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John F. Kennedy said, "Leadership and learning are indispensable to each other."

GMGMA is dedicated to providing education to all our members, in order that we may be better leaders.  We are proud to provide this  feature that will expand our educational offerings beyond our twice yearly meetings and the quarterly newsletters.  Below you will find the next offering of the topic  "Did You Know?"  

 

Yours in learning,

 

Rita A. Foster, Newsletter Committee Chair

r.foster@atlantagynob.com


 

 

 

Did You Know...Integration Options for the Independent Physician Practice

The U.S. Supreme Court decision in the case of King v. Burwell in June of last year has likely cemented the Affordable Care Act as the law of the land.  As President Obama stated, “The Affordable Care Act is here to stay.”  Thus, the changes to the healthcare delivery system that were triggered, directly and indirectly, by the Affordable Care Act will continue apace.

Among the most notable change wrought by the ACA was and continues to be the significant volume of health care marketplace consolidation and integration activity.  For physicians, “integration” has consisted largely of hospital and health care system acquisitions of physician practices, and post-closing employment of doctors by a hospital-owned and controlled physician organization.  In addition, several large health insurance companies and managed care organizations have explored the establishment of “captive” physician organizations, in the model of Kaiser Permanente.

Independent, single-and multi-specialty physician groups face significant pressures and risks in the healthcare market of today, including:

1.               Declining revenue and reimbursement risk,

2.               Revenue cycle and costs of collection,

3.               Increasing overhead and operating costs,

4.               Lack of access to capital to replace aging equipment and to purchase or lease necessary IT/EMR/EHR systems,

5.               Lack of leverage with managed care organizations,

6.               Increasing costs of compliance with the myriad of state and federal health care and other laws and regulations, and

7.               Difficulty competing in a crowded market place increasingly dominated by large players.

These factors place extreme pressure on physicians who wish to remain in private practice.  It is increasingly difficult for independent group practices to survive and thrive in this evolving healthcare marketplace.  Competing with large, well-funded hospital-owned physician groups, large plans like Kaiser, and large multi-specialty “super” groups that have locked-up referrals, are able to negotiate favorable rates with managed care companies, and have the capital to grow and expand their businesses, is a daunting task.  The fact is, size matters, and it is becoming increasingly important for physician groups to achieve a certain “critical mass” in order to reduce the business risks and competitive disadvantages that small groups face in the current environment.

Physicians may seek to integrate their practices into a larger organization for a variety of reasons, including the following:

1.               Increase market share/market power

2.               Improve bargaining power with managed care organizations

3.               Increase access to capital

·       To expand business, add new locations, add new services

·       To fund necessary IT/EMR/EHR upgrades and maintenance

4.               Reduce costs through increased efficiencies and spreading fixed costs out over a larger number of providers

5.               Increase purchasing power

6.               Ability to assume risk, partner with ACOs, etc.

7.               Branding/marketing opportunities.

Many physicians seeking to integrate into a larger organization have elected to work with hospital-owned and controlled physician organizations or insurer owned physician organizations such as Kaiser Permanente.  But what if physicians practicing independently in their physician-owned medical group are not interested in working for a hospital or an insurer-owned physician organization?  What integration options are available to physicians who wish to realize some of the benefits of a larger organization while remaining in private practice?

This article will discuss four (4) types of physician integration models, ranging from a very loose affiliation to fully-integrated group practice, as follows:

1.               Independent physician association (IPA) model

2.               Clinically integrated network (CIN) model

3.               Management services organization (MSO) model

4.               Fully integrated group practice model

Independent Physician Association

The Independent Physician Association (IPA) exists primarily for the purpose of negotiating managed care contracts.  The IPA is organized as a separate legal entity, usually as a limited liability company.  Physicians and physician groups comprise the owners/members of the IPA.  The IPA may also enter into “participating provider” agreements with non-owner participants.  The IPA must contract with or employ administrative personnel to provide a minimum level of administrative services to the IPA, primarily assisting in the negotiation of managed care contracts and in the administration of such contracts.  Depending on the terms of the managed care contract, the payer will either pay the participating physicians directly, or the MCO will pay all reimbursement due to the participating physicians to the IPA (with the IPA assuming responsibility for paying the reimbursement out to the individual physicians).  The IPA must use some form of a “messenger model” in negotiating contracts in order to ensure compliance with applicable anti-trust laws.  The physician members and participating providers in the IPA continue to practice independently of each other and, other than participating in the IPA for the purpose of negotiating and administering contracts with managed care companies, the groups are not integrated with each other.

The advantages of an IPA include the following:

(a)       provides a vehicle through which physicians may negotiate with managed care companies,

(b)       provides a vehicle through which the physicians may establish some degree of financial and/or clinical integration among the practices participating in the IPA,

(c)       allows the participating physicians to assume risk or otherwise provides a vehicle through which the groups can participate in “capitated” contracts, shared savings programs,   and other new reimbursement models, and

(d)       may provide some “branding” opportunities.

IPAs must be structured and operated very carefully to avoid potential violations of state and federal anti-trust laws; and, the steps that the IPA must take to ensure compliance with these anti-trust laws often limit the effectiveness of the IPA in negotiating with managed care companies.  Furthermore, the limited level of integration inherent in an IPA means that its effectiveness in addressing other challenges facing independent physician groups is extremely limited.

Clinically Integrated Network Model

A clinically integrated network (CIN) is in certain respects a more fully developed IPA.  Like an IPA, the CIN is organized as a separate legal entity.  Physicians and physician groups comprise the owners/members of the CIN, and non-owner physicians may also participate as contracting participating providers.  Physicians participating in a CIN must agree to clinically integrate their practices.  Thus, all CIN participants must share common IT systems, EMR systems and other similar systems.  The CIN will collect all clinical information generated through the patient care services provided by the participating physicians.  The CIN will then collate, process and organize the clinical data of the CIN participating physicians so as to measure the outcomes, quality, efficiencies and cost-effectiveness of the care provided by participating CIN physician members.  The CIN will frequently develop clinical pathways and protocols and CIN participants must agree to follow such protocols and pathways where appropriate. 

A CIN requires a more robust management and administrative infrastructure.  The CIN must employ and/or contract with sufficient personnel to operate the CIN, to compile all of the clinical information generated by the CIN participants, and to process that data such that the CIN can report clinical outcomes of CIN providers, and the quality, efficiency and cost-effectiveness of care rendered by participants in the CIN.  CIN administration must also track and enforce physician practice patterns against the CIN protocols and clinical pathways.

Like an IPA, the CIN must be structured and operated very carefully in order to avoid potential violations of state and federal anti-trust laws.  If the CIN achieves a significant level of clinical integration of the participating physicians, then the CIN will possess an enhanced ability to negotiate managed care contracts for and on behalf of its physician members.  The CIN’s IT systems must include the capability to process and generate data required under the various managed care contracts, and the CIN must employ or contract with personnel who have the technical ability to utilize the IT systems to produce the necessary information.

A CIN may serve as a vehicle through which the physician members of the CIN may realize (i) an enhanced ability to negotiate agreements, (ii) the ability to assume risk and to participate in other types of alternative reimbursement programs, (iii) the ability to partner with ACOs, hospitals, insurance companies, and other integrated delivery partners to provide services rendered by the CIN, and (iv) branding/marketing opportunities.  Because a CIN is only a partially-integrated organization, however, physician participants may not realize all of the benefits associated with a more fully-integrated model.

Management Services Organization Model

A management services organization (MSO) model involves a higher level integration than either an IPA or a CIN.  Like those two models, the MSO is organized as a separate legal entity.  Physicians and physician groups hold the ownership/membership interests in the MSO.  The MSO will provide all management and administrative services for and on behalf of its owner/member physician organizations, and it may also provide management services to non-member groups.

The MSO typically provides essential administrative and management functions of and for the member practices.  All professional and medical services provided by and through the member practices are billed by the MSO under a single billing number assigned to the MSO.  All of the member physician practices must share a common IT/EMR/EHR platform and systems.  The MSO may negotiate contracts with management care companies, ACOs, hospital organizations, etc., and the MSO will provide contract administration services with respect to all managed care contracts entered into by the MSO.  The MSO will provide billing and collection services for all of the member organizations, as well as a number of other “back office” services.  The MSO may also act as a purchasing agent for the member physician groups, and employee benefits for each group may be purchased through the MSO. 

The MSO may develop protocols and clinical pathways for the member physicians, and will also monitor compliance by individual physicians with such protocols and pathways.  In addition, similarly to the CIN, the MSO will compile and collate clinical data pertaining to the quality, outcomes, efficiency and cost effectiveness of the services rendered by the member physicians; and, the MSO will prepare reports, spreadsheets, and other documentary evidence necessary to demonstrate to payers and partners in ACOs or similar organizations the quality, efficiency and cost-effectiveness of the services rendered by the MSO participants.

In addition to the benefits associated with the partially-integrated organizations discussed above, the MSO model achieves a number of benefits associated with a more fully-integrated organization, including, (i) a greater ability to compete for and negotiate managed care contracts on behalf of the MSO owner/member physician groups, (ii) reduced operating costs through the spreading of certain fixed and variable operating costs over a greater number of groups and through greater efficiency, (iii) increased access to capital to assist in growing the MSO business and in making necessary investments in infrastructure, IT/EMR systems, management and administration, etc., and (iv) enhanced branding/marketing opportunities.

In addition to the foregoing, the ability of the MSO to collect and to analyze information related to the quality, efficiency and cost-effectiveness of the clinical services rendered by the MSO participants ideally will render the MSO and its owner/member physician groups an attractive partner for ACOs, hospital systems, and insurance companies and will allow the MSO and its member groups to participate in alternative reimbursement programs instituted by Medicare, Medicaid and private payers.

Because the MSO is not a fully-integrated group, however, some legal risk remains with respect to the negotiation of managed care contracts and the administration of those contracts.  In addition, the MSO cannot initiate ancillary services that are “designated health services” under the Stark Law, as the MSO typically will not meet the definition of a “group practice” under Stark; therefore, referrals of patients between and among the groups and the MSO must be closely monitored for compliance with the Anti-Kickback Statute and the Stark Law.  In addition, because each group continues to operate as a separate, independent physician practice group, each group will still be subject to individual business risks associated with the business of that particular physician group practice.

Fully Integrated Group Practice Model

A fully integrated group practice model represents the highest level of integration available to independent physician groups.  Under this model, independent physicians and physician groups effectively merge into a single group practice.  The physicians become members, shareholders and/or employees of the new group practice entity (NEWCO).  NEWCO is the provider of all professional and ancillary services previously provided by the independent group practices.  NEWCO bills and collects for all such services, and all reimbursement paid for such services is considered reimbursement of NEWCO.  NEWCO assumes all capital expenses and liabilities of the independent practices, and NEWCO is responsible for all operating expenses and liabilities of the group.  NEWCO owns, operates and maintains a single, common IT/EMR system.  NEWCO provides centralized management and administrative services for all NEWCO offices.  Further, because it is a single, fully integrated group practice NEWCO may negotiate and enter into “single signature” managed care contracts without risk of violating applicable anti-trust laws.

As a fully-integrated group practice, NEWCO will realize all of the benefits associated with operating as a fully-integrated organization, including (i) better reimbursement rates and increased revenue, (ii) lower per-unit operating expenses, (iii) access to capital to maintain and grow the business, (iv) critical mass necessary to compete effectively with large hospital-owned physician organizations, large physician-owned single and multi-specialty group practices, and other similar organizations, (v) increased market power, and (vi) branding and marketing opportunities.

Conclusion

Heraclitus of Ephesus, an ancient Greek philosopher, famously wrote in 500 B.C. that “the only thing that is constant is change.”  Independent physician organizations face a daunting and uncertain future.  Independent physicians who desire to remain independent, and who wish not just to survive but to thrive, must be proactive in reshaping their organizations to meet the challenges of the twenty-first century healthcare marketplace.

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This article was contributed by:  Daniel J. Mohan, a partner in the Healthcare Practice of Morris, Manning & Martin, LLP. He concentrates his practice in corporate, transactional and regulatory matters and has over 20 years of experience in the healthcare field.  He is a frequent writer and is often called upon to speak on healthcare law topics.

 

Dan Mohan / Partner, Healthcare Group / Morris Manning & Martin LLP 

O: 404 451-7389        E:  DMohan@mmmlaw.com

 


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