice Expenses
• Provider Access / Patient Flow
• E&M Coding
• Ancillary & Technical Services
• MIPS Penalties and Bonuses

Routine and Ongoing Steps to Practice Optimization

Maximizing practice performance is a science as well as an art. Click here to learn more about the ten key steps that any physician network executive should be considering as they work to optimize the operational and financial performance of employed physician practices.