What To Consider When Buying A Medical Practice

As physicians retire and the era of healthcare reform rocks physicians, opportunities to purchase practices will likely surge, and not just for entities that employ physicians, like hospitals.  The big issues generally break down like this:

  1. What to pay;
  2. How to structure it; and
  3. How to pay for it.

The Price

It depends on what you’re buying.  If all of the practice income is from personal services performed by the selling physician, the answer is generally “not a lot.”  The price typically consists of (1) the value of the fixed assets (e.g. equipment, furniture), and (2) maybe a little more in order to avoid the cost of starting up a new practice from scratch.  In the event, however, the practice also generates income from services that are not personally provided by the selling doctor, the price is increased to account for this “passive revenue.”  How much?  Maybe the amount of one year’s profit from that ancillary service.

Structure

Practice purchase take one of two forms:  (1) stock purchase, or (2) asset purchase.  Buyers that buy the stock of a medical practice are rare because the buyers get all the liabilities associated with the stock of the selling practice.  Most practice purchases are asset purchases, which makes it easier to say what you’re buying, what you’re not buying, which liabilities you want to assume (e.g. leases) and which ones you don’t want to assume.  Sellers often prefer stock purchases because the seller gets better tax treatment on the purchase price (capital gains instead of ordinary income) than sellers who sell just their assets.

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Creating the Ideal ACO

The current fixation on Accountable Care Organizations (ACOs) is causing an enormous amount of two things:  (1) talking, and (2) inactivity.  Yes, the concept of delivering care in a manner that reduces or at least controls costs is important and interesting.  Yet, the marketplace is replete with people and businesses that have adopted a wait and see approach, which is really no approach at all.  Businesses and people who will thrive (especially in dynamic times) are those who, as always, take a lesson from sharks:  swim ahead or drown.

            So what about ACOs?  What the best “thing”?  How do you make one?  First, you have to do away with the focus on ACOs, since they are more of a concept than a thing.  Focusing on ACOs as a thing merely paralyzes the viewer because they are, by definition, not subject to such limitations.  What is clear, however, is what they’re supposed to do:  reduce costs and improve quality in a demonstrable way.  How do you do that?  Easy…squeeze the toothpaste tube backwards.

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What To Charge When Medicare is a Secondary Payer

The advent of more entrepreneurial opportunities for physicians will cause them to wonder how to deal with Medicare patients when Medicare is the secondary payer. For instance, physicians treating Medicare patients under a Letter of Protection (LOP) need to know how to deal with the Medicare secondary payer issue.
The Department of Health and Human Services, back in 1996, issued a memorandum addressing the issues comprehensively. The memo is available on our website (www.floridahealthcarelawfirm.com), and the only piece of information missing is the requirement that Medicare claims be submitted within twelve (12) months from the date of service.


Medical Practices Using Independent Contractors Beware

Though it is customary for many medical practices to pay its physicians as 1099 independent contractors (instead of W-2 employees), doing so can be very expensive because the IRS is expected to increase its investigations and enforcement actions in this area.

Small to mid-sized employers (especially in the areas of hospital based specialties) have traditionally had a very relaxed attitude about how their staff is paid. They figure “What’s the big deal? What difference does it make if I pay someone as an independent contractor versus withholding taxes and paying them as a W-2 employee?” The answer: Plenty! Why? Because if the IRS determines a person is wrongfully characterized by the employer as an independent contractor, the employer would be responsible for all the employer related taxes plus penalties.

Determining whether or not a person would be viewed as a W-2 employee instead of an independent contractor is not a simple thing. The “20 Point Test” typically used to guide the determination is not cut and dry. And tax advisors often advise “When in doubt, characterize the person as a W-2 employee, not as an independent contractor.” That advice has never been more true than now, when our government is actively seeking ways to soothe our financial woes.

Though characterizing people as W-2 employees will impact retirement plans (given the discrimination testing requirements), mistaking employees for contractors will definitely sting!


Proposed ACO Regs Are Out!

“Patient centeredness,” “fragmentation” and “value based purchasing” are just a few of the terms that are peppered throughout the newly proposed regulations for accountable care organizations (“ACOs”).  The healthcare reform law established the Medicare Shared Savings Program for ACOs as a key way to accomplish its two core objectives:  (1) reduce healthcare costs, while (2) preserving and improving quality.  Like most new legislative ideas, the ACO regs raise lots of questions.

Who can become an ACO?

 Answer:  Pretty much any legal entity that complies with state law, has a tax ID number, applies successfully and which:

  1. Agrees to participate for three years;
  2. Cares for 5,000 Medicare patients;
  3. Is prepared to receive and distribute shared savings;

4.         Is prepared to repay shared losses (if it takes economic risk);

5.         Establishes reporting, and ensures ACO participant and ACO  provider/supplier compliance with program requirements, including the quality performance standards;

6.         Has shared governance that provides all ACO participants proportionate control over the ACO’s decision making process and includes Medicare patient representatives;

7.         Is operated and directed by Medicare-enrolled entities that directly provide health care services to Medicare patients.  ACO participants (e.g. physicians, hospitals) must have at least 75 percent control of the ACO’s governing body;

8.         Has sufficient primary care physicians to meet the primary care needs of the ACO patients;

9.         Has administrative and clinical organization and leadership;

10.       Is patient-centered though the use of such things as patient assessments and individualized care plans; and

11.       Is subject to substantial monitoring and reporting requirements, including public reporting of quality data to ensure transparency.

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Federally Funded Electronic Health Recordkeeping: Friend or Foe?

The Federal HITECH Act will provide over $20 billion to promote health care provider use of electronic health records.  Starting this year, “meaningful” EHR users can earn $44,000 under Medicare and $64,000 under Medicaid over 5 years.  Those who enroll early will benefit the most, because nearly 70% of the payments come in the program’s first 2 years.  Physicians who have engaged in PQRI and electronic prescribing in the past few years have put another $6,000 to $8,000 in their pockets.

The Federal push for electronic health records isn’t going away.  Over $7 billion has been released to fund state capacity for exchanging health information across the health care system both within and across states.  The Florida Agency for Health Care Administration received nearly $21 million to develop this state’s health information infrastructure.  The intent is to assure a fully connected national health care IT system to provide all health care providers and their patients seamless access to a patient’s medical information.

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IPAs Again

Independent practice associations (“IPAs”) are gaining momentum in response to healthcare reform and market changes responding to healthcare reform.  In an era when consultants are selling one-size-fits-all solutions, physicians have to consider IPAs as a viable option once again, but they have to fine tune their expectation to recent changes.

            In the thunderous noise wrought by talk about accountable care organizations (ACOs), physicians are scrambling to see where they might fit in the future of healthcare.  While we think those changes will be neither as severe or as pervasive as feared, we do see huge opportunities for ANY organization which can (1) reduce healthcare expenditures, and (2) improve quality.  Healthcare businesses of the future will view utilization skeptically.  Hospitals of the future will look like medical practices with beds.  Medical practices of the future will have a stake in the cost and quality of care being delivered and will view utilization skeptically. 

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Ignoring Primary Care: Obscuring the Obvious

Healthcare reform used to imply just regulatory change.  As time marches on, it also implies market change.  Most pundits agree that, whatever happens to the healthcare reform law, whether or not it is found to be unconstitutional, the healthcare business community is unleashed.  Change is afoot! 

If you follow my nahsaying on the issue, then you know I believe the expectations regarding ACOs are overblown and unrealistic.  Martians will not land here en masse, although there may be an occasional stow away on a NASA craft.  Put another way, as some others have said, ACOs are like unicorns—magical, mythical beasts that no one has ever seen.  I don’t expect many to come prancing around in Florida, at least not South Florida, anytime soon. 

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Florida Physician Strikes Out in Challenging Hospital Reappointment Denial

bylawsIn January, a Florida appellate court upheld the denial of a physician’s request to halt a hospital’s intention to deny reappointment to the medical staff.  The physician involved in the case was a member of the medical staff and was recredentialed pursuant to the hospital’s recredentialling cycle.    The doctor asked the trial court to stop the hospital from implementing the denial until the trial court fully considered the case; which request the court granted.  The appellate court, however, decided the trial court was wrong and overturned the decision.

The basis of the doctor’s claim was that the hospital didn’t follow the medical staff bylaws and that, therefore, the hospital’s decision shouldn’t be implemented, at least not until the court could have a trial-like hearing on the issue, which might take many months to schedule.  The appellate court relied on a state law granting immunity to the hospital for the denial and stated that the doctor didn’t make the proper argument that would have justified the trial court granting his request to delay implementing the decision.

Specifically, Florida law grants medical staffs the authority for reviewing applications, but is clear that the final decision rests with the hospital governing body.  Most medical staff bylaws codify the very same principle, though there is room to create more of a collaborative relationship between governing bodies and medical staffs on the issue.  Medical staffs ought to be vigilant about the wording of their medical staff bylaws, since they are considered to be a contract between them and the hospital.

In the present case, however, the doctor was ultimately denied the right to delay the hospital’s decision because he did not argue that the hospital decision involved fraud.  The case is yet another example of why medical staffs have to take a very pro active role in creating medical staff bylaws, which is no easy feat, since most physicians consider medical staff bylaw creation to be only slightly more exciting that paint drying contests.