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| Dear Friend,
Practice and facility valuation . . . and opportunity.
The failure of physician practice acquirer, American Physician Partners (“APP”), once a significant leader in contracting with hospitals to staff emergency medicine, hospitalists, and critical care services highlights a very important lesson on physician practice and even physician-owned facility valuation. It also provides new opportunities, maybe for you.
APP, a company owned by investment giant Brown Brothers Harriman & Co. in concert with physicians and management, was, until very recently, a highflyer, the 6th largest in its segment, providing services at more than 150 hospitals through more than 2,500 providers. Revenues bolted upward from $249 million in 2018 to $633 million in 2021.
But then, according to reports, a $520 million debt refinancing collapsed when investors became concerned over the effects of the federal No Surprises Act.
Although then current creditors provided a lifeline, the increasing cost of that debt, no doubt fueled by the rocket-like rise in interest rates, led the company to seek a merger partner, which it thought it had in SCP Health. But “thought it had” and “had” aren’t the same – the deal fell through.
As a result, the company, once worth what must have been billions, is worth, well, practically nothing: last week it announced that it is shutting down.
Physicians, both in regard to their practices and in regard to their facilities, often have outsized notions of business valuation. The fact that someone offered 6x EBITDA three years ago is meaningless. So, too, is the opening bid at some imaginary, and near fraudulent, number from a PE firm working from the usual playbook of lie high and close low or not close at all.
Yet the current market creates opportunities as well.
Although other large “staffing” companies are circling APP’s facilities like turkey vultures, APP’s failure , as well as that of others, such as Envision Healthcare’s which is still in bankruptcy, opens up opportunity for both regional and small single specialty groups, and for the formation of new physician groups to emerge from the ashes.
There are many ways for physician leaders of local groups, whether or not there is an actual group as opposed to the remnants of a failed giant, to form, and finance, what the former giant was unable to pull off. In fact, in many ways, the failure was “giant induced” – your odds of success may be far greater, courtesy of the formerly smartest people in the room.
Let’s talk.
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| | | Tuesday - Surprise Hospital Bills - Success in Motion
Watch the video here, or just keep reading below for a slightly polished transcript:
You're undoubtedly familiar with the concept of surprise medical billing, the situation in which an out-of-network, hospital-based group, say an anesthesia group or radiology group, is working at a hospital that is in-network. Forget about freedom to contract: the law essentially pressures an out-of-network group to accept treatment as in-network, or worse.
Well, surprise! The concept of a surprise bill has spread. In early July 2023, the Biden administration presented a policy proposal imposing restrictions on hospital surprise billing.
So what’s a hospital surprise bill? Well, it’s something slightly different from the concept applied to physicians.
Apparently, it's the situation in which, for example, a patient, we'll call her Ms. Smith, goes to her cardiologist in January of some year for some test. The cardiologist bills Ms. Smith $300 for the test at the office. Ms. Smith comes back six months later, gets the same test, in the same office but now gets billed a few hundred dollars by the practice and $1,000 by the hospital as a facility fee.
What! What facility fee?
Well, in the interim between those two visits the cardiologist sold his practice to the hospital and the former medical office became a hospital outpatient clinic, i.e., part of the hospital facility. So, what do you know, there’s now a facility fee.
Stories abound about these sorts of surprises.
The darkly funniest one that I saw recently concerned a patient who was billed a facility fee for a telehealth visit because the doctor connected to the call from the hospital.
Before you start snickering or delighting in the schadenfreude of hospitals getting whacked with similar "surprise" prohibitions, what’s sauce for the goose is not always sauce for the gander. That's because the Biden administration is not proposing a policy that would prohibit these fees or would restrict them to the prior average cost (which was $0), but instead is proposing that hospitals should be required to disclose facility fees up front.
Now I suppose that disclosure is better than no disclosure, but it’s not exactly the same as the "solution" imposed on supposed physician surprise medical billing. Go figure!
Or, do you really have the time to waste to go figure? The bread's been buttered only on one side, and that side isn't yours.
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| | Wednesday - Emotions as Drivers of Contractual Relationships - Medical Group Minute
Watch the video here, or just keep reading below for a slightly polished transcript:
I recently read in a magazine aimed at the hospital administrator market that administrators make the decision to terminate their facility's relationship with a physician group because it makes business sense to do so, and that emotion is not a part of the equation.
Although I have certainly met many hospital administrators who had no personality, or at least no readily ascertainable redeeming characteristics, they were still, to the best of my knowledge, people.
And people can't separate emotions from decision-making. They can lie about it and claim emotions are not a factor, but it's frankly impossible for emotions not to be a major driver of decision-making.
The lesson here is not that physician groups can ignore the quality of their service, including the quality of responsiveness to a hospital administration's issues. That would be foolish.
But it would be equally foolish to believe that strategies based on emotion have little value when in fact behavioral economists and psychologists who study decision-making clearly acknowledge how irrational our emotion laden decision-making it really is.
Knowing how to develop emotion-based strategies and how to implement them are simply among the "combined arms" tools that medical groups must develop in order to thrive.
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| | | Listen to the podcast here, or just keep reading for the transcript.
A few minutes ago I passed an old Corvette, it was a ’74 or ’75.
One of my college roommates had a ’74. It was an interesting car with an interesting shape, but the build quality was crap. There were gaps where the hood would close, gaps on one side of the body and not the other, and huge gaps in the interior panels — you could practically stick your finger into the dash panel next to the radio.
That reminds me of medical group insurance policies.
Your group has entity coverage for malpractice so that you’re covered for an act that one of your members is involved in. As in Dr. X, one of your employees is sued for malpractice and the group is named as a defendant, too.
But what if you’re sued for an event that one of your own members didn’t cause? To your dismay, you find out that you’re not covered for that.
Fortunately, at least when considering these issues in advance, there are insurance products that close up the gaps in coverage.
But that means that you have to identify those gaps: What gaps exist within your entity’s coverage? In terms of malpractice coverage, general liability coverage, cyber liability coverage, D&O coverage, and so on? The only way to find out is to conduct a very thorough evaluation of what you have in place; an evaluation of the policies themselves, not just their names or descriptions.
In many cases, gap coverage can be negotiated with carriers, and what’s obtainable, and its premium, can vary widely. But, at a minimum, arm yourself with the understanding of what you have, what you might obtain, and its cost.
That’s because one thing is certain: After the event occurs, you can’t insure against it, at least without committing insurance fraud.
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| | | Calibrate Your Compass
Read our exclusive RedPaper to guide you through this evolving situation.
The coronavirus crisis caused a short-term economic crisis for many medical groups. Our RedPaper shows you the way out. Plus, many of the concepts discussed are applicable during both good times and bad.
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| | Help Us Help You With Helpful Content
What tailored content would you most like to see during this
time? How can we focus on solutions to your most pressing strategic concerns?
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| | | | We all hear, and most of us say, that the pace of change in healthcare is quickening. That means that the pace of required decision-making is increasing, too. Unless, that is, you want to take the “default” route. That’s the one is which you let someone else make the decisions that impact you; you’re just along for the ride. Of course, playing a bit part in scripting your own future isn’t the smart route to stardom. But despite your own best intentions, perhaps it’s your medical group’s governance structure that’s holding you back.
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| In fact, it’s very likely that the problem is systemic. The Medical Group Governance Matrix introduces a simple four-quadrant diagnostic tool to help you find out. It then shows you how to use that tool to build your better, more profitable future. Get your free copy Free.
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| | | | Whenever you're ready, here are 4 ways I can help you and your business:
1. Download a copy of The Success Prescription. My book, The Success Prescription provides you with a framework for thinking about your success. Download a copy of The Success Prescription here.
2. Be a guest on “Wisdom. Applied. Podcast.” Although most of my podcasts involve me addressing an important point for your success, I’m always looking for guests who’d like to be interviewed about their personal and professional achievements and the lessons learned. Email me if you’re interested in participating.
3. Book me to speak to your group or organization. I’ve spoken at dozens of medical group, healthcare organization, university-sponsored, and private events on many topics such as The Impending Death of Hospitals, the strategic use of OIG Advisory Opinions, medical group governance, and succeeding at negotiations. For more information about a custom presentation for you, drop us a line.
4. If You’re Not Yet a Client, Engage Me to Represent You. If you’re interested in increasing your profit and managing your risk of loss, email me to connect directly. |
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