Physician Practice Acquisition and Risk Management

Physician Practice Affiliation and Acquisitions and Risk Management Joel Schuessler and Greg Hinesley May 12, 2016 Georgia Society for Healthcare Risk Management Annual Meeting

Agenda Outline of General Process General Legal Principles Acquisition Models Pre-acquisition evaluation points Post-acquisition integration points Questions

General Acquisition Process What is your overall strategy in acquisition? What are your specific goals in pursuing employment of physicians? Do you have the 5Cs in place? Competency Capital Competition Comparable Alternatives Communication Why are you considering acquisition of a particular physician practice? Payment Reform Community Need Hospital/Physician Integration and Alignment Existing referral patterns Technology consolidation

General Acquisition Process What do you know about the practice? Past experience with physician(s) Initial Discussions Due Diligence – will it happen early, will it happen late, do you need an NDA? Negotiate the deal Basic acquisition structure – assets vs. entity purchase How is purchase price being determined? How will ongoing pay be determined? Set physician expectations Set executive expectations Close the deal Integration Post closing – put the employment model into place

General Legal Principles Major Healthcare Regulatory Schemes Stark Law Anti-Kickback Statute Antitrust Corporate Practice of Medicine and CON HIPAA Liability Principles Impact of acquisition structure on past liability Vicarious liability Insurance coverage Employment Related Issues EEOC/DOL Pension/Retirement Plans

Basic Acquisition andAffiliation Models Space and equipment leases Call coverage agreements Medical directorship agreements Co-management agreements Professional services agreements Sale of equipment/asset purchase Stock/entity purchase

Basic Acquisition andAffiliation Models Space and equipment leases Call coverage agreements Medical directorship agreements Can carry varying degree of regulatory risk – Stark, Anti-Kickback Statute, etc. Carry relatively low additional liability risk Generally structured as leases and/or independent contractor agreements. Each party retains responsibility for own acts Require physician to carry appropriate professional liability insurance Medical director agreements typically require hospital to provide coverage for medical director, but services should be administrative not clinical

Basic Acquisition andAffiliation Models Co-management agreements More significant integration and alignment Typically one or more physicians will agree to provide management services for a clinical service line More significant regulatory risk – need to be well vetted and reviewed by legal advisors and fair market value consultants Liability risk can be higher for physician entity because of responsibility taken to actively manage hospital services

Basic Acquisition andAffiliation Models Personal Services Agreements Common structure to “straddle” line of employed vs. independent Common structure is for physician or physician group to agree to provide professional services on behalf of hospital entity. More common when significant ancillary services are part of the acquisition – large capital equipment, surgery centers, etc. Pros May be easier to unwind if physicians and hospital decide to part ways Gives physicians ability to tell colleagues they remain independent Can encourage integration Limited risk to hospital for past acts of physicians Cons Can carry high degree of regulatory risk Carries risk of vicarious liability concerns for hospital under agency theories

Basic Acquisition andAffiliation Models Asset Purchase with Employment Most common approach to practice acquisition. Common structure is for hospital to purchase assets of practice and couple with employment agreement Pros If well managed, gives highest degree of integration between hospital and physicians Creates “owners” vs. “renters” Less risk to hospital for past acts of physicians than stock purchase Cons Can carry high degree of regulatory risk based on structure of both $$ allocated to asset purchase and to on going compensation Harder to unwind if hospital and physician are not a good fit Increases liability risk for hospital on an overall basis – vicarious liability

Pre-acquisition Evaluation Points • Develop your due diligence check list EARLY – before you get to basic agreement on outlines of deal terms. • Will this be a phased acquisition – i.e. purchase agreements signed with continuing due diligence after or is it done at the time of signing? • What is the anticipated deal structure?

Pre-acquisition Evaluation Points • Asset and stock/entity purchase due diligence questions: • What specialty is the physician in to evaluate general risk patterns? • Do you have a loss run or other information on past claims? Have you or others on the deal team spoken to other physicians in the community about practice patterns? • Do you understand their current insurance structure? • Will you be asked to pick up a retro date for past acts, or will the physician come “clean” to you? Have the physicians diligently reported any claims or potential claims? • If you are not paying for tail or picking up a retro date, is the physician required to continue coverage or buy his/her own tail? • How is your current insurance program structured? • Are you self insured? Will you place the physicians in that program? • If you have a large self insurance retention, how will physician claims be addressed? • If you commercially insure the physicians – will you have a gap between commercial insurance and excess? • Will adding the physician(s) impact your premiums and/or actuarial analysis?

Pre-acquisition Evaluation Points • Asset and stock/entity purchase due diligence questions: • Equipment • What is the age of equipment? • Is there deferred maintenance? Is it safe to continue using for patients? • Staff • What staff will come over as a part of the transaction? • How has staff been trained? What is the mix of licensure – are staff potentially performing tasks that they are not licensed for? • Medical Records • How will old medical records be retained and accessed – continuity of care concerns • Contracts • What contracts are being assumed? • Are there unique or unusual contractual provisions that will impact your potential exposure post acquisition? • Stock/Entity Purchase: • You are acquiring all liability for past acts – due diligence requirements are much higher

Post-acquisition Integration • Partnership with operational teams to evaluate processes • First touch with new physicians should be positive • Non-hospital based practices likely have processes that will need revision and analysis – don’t freak out! • Develop a risk assessment tool to be implemented shortly after onboarding • How soon after initial employment will first touch be? • Frequency of auditing – once, multiple times, annually? • Who will complete the assessment – risk mgmt staff only, risk mgmt and practice, practice self assessment?

Post-acquisition Integration • Risk Assessment Topics to Cover: • Patient rights and Advance Directives – presence and quality of forms, documentation processes • Privacy – appropriate HIPAA forms, appropriate storage of charts and patient information, office practices to ensure confidentiality of discussions • Cultural Competency – availability of translation, language assistance and hearing assistance services • Medication use and safety – processes for medication reconciliation, storage, preparation and use of any in-office medications and vaccines, documentation of medication and vaccine administration, drug sample inventory and use processes

Post-acquisition Integration • Risk Assessment Topics to Cover: • Informed consent – processes for obtaining consents, documentation of consents • General Safety – appropriate equipment available for patient population (children, bariatric, etc.), processes for chaperones during intimate examinations, routine assessment (and resolution of any identified concerns) of equipment function and environmental safety factors • Credentialing and competency – processes for assessing competence at initial hire and on an ongoing basis

Post-acquisition Integration • Risk Assessment Topics to Cover: • Office practices – policies on cancellations and missed appointments, phone triage practices, telephone advice and follow up practices, follow up on lab and other diagnostic exam results, documentation of patient interactions with staff other than physicians • HIM – timely, accurate, complete documentation, practices for ensuring appropriate access to records when needed clinically, processes for ensuring no inappropriate access to records for confidentiality purposes • Communication and teamwork – processes and practices on communication of clinically significant information, general working environment, staff willingness to voice concerns • ADA • CLIA

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Physician Practice Acquisition and Risk Management