Acquiring Physicians, Cardiology Practices: Key Concepts to Consider
In a session at the Becker’s Hospital Review annual meeting in Chicago on May 18, James M. Palazzo, MBA, managing director of consulting firm Navigant spoke about acquiring physician groups and specifically cardiology practices.
“Financial pressures are causing physicians and hospitals to look at alignment,” Mr. Palazzo. That’s a growing trend among cardiology groups.
Today’s financial, quality and patient booms mixed with physician shortage are contributing to the pressure, along with what Mr. Palazzo referred to as “tomorrow’s pressures”: accountable care, health reform and new competition.
Mr. Palazzo noted the spectrum of integration, from private practice to employment to everything in between, such as co-management.
“Co-management is the main management tool to develop outcomes and a common vision to achieve clinical integration,” Mr. Palazzo said.
He then discussed what is actually being bought and sold in acquisition of a cardiology practice, or any physician practice [delete “for that matter”]:
• Tangible assets
• Hard assets such as furniture, equipment and supplies on hand
• Identifiable intangible assets (i.e. medical records and assembled workforce)
• Leasehold improvements
• Practice goodwill (although the trend nationwide is to not consider this during valuation, Mr. Palazzo noted)
Here are three key elements hospitals and practices consider when drafting acquisition contracts:
• Base clinical pay
• Administrative time
• Performance incentives (including quality, efficiency and program development)
Mr. Palazzo also discussed a shift in how cardiologists are generally paid.
“Two or three years ago, 100 percent of cardiologist compensation was base pay,” he said. “Increasingly, that has shifted.”
Administrative time and performance incentives are factored in when considering the total take-home pay of a cardiologist. While most of a cardiologist’s income still derives from a base salary, Mr. Palazzo predicts that will change.
“As accountable care moves along, it could go to as much as 50-50 three to five years from now, where 50 percent is paid based on outcomes,” he said.
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