Survey: Hospital/practice integration has challenges, rewards
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Of the 310 cardiology practice members, 153 responded to the survey. At the time of the survey, 22 practices said they had recently undergone full integration, 70 were considering integration, 42 were not considering integration, eight said they would never consider integration and 12 were in a co-management agreement.
“Integration is a very powerful force in cardiology today,” Patrick White, president of MedAxiom, told Cardiovascular Business News. With financial worry and changes in the fiscal environment, more practices are considering integration as an opportunity, he said.
Interestingly, all 22 practices who had fully integrated with a hospital reported that they would recommend integration to their colleagues. “That’s a pretty powerful statement,” said White.
“Anecdotally, what some of the members said was that they entered the deal with much trepidation, but after a couple years, they saw increased quality of the hospital and an increase in hospital performance,” he said.
Of practices that had integrated, the three major problems they faced prior to integration were declines in physician compensation (86 percent) and testing revenues (59 percent) and the inability to recruit employees due to compensation issues (36 percent).
“In cardiology there are some pretty significant changes that impact the physician group from a financial perspective and then there are some regulatory and legislative issues to deal with as well,” White explained.
During the survey, the three top reasons for seeing the need to integrate from those who had already undergone the process was the belief that reimbursement trends favored hospital-based environments (63 percent), that they would gather better capital growth for the cardiovascular service line (CVSL) (54 percent) and have a better ability to reach goals (45 percent).
However, talks of integration moved beyond just financial concerns, and practices asserted that their decision spawned from beliefs that they would gain better protection from the competitive market.
Additionally, practices said that they had felt that integrating with a hospital would give them more influence over the CVSL, better cultural incentives (paid time off/vacation time) and better access to primary care physicians, while some practices reported feeling tremendous pressure from the outside market.
“Once people get into the negotiations, the far bigger issue is that of governance and management. How are we going to manage and govern our practice? Is it going to change the way we practice medicine? These questions become the much bigger issue,” White noted.
During integration talks, one difficult decision is deciding whether or not to sell stocks or assets or lease. Among the survey respondents who integrated, 55 percent sold their assets during the deal, 30 percent sold stock and 15 percent leased assets.
Figuring whether to use an employment model (sell stocks/assets), professional service model (lease arrangement for use of cardiologists at hospital) or business enterprise model (combines both aspects of employment/professional models) is also another difficult decision.
White said that the best way a cardiologist practice can complete this complex business deal successfully is to get professional assistance from outside consultants.
“The worst kind of ignorance is not knowing what you don’t know,” he said. “Getting professional advice will help identify issues that have to be dealt with and a professional can help you think through the pros and the cons, the risk versus the rewards, and the potential pitfalls.”
Most groups participating in the survey used external contractors (77 percent) to sync the deal, while the remainder relied on assistance from their own attorneys and accountants (22 percent).
Hiring an outside consultant can help a practice “come to grips with reality” during integration talks, said White. “It gives the group more realistic expectations going into the deal. If you’re not careful and you think it’s going to be all wine and roses you won’t understand that you now have to go through a bureaucratic process to make decisions.”
One of the biggest problems that cardiology groups face is dealing with the large bureaucracy of a large hospital. “It takes longer for a bureaucracy to make decisions and that’s one of the things that affects the groups the most,” said White. After integration, cardiology practices no longer decide to hire an additional employee if needed, the decision must now go through the hospital.
The top three problems practices said they faced post-integration were: feeling a loss of control, competing for capital and a long, bureaucratic decision-making process.
However, White said hospitals and the practices see aligned incentives that allow cardiologists to gain more responsibility and authority, including the management of the entire CVSL.
“I think there can be some real win-win scenarios out there,” White said. Integration can be helpful for quality-based initiatives which bear incentives. These help the hospital operate more efficiently and provide cost savings in the long run, he said.
Post-integration, over 60 percent of survey participants reported a decline in overall practice costs, while 90.9 percent of practices reported that physician compensations had increased--some by as much as 30 percent. Most practices saw increases in management, patient and physician satisfaction as well.
White said that because integration alleviates competition, there is more room to focus on quality and costs--80 percent of those who integrated reported seeing significant quality improvements.
Survey results showed that the majority of practices noted that the entire integration process took anywhere from six months to 18 months, while two survey respondents noted that inking the deal took two to three years.
“You want to be careful of the slippery slope—if you decide you want to analyze the opportunity, then analyze the opportunity but make sure that the vote to move forward isn’t ‘well we’re going to do it.’ You need to understand whether or not you have a good, willing partner, whether you can put a good deal together and whether it really makes sense in the long run. These are important issues,” White concluded.