Rx for practice management Winter 2015 Preparing to sell a medical practice: 3 key steps Digging through employment law issues Choose malpractice coverage wisely How to flourish as an independent practitioner
Preparing to sell a medical practice: 3 key steps hether you re considering selling your W medical practice or you ve already made a firm decision to do so, three key preparation steps can help ensure a successful outcome. They require significant data gathering and analysis, but the result will be worth it. 1. Benchmark practice performance The first step is to compare your practice s performance to that of similar practices in the same market. A better-performing practice will command a higher price if you have data to back it up. Some commonly accepted metrics for demonstrating how well a physician practice is functioning include: x Individual productivity of the practice s physicians and midlevel providers, tracked by work RVUs, x Compensation levels for all physicians, x Number of active patients, x Number of patient visits in the most recent year, and x Average cash collections per patient visit. If there are other measures that are representative of your practice s performance, include them as well. If the data has been collected for some time, present it as trending analysis for the last three to five years. Once you ve gathered the desired data, acquire these same statistics for competing practices, and contrast them with yours. The best source of information is the Medical Group Management Association. The second is your state medical association. A great way to boost the market value of a practice is to demonstrate that the practice is strong and on a path to more growth and success in the future. The benchmarking process may reveal some shortcomings, but don t try to hide them. A savvy buyer s due diligence will uncover them anyway. Most buyers understand that there s room for improvement in every practice, and they may view deficiencies as opportunities for change that will enhance the potential upside of the deal. If the shortcomings are severe, you may want to hold off on putting your practice on the market. By taking some time to remedy the problems, you ll probably enjoy a higher price when you do sell. 2 2. Review physician-owner payments and expenses Identify money paid to the physician-owners of the practice in the form of compensation and expenses. Buyers give a lot of attention to total payments made to physicians who own the practice. Those payments are usually a large
percentage of total practice expenses, and doctors will likely expect that their payments will continue at the same levels after the acquisition is completed. But while physician payments are a significant expense, they re also a measure of the practice s success more profitable practices can afford to pay their owners better. There are several categories of payments to physician-owners. Direct compensation may be in the form of salaries, contributions on behalf of the physician-owners to retirement plans, or profit distributions. Make sure you calculate the latter on a regular basis. Persistent but discretionary expenses include travel, food and entertainment, and automobile expenses. There also may be nonrecurring expenses associated with physician-owners, such as legal, consulting and financial fees or equipment purchases. 3. Prepare strategic and financial plans If you don t already have them, prepare strategic and financial plans for your practice. A great way to boost the market value of a practice is to demonstrate that the practice is strong and on a path to more growth and success in the future. SWOT the practice In addition to or in place of the practice benchmarking its performance (see main article), consider a traditional SWOT (strengths, weaknesses, opportunities, threats) analysis of your practice s operating environment. It requires identifying the internal practice characteristics that put it at an advantage or disadvantage compared with others, as well as external factors that could be exploited by the practice or pose problems for its success. Some examples might include the following: x Ancillary services are offered (strength). x Staff turnover is high (weakness). x A new accountable care organization (ACO) seeks the practice s participation (opportunity). x The largest payer proposes lower reimbursement rates (threat). Strategic and financial plans are often joined together, and the combined plan should explain how the practice will leverage its strengths and weaknesses to address the opportunities and threats that it faces. (See SWOT the practice at right.) The plan should start with an analysis of the practice s internal and external environment, state a coherent future direction, define strategic objectives for moving in that direction, and lay out an action plan for achieving the objectives. Professional input If your practice doesn t have the training and experience to execute these steps, bring in professional help. Your financial advisor is knowledgeable about your financial history and current condition. He or she can assist not only while you prepare your practice for sale, but also after offers come in. During negotiations and the due diligence process, buyers will request detailed financial and operating information and ask probing questions about the practice s past performance and future outlook. To separate true buyers from lookers, ask for a deposit to look at the books and records. You ll need to respond to these inquiries and negotiate a final deal, all while continuing to practice medicine. x 3
Digging through employment law issues very physician group is subject to numerous federal and state employment laws. E Several issues have become the focus of recent enforcement activities against health care employers, but there are ways physician practices can protect themselves. Wage and hour issues The number of complaints filed under the Fair Labor Standards Act has been rising steadily up nearly 5% in 2014 over 2013, according to the Federal Judicial Caseload Statistics for the period ending March 31. Class action lawsuits that involve several employees are common. Many of the cases against health care employers challenge the use of auto-deduct time keeping systems. This is the practice of automatically deducting time from employees pay for a meal period even though they didn t take the break or they had to work during that time. Auto-deduct policies are not per se illegal, but they may have to be modified to comply with the latest court rulings. For example, if you ve adopted such an auto-deduct policy, make sure the override procedure isn t complex, employees are trained on how to override the deduction, and managers don t prevent employees from exercising the override option. To help reduce your risk of losing a lawsuit, avoid automatic terminations under leave of absence policies and consider reasonable accommodation in extended leave situations. Leave of absence policies Employees eligible for the Family and Medical Leave Act (FMLA) are entitled to 12 weeks of job-protected leave. After the 12 weeks are up, the employee might qualify for additional leave as reasonable accommodation under the Americans with Disabilities Act (ADA). The federal Equal Employment Opportunity Commission (EEOC) has sued employers, including many in health care, to challenge policies that require automatic termination of employees who are unable to return to work after a fixed period of leave (such as six months). Normally, indefinite leaves aren t required by the ADA, but no-fault termination policies that don t allow for any leave extension invite a challenge from the EEOC. 4 To help reduce your risk of losing a lawsuit, avoid automatic terminations under leave of absence policies and consider reasonable accommodation in extended leave situations. It s also important to give appropriate training to managers.
workplace injuries, but must provide light duty to pregnant employees who need it as well. The U.S. Supreme Court is expected to issue a ruling resolving this matter in the first half of 2015. Criminal records The EEOC has also pursued litigation against employers who reject applicants because of their criminal records. The EEOC cited that hiring policies that include blanket exclusions of people with criminal records have a disparate racial impact, and therefore violate the Civil Rights Act. Pregnancy discrimination The Pregnancy Discrimination Act prohibits an employer from discriminating against a woman because of her pregnancy or medical conditions related to pregnancy or childbirth. The act doesn t expressly require reasonable accommodation, under the ADA, of a woman s disability resulting from pregnancy. In July 2014, however, the EEOC issued guidance that requires accommodation of a pregnant woman even if she isn t disabled. Specifically, the EEOC guidance states that an employer may not confine light duty to those suffering from To prevail against such claims, the employer must show that its policy is job-related and consistent with business necessity. The employer can accomplish this by identifying specific offenses related to applicants suitability for a particular job, deciding how recent a conviction must be to disqualify a candidate, and individually assessing each applicant. Those applicants should be given the opportunity to correct errors or explain any mitigating circumstances. Getting to the nitty-gritty As employers, physician practices face many legal risks. Here we ve touched on only some of the federal employment law issues. There are many other federal laws to consider, not to mention state laws. An employment law attorney can help you sort through the various issues to ensure your practice abides by federal and state employment laws. x Choose malpractice coverage wisely ll physicians must have malpractice insurance. But all policies aren t alike. It s critical A that you choose one that fits your practice s needs. After all, if you don t choose wisely, your practice could find itself in a tenuous financial and legal situation should someone be sued. Explore types of coverage Practices must address malpractice coverage by asking: How much protection does it want, for what period and events? Malpractice coverage is stated in terms of limits per claim and the aggregate limit on payments over the life of the policy. There are several types of coverage to choose from. Most practices will be concerned with claims-made, tail and nose policies. A claimsmade policy covers incidents that may occur during the policy period and that are reported while the policy is still in force. 5
When a doctor changes policies, it s possible that some claims will be uncovered before the new policy kicks in. The gap can be filled by either tail coverage, which takes care of claims that arise after leaving the previous carrier, or nose coverage, which extends coverage of the new policy to an earlier date. Review the provisions There are several policy provisions physicians should review. Most will include a consent to settle clause. It requires the carrier to obtain the physician s written permission before settling a claim against him or her. Without it, the insurer can settle a claim that the physician believes is defensible. Several states have set up medical review panels and all claims must be heard by the panel before legal action can be taken. This reduces frivolous claims and helps lower premiums. Another provision is related to the legal costs of defending a claim. Those costs, which can be upwards of $100,000, may be included inside or outside the policy limits. The latter is better. Otherwise, a $100,000 legal defense bill will be subtracted from a $1 million per occurrence limit, leaving $900,000 to cover court awards and damages. Also consider claim acknowledgment. An insurance carrier may acknowledge that a claim has been made either by requiring that the insured physician receive a written demand for damages from a prospective plaintiff, which means the physician must wait to be sued, or the doctor is allowed to report an adverse outcome as a potential claim, known as incident reporting. ensure it fits the kinds of practice activities you have in mind. Select a carrier Malpractice insurance companies take many forms. Some are physician-owned ( captive insurers); others are traditional commercial entities. Work with a broker or an independent agent to find the insurer that best suits your practice. The carrier must have sufficient financial resources to satisfy current and future damages claims against its policyholders. A close look at the carrier s annual report and other financial statements will reveal information about its surplus, net written premiums and loss reserves key metrics of financial strength. Also look at ratings issued by industry analysts such as A.M. Best Company and Fitch. A rating of A- or better is desirable. Equally important is the carrier s management philosophy, which is reflected in its underwriting standards, claims management and actuarial policies. The cost will depend on the carrier as well as the coverage needed and the physician s history of adverse events. Take advantage of preventive services that carriers offer to practices to help reduce their legal risk and maintain patient safety. For example, they may provide risk management tools through bulletins, publications and educational programs. Protect your practice Choosing the appropriate malpractice insurance will help protect you and your practice. Your CPA and attorney can help lead you through the process. x The latter is the better choice because the doctor can report the incident as soon as he or she becomes aware of it, thus precluding negative PR that comes with a written demand for damages. 6 Every malpractice insurance policy excludes certain activities from its protection. Make sure you check the exclusions provision to
Practice notes How to flourish as an independent practitioner hile the trend is clearly toward physician W employment by hospitals and health plans, many doctors would prefer to practice independently for as long as possible. So what does it mean to be independent and how can you stay that way? Uncertainty abounds Physicians today face declining reimbursements, which translates into shrinking profits. And, health care reform efforts compel doctors to spend more time on administrative tasks. Add to that the uncertainty about the ability of their aging practice management systems to cope with requirements and changes from regulators and payers. In the face of these challenges, you may want to practice on your own terms, control your practice s financial health, have confidence in your ability to thrive under change and make informed strategic decisions, and have the option to compete and grow in the local market. 2. Care coordination. To participate in patientcentered medical homes and accountable care organizations (ACOs), a practice must be able to share information and coordinate care among all parties concerned with a patient s health status. This may entail operating on the same EHR system as other providers or relying on cloud-based service models. 3. Risk assumption. To operate under risk-based reform initiatives like pay for performance, ACOs, bundled payments and value-based reimbursement, practices must acquire the right tools to track patient outcomes and provider performance, coordinate care, and manage contract payments that vary according to practice performance. 4. Competitive advantage. A hallmark of a strategically successful business is competitive advantage that is, qualities or features of a practice that make it the first choice of patients and referral sources. An example is a highly developed culture of patient engagement that distinguishes the practice from its competitors. You may want to practice on your own terms. This dream isn t easy, but it s more manageable when these five components are in place: 5. Embracement of change. In a health care sector that s marked by constant change, successful practices will adapt fluidly to new payment models, new clinical care models, and new technology demands, all with lower revenues. Practices can accomplish this with flexible, robust practice systems that anticipate these changes. 1. Fiscal strength. This requires practice management systems that can track and submit cost and quality data, collect payments directly from patients, and compensate doctors on the basis of their practice performance. Final words of wisdom In an era where everything is changing, it s important to lean on your practice management advisor. He or she can help you navigate current changes and anticipate future ones. x This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. 2014 RXwi15 7