Preparing for acquisition requires goal-setting

Hospitals employ 212,000 physicians, representing about 20 percent of those practicing, according to the 2010 American Hospital Associations's Annual Survey of Hospitals. That demographic will scale upward in coming years, according to Nick A. Fabrizio, PhD, principal at MGMA Health Care Consulting Group. Factors such as operating costs that continue to increase at a faster rate than reimbursement, proposed cuts to Medicare and difficulty in recruiting new physicians will increasingly drive physician practices to consider selling, he said. “Health systems are able to employ new physicians and offer them guaranteed compensation at market rates better than most private practices can offer,” he added.

Nearly three-fourths of physicians reported that they’re already aligned financially in some way with hospitals, and 24 percent said they already work primarily in a hospital practice setting, a 2010 survey from PwC Health Research Institute found.

The last time hospitals went on a buying spree of physician practices during the 1990s, things didn't work out so well. Today, however, “the landscape is different,”' said Glenn Barenbaum, a director in the Healthcare Transaction Services Practice at PwC. With more payers adopting new reimbursement models, both parties stand to benefit from the alignment, he said. The new models create financial incentives for both parties to improve quality outcomes and drive down overall costs.

Fabrizio added that for physicians taking time away from their practice and their patients to prepare for such a transition can be the biggest hurdle, but it may be worth it in the long run.

“Take your time and go through a careful process that explores your goals -- both short- and long-term, issues, concerns and detailed reasons for why this will make it better than it is now and better for the future,” advised Fabrizio.

Barenbaum pointed out that it is also important to consider how the practice's goals and long-term objectives align with the hospital or health system's goals.

Todd Rodriguez, a partner in the Exton, Pa., office of Fox Rothschild LLP and co-chair of the firm's Health Law Practice Group, offered some practical advice for long-range planning.

“If you are considering selling your practice to a hospital, or you are a hospital looking to integrate the physicians in a thoughtful way, consider whether it makes sense to begin the process with a dialogue about where each party envisions the relationship to be several years in the future,” Rodriguez said. “If you can reach consensus on where you want to end up, you can then structure a transaction specifically designed to get you there.”

Rodriguez authors a blog that covers current legal issues and news affecting physicians and other non-institutional healthcare providers.

Barenbaum tells his clients that “selling a business is no different than selling a house.” This means “highlighting strong attributes and admitting to weaker ones,” he said. “A practice that can demonstrate high clinical outcomes and patient satisfaction” can put itself “in the driver seat” of being acquired, Barenbaum added. Practices can leverage such attributes to a hospital that is interested in the same goals.

In preparing for an acquisition, physician practices should also assess the “flexibility and interoperability of their HIT infrastructure,” noted Barenbaum. “A practice that has a flexible system would be advantageous” to a hospital that doesn't want to make  large investment in a new system, he added.

Barenbaum said physician practices should be prepared for the potential buyer’s questions and concerns. “We help clients to be prepared for what a buyer is going to ask for... so there are no surprises,” he concluded.

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