The document discusses considerations for a medical practice selling itself to a health system. It identifies pros and cons for physicians and administrators, including financial issues, autonomy, cultural differences, and areas of negotiation. It also presents a case study of a surgical group that was acquired by a health system, detailing issues discussed and outcomes after one year. Major considerations for a practice discussing being acquired included ability to sell assets, attract physicians, financial stability, and reduced costs.

1. Selling Your Practice to aSelling Your Practice to a
Health SystemHealth System
MGMA National ConferenceMGMA National Conference
ASGPA Pre-ConASGPA Pre-Con
Daniel H. Friend, Ph.D.Daniel H. Friend, Ph.D.
CEOCEO
Culpeper Medical AssociatesCulpeper Medical Associates
Cell: 540/423-2739Cell: 540/423-2739

2. AgendaAgenda
Identify the pros and cons of a practiceIdentify the pros and cons of a practice
selling itself to a health systemselling itself to a health system
Identify the opportunities and threats toIdentify the opportunities and threats to
the Administrator’s positionthe Administrator’s position
Recognize the major areas of negotiationRecognize the major areas of negotiation
for the practice and the administratorfor the practice and the administrator
with take-away’s you can usewith take-away’s you can use
Discover the cultural differences likelyDiscover the cultural differences likely
when going to a system owned practicewhen going to a system owned practice
Learn from a real-life case studyLearn from a real-life case study

3. Pros and Cons – Physician’sPros and Cons – Physician’s
SWOT - STRENGTHSSWOT - STRENGTHS
Money Issues:Money Issues:
– Income GuaranteeIncome Guarantee
– Signing BonusSigning Bonus
– Sale of AssetsSale of Assets
– Assumptions of LiabilitiesAssumptions of Liabilities
Insulated from Business Risks like HR, Stark Laws, etc.Insulated from Business Risks like HR, Stark Laws, etc.
Lower Insurance Risks for Med MalLower Insurance Risks for Med Mal
Ability to “Cash Out” as partnerAbility to “Cash Out” as partner
No need to “Buy In” as non-partnerNo need to “Buy In” as non-partner
Better Benefits?Better Benefits?
Increased ability to recruitIncreased ability to recruit
– Use system’s pocketbook to fund new hiresUse system’s pocketbook to fund new hires
– Can generally afford to pay better to compete inCan generally afford to pay better to compete in
marketplacemarketplace
Better ability to survive swings in economic and politicalBetter ability to survive swings in economic and political
changeschanges

4. Pros and Cons – Physician’sPros and Cons – Physician’s
SWOT - WEAKNESSESSWOT - WEAKNESSES
Issues of AutonomyIssues of Autonomy
– Business issuesBusiness issues
– Generally not clinical in natureGenerally not clinical in nature
Need to work from within the systemNeed to work from within the system
Need to partner with otherNeed to partner with other
physicians – now as pseudo-partnersphysicians – now as pseudo-partners
Many times benefits are not as goodMany times benefits are not as good
Lose identity as a private practiceLose identity as a private practice

5. Pros and Cons – Physician’sPros and Cons – Physician’s
SWOT - OPPORTUNITIESSWOT - OPPORTUNITIES
Potential for better contractsPotential for better contracts
Ability to add new physicians withAbility to add new physicians with
limited costs to existing partnerslimited costs to existing partners
Access to capital for expansion, capitalAccess to capital for expansion, capital
purchases, EMR, technologypurchases, EMR, technology
Can participate in economy of scaleCan participate in economy of scale
areas: rent pools, lab, imaging…areas: rent pools, lab, imaging…
Potential to tie income to items otherPotential to tie income to items other
than revenue: RVUs, Industry Avg…than revenue: RVUs, Industry Avg…

6. Pros and Cons – Physician’sPros and Cons – Physician’s
SWOT - THREATSSWOT - THREATS
What if this does not work, ability toWhat if this does not work, ability to
opt outopt out
Changes in hospital/systemChanges in hospital/system
administrationadministration
Changes in government regulationChanges in government regulation
Strategic plan changes for system toStrategic plan changes for system to
detriment of physiciansdetriment of physicians

7. Pros and Cons –Pros and Cons –
Administrator’s SWOTAdministrator’s SWOT
StrengthStrength
– Access to capital, staffing resources, HR help, benefitsAccess to capital, staffing resources, HR help, benefits
packages, vendor management, etc.packages, vendor management, etc.
– Full vesting of retirement benefits of old practiceFull vesting of retirement benefits of old practice
WeaknessesWeaknesses
– Lose part of job (HR, Contracting…)Lose part of job (HR, Contracting…)
– Report to system personReport to system person
– Learn new systems: billing, accounting…Learn new systems: billing, accounting…
– Have to close out old business operationsHave to close out old business operations
– Autonomy in new system?Autonomy in new system?
OpportunitiesOpportunities
– Participate in signing bonus, buyout?Participate in signing bonus, buyout?
– Expand administrative reachExpand administrative reach
– Learn new skillsLearn new skills
ThreatsThreats
– Are you needed in new system short or long-term?Are you needed in new system short or long-term?
– Ability to deal in system politics and bureaucracy?Ability to deal in system politics and bureaucracy?
– Authority long-term?Authority long-term?

8. Handout ChecklistHandout Checklist
See handout at this point.See handout at this point.
Note any additions as we discussNote any additions as we discuss
Give me your card or email and I willGive me your card or email and I will
email this presentation and theemail this presentation and the
checklist.checklist.
(DFriend@culpeperhospital.com)(DFriend@culpeperhospital.com)

9. Areas of ConsiderationAreas of Consideration
& Negotiation& Negotiation
Definitive AgreementsDefinitive Agreements
AutonomyAutonomy
Ability to Terminate (both sides)Ability to Terminate (both sides)
Non CPT incomeNon CPT income
Adding staff, capital expenditures…Adding staff, capital expenditures…
BenefitsBenefits
Liability IssuesLiability Issues
Board ParticipationBoard Participation

10. Areas of ConsiderationAreas of Consideration
& Negotiation (cont.)& Negotiation (cont.)
Payout of Existing PartnersPayout of Existing Partners
Insurance Issues (med mal)Insurance Issues (med mal)
Tax IssuesTax Issues
Ancillary IncomeAncillary Income
Closing out the old practiceClosing out the old practice

11. Cultural IssuesCultural Issues
It is important to consider how yourIt is important to consider how your
practice worked in the old systempractice worked in the old system
versus what may happen in a newversus what may happen in a new
system. In this section I will breaksystem. In this section I will break
down issues from my experiencedown issues from my experience
based on the physicians and thebased on the physicians and the
administrator’s perspectivesadministrator’s perspectives

12. Cultural Issues - PhysiciansCultural Issues - Physicians
Generally no major cultural problemsGenerally no major cultural problems
Had to “scold” physicians that they stillHad to “scold” physicians that they still
report to the Administrator, not the VP ofreport to the Administrator, not the VP of
the medical groupthe medical group
Had to get used to the benefits and wayHad to get used to the benefits and way
things are reimbursed in new systemthings are reimbursed in new system
Committee mentality for everythingCommittee mentality for everything
Had to understand they don’t have theHad to understand they don’t have the
final say on everything!final say on everything!

13. Cultural Issues –Cultural Issues –
AdministratorAdministrator
Potential for various areas of concern/joy:Potential for various areas of concern/joy:
Stepping back in time potentialStepping back in time potential
Different pace of everything – goingDifferent pace of everything – going
from a do it system to a can/how do youfrom a do it system to a can/how do you
do it systemdo it system
Committee mentalityCommittee mentality
Cash basis to accrual basis accountingCash basis to accrual basis accounting
Potential to run multiple systems likePotential to run multiple systems like
billing, accounting, EMR, payroll…billing, accounting, EMR, payroll…

14. Cultural Issues –Cultural Issues –
Administrator – cont.Administrator – cont.
Asking permission/forgivenessAsking permission/forgiveness
Major change in procedures for everything –Major change in procedures for everything –
purchasing, benefits, etc.purchasing, benefits, etc.
Accounting issues for budgeting when answeringAccounting issues for budgeting when answering
partially to a health system and partially to apartially to a health system and partially to a
medical groupmedical group
Took 6-8 months to figure out who to call forTook 6-8 months to figure out who to call for
what, plus the forms. Health systems apparentlywhat, plus the forms. Health systems apparently
run on forms!run on forms!
Major documentation issues for everythingMajor documentation issues for everything

15. Norfolk Surgical GroupNorfolk Surgical Group
Case StudyCase Study
Players:Players:
– Norfolk Surgical GroupNorfolk Surgical Group
9 surgeons, 7 partners, 2 others9 surgeons, 7 partners, 2 others
Practice at three hospitals (two owned byPractice at three hospitals (two owned by
Sentara)Sentara)
Only general surgeons at one hospital (Sentara)Only general surgeons at one hospital (Sentara)
40 years in business, community faculty for40 years in business, community faculty for
Eastern VA Medical School, major leagueEastern VA Medical School, major league
reputationreputation
– Sentara Healthcare –Sentara Healthcare –
$2.2 billion dollar health system$2.2 billion dollar health system
7 Hospitals7 Hospitals
Owns its own health insurance companyOwns its own health insurance company
Fully integrated health systemFully integrated health system
250 docs in Sentara Medical Group (98% PCP’s)250 docs in Sentara Medical Group (98% PCP’s)

16. Major IssuesMajor Issues
Norfolk Surgical GroupNorfolk Surgical Group
– Program developmentProgram development
– Recruiting new doctorsRecruiting new doctors
– Ability to practice at existing facilitiesAbility to practice at existing facilities
– Clinical AutonomyClinical Autonomy
– Taking care of employeesTaking care of employees
– $’s: Salary, Guarantee Period, Signing$’s: Salary, Guarantee Period, Signing
Bonus, Asset PurchaseBonus, Asset Purchase
– Production guarantee/minimumProduction guarantee/minimum

17. Major IssuesMajor Issues
Sentara Medical GroupSentara Medical Group
– Expanding physician baseExpanding physician base
– Expanding specialist baseExpanding specialist base
– Lock up major surgical group asLock up major surgical group as
“domino” for other specialists“domino” for other specialists
– $ Issues$ Issues
RVU minimum guaranteeRVU minimum guarantee
Guarantee Amount and time periodGuarantee Amount and time period

18. Final Score after 1 YearFinal Score after 1 Year
Sentara Medical GroupSentara Medical Group
Adding NSG created domino effect,Adding NSG created domino effect,
they now have 500+ physicians andthey now have 500+ physicians and
extenders (from 290 when joined)extenders (from 290 when joined)
Practice losing significantly morePractice losing significantly more
money than budgetedmoney than budgeted
Making up for loss with increases inMaking up for loss with increases in
OR utilization, imaging, etc.OR utilization, imaging, etc.
Happy with outcomeHappy with outcome

19. Norfolk Surgical GroupNorfolk Surgical Group
Sentara Medical GroupSentara Medical Group
Deal TimelineDeal Timeline
Time Line (Months) Day 1 3 5 7 9
Action
Start
Discussions
1st
Proposal
1st Counter
Proposal Deal Dead
Top Brass
Mtg
NSG Lawyers X
Sentara Lawyers X X X X
Time Line (Months) 10 12 14 16 18 19
Action
2nd
Offer
2nd
Counter
Offer
Deal
Dead
3rd
Offer Signing Conversion
NSG Lawyers X X X
Sentara Lawyers X X X X X

20. Final Score after 1 YearFinal Score after 1 Year
Norfolk Surgical GroupNorfolk Surgical Group
Added three new docs which weAdded three new docs which we
could not have done in old systemcould not have done in old system
Each doctor made out well from $Each doctor made out well from $
perspective and reduced callperspective and reduced call
No day-to-day impact on doctorsNo day-to-day impact on doctors
Lots of new “paperwork” issues forLots of new “paperwork” issues for
staffstaff
Everyone generally happy with dealEveryone generally happy with deal

21. I have reproduced the ASGPAI have reproduced the ASGPA
survey on this topic in the finalsurvey on this topic in the final
slides for your review.slides for your review.
ASGPA SurveyASGPA Survey

22. Questions?Questions?
Thank You For Your AttentionThank You For Your Attention

23. Assembly of Surgical Group Practice
Administrators (ASGPA) Ad-Hoc Survey - 2008

24. What is your practice type?What is your practice type?
0
10
20
30
40
50
60
a. Single specialty b. Multispecialty with
primary and sp...
c. Multispecialty with
specialty care...

25. Specialty Type
39%
14%8%
3%
5%
2%
7%
5%
7%
5%
3%
2%
General Surgery
Orthopedics
General Surgery/Vascular
Pediatric Surgery
ENT & Head/Neck Surgery
Cardiothoracic Surgery
Multispecialty
Urology
Oral/Maxillofacial and Plastic
Surgery
OB/Gyn Surgery
Ophthalmology
Dermatology

26. What is the ownership status ofWhat is the ownership status of
your group?your group?
0
10
20
30
40
50
60
70
a. Independent
practice
b. Owned by
hospital/health
system
c. Academic
practice owned

27. If owned by a health system orIf owned by a health system or
academic center, for how long?academic center, for how long?
0
2
4
6
8
10
12
a. Less than
one year
b. 1-5 years c. 5-10 years d. 10+ years

28. Has a hospital or health systemHas a hospital or health system
come to your group to discusscome to your group to discuss
being acquired?being acquired?
0
10
20
30
40
50
60
Yes No

29. Have you contacted aHave you contacted a
health system to discuss being acquired?health system to discuss being acquired?
0
10
20
30
40
50
60
70
Yes No

30. What are the major considerationsWhat are the major considerations
for discussing being acquired:for discussing being acquired:
8%
18%
9%
20%
19%
13%
4% 7% 2%
Ability for physicians to sell assets
Ability to attract new physicians
Competition from similar groups
Decreased reimbursements
Increased costs of doing business
(st...
Malpractice Insurance
Retirement of physicians
Serious financial considerations
Other:
_____________________________
_...

31. What are the major considerations for discussingWhat are the major considerations for discussing
being acquired: (Other responses)being acquired: (Other responses)
Rising Costs, Lower Volumes, Not increasingRising Costs, Lower Volumes, Not increasing
reimbursementreimbursement
Stability, Marketing and Financial ImpactStability, Marketing and Financial Impact
Maintaining income levels and autonomy ofMaintaining income levels and autonomy of
physicians.physicians.
Increased physician income with less practiceIncreased physician income with less practice
investment risk.investment risk.
Compensation modelCompensation model
independence, quantity of work, physicianindependence, quantity of work, physician
compensation, employee benefitscompensation, employee benefits
Call Coverage and Management HelpCall Coverage and Management Help
LongevityLongevity

32. What are the major considerations for discussingWhat are the major considerations for discussing
being acquired: (Other responses)being acquired: (Other responses)
Maintaining Practitioner Autonomy Purchase price to includeMaintaining Practitioner Autonomy Purchase price to include
amount to cover 22+ years of sweat equity Administration andamount to cover 22+ years of sweat equity Administration and
Size of group Placement and retention of many long-termSize of group Placement and retention of many long-term
employeesemployees
Capital partner - degree of autonomy for the shareholders -Capital partner - degree of autonomy for the shareholders -
governance structuregovernance structure
Physician compensation guarantee periods reduced malpracticePhysician compensation guarantee periods reduced malpractice
premiums reduced health care premiums for staff the need for apremiums reduced health care premiums for staff the need for a
larger primary care referral base (owned by the hospital)larger primary care referral base (owned by the hospital)
Assistance with recruitment expenses. Assistance with traumaAssistance with recruitment expenses. Assistance with trauma
call coverage. Assistance with development of an acute surgicalcall coverage. Assistance with development of an acute surgical
service.service.
FinancialFinancial
loss of controlloss of control
Hospital sees opportunity obtain additional reimbursement byHospital sees opportunity obtain additional reimbursement by
billing provider based for Medicare services and wants thatbilling provider based for Medicare services and wants that
additional revenue to offset the amount they are paying ouradditional revenue to offset the amount they are paying our
physicians for call and directorship contracts.physicians for call and directorship contracts.
Reduced reimbursement; competition; ability to grow the groupReduced reimbursement; competition; ability to grow the group

33. What are the major considerations for discussingWhat are the major considerations for discussing
being acquired: (Other responses)being acquired: (Other responses)
We are committed to remain an independent practiceWe are committed to remain an independent practice
Did not desire acquisition- hired consultant to help stopDid not desire acquisition- hired consultant to help stop
action and discussionaction and discussion
Physician compensationPhysician compensation
Physicians are told they would "receive an increase inPhysicians are told they would "receive an increase in
reimbursement by 30 to 40%"reimbursement by 30 to 40%"
Physician Compensation Governance AutonomyPhysician Compensation Governance Autonomy
Financial stabilityFinancial stability
Payer reimbursement / Payer constriction of patientPayer reimbursement / Payer constriction of patient
population to Big Systemspopulation to Big Systems
Decision making, efficiencyDecision making, efficiency
Market share among three competing hospital systemsMarket share among three competing hospital systems
MoneyMoney

34. What are the major considerations for discussing beingWhat are the major considerations for discussing being
acquired: (Other responses)acquired: (Other responses)
Ability to influence insurance contractAbility to influence insurance contract
negotiations, fight decreasingnegotiations, fight decreasing
reimbursement.reimbursement.
We are not interested in being acquired.We are not interested in being acquired.
One of the Hospital's would like to acquireOne of the Hospital's would like to acquire
us to maintain control and direct itsus to maintain control and direct its
growth through outsourcing our physiciansgrowth through outsourcing our physicians
ED coverage, hospital politicsED coverage, hospital politics
CompensationCompensation

35. How likely is your group to sell to aHow likely is your group to sell to a
hospital systemhospital system
39%
35%
13%
6% 7%
Will not sell to a
hospital
Not likely to sell
Considering the
option
Likely to sell
Seriously considering
a sale74% Not likely or will not74% Not likely or will not
13% Considering13% Considering
13% Likely or Seriously Considering13% Likely or Seriously Considering