6 Steps to Successful Acquisition of Physician Practices & the Role of Predictive Scheduling

Blog Posts  |  31 January 2024

Written by: Cheryl Reifsnyder, PHD and Katie Wilson

U.S. healthcare has seen tremendous changes in the past decade—and a driving force behind this transformation has been the growing investment in medical practices by private equity (PE) firms. PE firms have invested over $750 billion in U.S. healthcare in the past decade, a significant amount of which was targeted toward acquiring physician-owned practices.

The trend is predicted to continue.

Although some have expressed concerns that PE acquisitions could lead to higher spending and lower quality of care, many practices that have partnered with PE firms report benefits to such arrangements. A 2022 JAMA Health Forum investigation found that PE-owned practices demonstrated significantly increased volumes of new and unique patients and in total numbers of patient encounters—results suggesting that acquired practices are more patient-accessible as well as more profitable.

PE investment has been associated with benefits such as:

  • Expanded facilities
  • Access to better, potentially lifesaving, technology
  • Increased practice efficiency
  • Economies of scale that increase practice leverage when dealing with vendors and payers

In addition, PE firms can frequently leverage their experience and expertise to help navigate practice challenges, such as the operational issues stemming from practice growth or recruiting new management teams.

Practice acquisitions require significant investment of both time and finances in areas ranging from complex negotiations to regulatory compliance to operational transitions, IT upgrades, and cultural integration. A mutually beneficial partnership between practices and potential investors depends on thorough planning throughout the process.

That’s why we bring you this article: to provide 6 key steps to help achieve a more successful practice acquisition.

Step #1: Assessing strategic fit

One of the most important considerations for a smooth and successful acquisition process is ensuring alignment between physicians and financial sponsors.

Strategy and motivations

For instance, it’s crucial for PE firms to strategically assess the firm’s overarching strategy and motivations. Researchers have found that the most successful PE partnerships were those pairing practices with the “right type” of investors. Ensuring a good fit between investors and physicians means taking time to understand both parties’ vision, priorities, and culture. Investor and practice beliefs need to match; investors need to share practice interests, such as advancing quality care models, as well as pursuing financial success. This assessment allows you to identify areas where vision and objectives do not align and resolve potential conflicts before proceeding.

Strategic goals

Clarifying the PE firm’s strategic goals for the practice is also essential. For instance, defensive deals aim to retain continuity of key practice specialties in given service areas; offensive deals focus on expansion into new service areas, care settings, or regional markets. Planning for an effective transition requires clarifying this goal—protecting the existing market share or disrupting the status quo market landscape—as well as others.

Step 2: Constructing valuation frameworks

As you go through the acquisition process, you must ensure compliance with federal fraud and abuse prohibitions on paying for referrals. This means ensuring that acquisition prices and compensation packages reflect fair market value (FMV) without consideration of expected referral volumes. To obtain objective price benchmarks, you need to conduct independent valuations across income, market, and asset-based approaches.

Given the limited transparency often available for the private practice transaction details required for market comparables, primary FMV indicators are often obtained by assessing tangible practice infrastructure and the intangible relationships between patients and the practice workforce. When developing potential offers, PE investors must balance up-front payments (for areas such as clinical infrastructure) with ongoing costs. For instance, initial purchase prices will need to be reduced for acquisitions in which practice owners annuitize goodwill value through higher salaries and incentives.

To accurately project potential returns on the investment, it’s also critical to budget for supplementary acquisition costs, such as expenses for IT integration, rebranding, facility renovations, streamlining clinical operations, legal fees, etc., as well as the dedicated transition teams required to handle processes such as technical implementations, communications, physician queries, and interim workflow guidance.

Step 3: Regulatory compliance requirements

Navigating the complexities of regulatory compliance surrounding practice acquisition requires expert legal guidance. This step may include due diligence concerning everything from past billing/documentation audits to anti-kickback concerns over incentives, to the requirements of state laws regarding practice sales and medical licensure frameworks. Experienced council is invaluable for mitigating risk as you navigate these and other compliance issues.

For added fraud protection, you must engage independent experts to establish fair market valuations and physician compensation assessment processes. Compliance with federally mandated exceptions regarding arrangements not considered kickbacks requires the acquisitions process to demonstrate supportable methods for determining physician pay. Another key precaution is ensuring asset purchase deals are executed at FMV without consideration of historical or future internally referred trends for patient visit volumes.

Step 4: Configuring aligned physician compensation plans

To sustain high physician performance levels after practice acquisition, it is imperative to develop appropriately structured compensation models.

Evolving payment models

Although most current payment models are primarily productivity-based, value-based contracts are clearly the preferred future business model. Payment models increasingly incorporate quality, efficiency, patient experience, and other value-based components. With both public and private payers shifting toward risk-based payment arrangements, flexibility has become a key component of provider contracts.

Provider compensation plans need the flexibility to accommodate changing reimbursement models, adjusting to balance productivity and quality incentives. Plan to gradually transition compensation, over 3 to 5 years, from pure fee-for-service to include value-based incentives for metrics such as:

  • Readmission rates
  • Advanced care access
  • Development of personalized medicine programs

The Physician Compensation Committee and Physician Advisory Committee

Close benchmarking against industry compensation trends can help retain top talent. A Physician Compensation Committee can be vital to evaluating the physician compensation market, reviewing options, and approving compensation plans and policies; a Physician Advisory Committee, consisting of physician leaders, can provide input into the decision-making process.

Broad internal input into plan design and transparency into the process helps build trust among physicians as their compensation evolves from traditional fee-for-service payment models to value-oriented approaches.

Step 5: Post-acquisition integration planning

Physician turnover has been increasing, physician burnout is at its highest level in years, and recent research suggests PE acquisition of physician practices may have a further negative impact on clinicians. As a more stable workforce is associated with better patient health outcomes, improved quality metrics, and reduced use of resources, improving physician retention can both improve quality of care and save money.

This means it’s critical to start creating your post-merger integration strategy—focusing on physician retention—early in the acquisition process.

This plan should outline specific tasks and their owners, costs, timelines, and monitoring mechanisms. It should also include methods for maintaining open communication channels so any issues can be addressed as quickly as possible.

For most effective execution, consider assigning a senior leader to manage post-merger integration. A dedicated integration leader can guide physician groups through the steps essential to practice integration, such as learning new EHR systems, aligning care protocols, and updating quality reporting requirements.

Technical integration of infrastructure

Significant up-front planning and decision-making are essential for smooth integration of technical infrastructure:

  • EHR: Will the new practice transition to an EHR system currently used by the acquiring company? Otherwise, are the 2 systems compatible?
  • Communications: Establish a timeline for integrating the new practice into corporate communications, such as email and the company intranet.
  • Human Resources: Establish a timeline for onboarding new providers and staff on existing organizational standards, Code of Conduct, policies, etc.
  • Financial Operations: Create a timeline for consistency in financial processes, revenue cycle procedures, etc.

Physician acculturation

Gaining physician integration from the outset can help prevent disengagement and eventual provider attrition. Proactively engaging in acculturation tactics such as the following can help acquired physicians transition from outsiders to insiders:

Step 6: Optimizing operations via Predictive Scheduler

Practice optimization is a key goal in PE acquisition of physician practices. Optimization—and its ability to help reduce physician burnout—is also one of the benefits PE acquisition can afford physicians.

Veradigm’s Predictive Scheduler can drive optimization in one of a practice’s pivotal operation areas by using predictive analytics technologies to address common scheduling challenges. Overbooked clinicians, ad hoc openings due to cancellations, high no-show rates, and volatile patterns of daily demand all lead to inefficient resource use. Predictive scheduling is a powerful tool that balances access and convenience by forecasting appointment demand, then automatically adjusting appointment slot availability.

Powered by artificial intelligence, Predictive Scheduler assesses historical visit patterns, then calculates appropriate overbooking levels to help minimize unused capacity while avoiding excessive wait times and rescheduling. Predictive Scheduler’s robust analytics reveal opportunities around slot utilization, patient flow, and cancellations/no-shows. The system fills openings to expedite urgent cases while planning enough flexibility to prevent overload. Predictive Scheduler enhances practice efficiency and care coordination, boosting productivity and revenue.

Veradigm offers packages ranging from the core predictive engine to add-on consulting services, automated outreach for closing care gaps, and online scheduling supported by machine learning algorithms.

Driving returns via thoughtful planning and optimization technologies

Structuring mutually beneficial physician partnerships requires vigilant planning and execution. With careful change management and continuous performance improvement, private investors can deliver elevated patient care and strong returns from medical group affiliations.

To learn more about how Veradigm’s suite of solutions, advanced analytics, and automation can help optimize your physician practice acquisitions and operations, contact a representative to schedule a consultation. Our technologies and experts can guide you through challenges around scheduling, patient engagement, population health reporting, revenue cycle management, and more, helping ensure successful partnerships. We offer customized packages to fit your budget and needs—contact us today to get started!

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Veradigm   Physician Practice Acquisition   Acquisition Insights   Predictive Scheduling  

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