1. Hospital Employment vs. Acquisition vs. Merger
Jim Needham, CEO – First Coast Heart & Vascular Center
C (904)
W(904)

2. DISCLOSURES
CEO of local Cardiology practice – First Coast Heart & Vascular Center
Majdi Ashchi doesn’t pay me enough (does that count?)
No other disclosures

3. Presentation Content Introduction – Why are doctors teaming up
Hospital Employment Option
Pros
Cons
Acquisition Option
Merger Option
Conclusions
Q&A

4. Presentation Disclosure
There is no way to cover all of the reasons, both positive and negative, to any employment, acquisition or merger. There is also no way to cover all of the models and model tweaks used. Lastly, every practice’s needs and priorities are unique. Out of respect for you time I will cover as much as I can, but can be reached for questions at; Office – Cell – – or

5. Why are Doctors Teaming Up?
Size matters more today than ever before
If all practices in a market grow internally, then the market will become saturated and all practices suffer
Purchasing power
Administrative scale and skill
Managed care leverage. Personal experience is you have some leverage at 20 docs and again at 50. Below 20 you’re pretty helpless unless your in a very unique specialty or the market is grossly underserved in your specialty
More financial resources for EMR, outcomes tracking and IT
More leverage with hospitals and other partners
Patients, managed care and referring physicians want 1-stop shop

6. Why are Doctors Teaming Up?
Size matters more today than ever before
Access to more patients for marketing
Better chance to add profitable ancillaries
More balance sheet strength for loans and lines of credit
Medical, operational and financial best practices are easier in larger groups
Potential to consolidate offices and building overhead
Less busy doctors can get overflow from busier doctors
Easier to recruit doctors as they are taught that size matters
Consolidate referral sources

7. Why are Doctors Teaming Up?
ACOs/Future Reimbursement Models mean Risk Shift to Doctors
Hospitals and managed care own the checkbooks. Size allows either leverage with them or ability to directly contract
If a hospital employee, you have access to this checkbook if negotiated in your employment agreement
Size may allow you to form co-management agreements with hospitals for new income and information
You’ll need sophisticated software and staff to measure cost and quality
You might be able to directly contract with the insurance company, but geographical coverage, size and technology sophistication will be needed

8. Why are Doctors Teaming Up?
Defense
Mergers, acquisitions and hospital employment are happening and will happen. Estimates vary, but 70-80% of all physicians are expected to have gone through one of these situations between 2010 and 2015
Ask yourself;
Are you making more money while working at the same pace?
Are you spending less time managing the practice?
Can you receive increases in reimbursement?
Is your competition fearful of you?
Do you have sophisticated EMR, IT and software?
Can you participate in managed care or Medicare risk products?
Are you maximizing ancillary profits?
Do you see a brighter future?
There are no guarantees a merger, acquisition or employment will reverse any or all of your answers, but doing nothing certainly won’t change your answers

9. Hospital Employment (points represent level of likelihood)
Pros:
Purchasing power (6)
Great access to high level execs, strategists, lawyers and consultants (10)
Likely enhanced managed care rates (8)
Massive financials resources for EMR, IT and compliance (10)
Likely built in referrals from tied-in and owned physicians (9)
Stable compensation for 2-3 years (8)
Less office hours per week (8)
Benefits, 401k, etc. likely very good (7)
More say with Hospital Administration (9)
No personal debt or guarantees (10)
Access to ACOs and outcomes systems (7)
Less operational/managerial responsibilities (5)
Effectively you no longer have competition (8)
Less likely to have to deal with “problem partners” (5)
Everyone else is selling to the hospital, so why not you (?)
Note; some items only count if it affects your compensation

10. Hospital Employment (points represent level of likelihood)
Cons:
Not all incentives/intents aligned;
Hospital wants ancillaries, admits, ER coverage, consult coverage
Doctor wants ancillaries and to do less of the rest (10)
Hospital wants to direct referrals to in-house physicians
Doctor may feel in-house physician is not the best choice (9)
Hospital wants to standardize equipment, implants, etc.
Doctor may feel the choices aren’t best for every patient (9)
Unlikely to receive up-front money of any materiality (9)
Useful life of hospital contracts are 3-5 years. If there’s a non-compete, there’s going to be serious issues for the physician (10)
Employment is a cyclical concept so this is unlikely a long-term solution (9)
Use hospital business office which generally isn’t great at physician billing (7)
Location and other overhead costs are higher or mis-managed (7)
Little to no control over staff and staffing levels (6)
Hospitals lack understanding on how to make a practice run (6)
Note; some items only count if it affects your compensation

11. Acquisition (points represent level of likelihood)
Pros (from the acquiree perspective):
Purchasing power (8)
Access to higher level executives (9)
Likely enhanced managed care contracts (8)
Better EMR, IT, compliance (8)
Likely built in referrals (assuming multi-specialty) (8)
Benefits, 401k, etc. could be better (5)
Remove personal debt and guarantees (7)
Possible access to ACOs and outcomes software (5)
Less day-to-day operational/management responsibilities (6)
Past patients and referral sources likely remain (8)
Sense of personal identity remains with greater sense of group identity (7)
Access to more patients through improved marketing (9)
Likely creates hospital leverage (9)
Working with like-minded people (9)
They know how to run a practice (9)
Size matters for stability and improved chance of success (10)

12. Acquisition (points represent level of likelihood)
Cons (from the acquiree perspective):
Not all incentives/intents are aligned;
Big group wants your referrals, but quid-pro-quo may not exist (5)
Their execs become yours and yours are let go (8)
Ancillary profits driven up to Senior Partners (6)
Allocated fees may not be fair in your opinion (6)
You may not like their technology or could be expensive (8)
You may not like their policies; HR, finance, benefits, etc. (5)
Unlikely to provide any material money up front (9)
Watch for the non-compete (9)
Less control over staff and staffing levels, but better than hospital model (8)
You may not get along with key physicians and execs (8)
No legacy to pass on (9)
Will you have to “buy in?” (7)
Did you “cheat” your young physicians by being acquired? (?)

13. Merger (points represent level of likelihood)
Pros:
Purchasing power (6)
Combines, doesn’t replace, execs, strategist, lawyers (8)
Pick the tax ID for best contracts (10)
Slightly more money for EMR, IT and software (5)
Likely creates in-house referrals and better external marketing (8)
Choose the best benefits (9)
Maintain operational, financial and strategic control along with ancillary ownership (9)
Possible access to ACOs and outcomes software (5)
Past patients and referral sources remain (8)
Sense of personal identity remains and stronger sense of group identity (9)
Probably enhanced your young partners’ position in the future (8)
Best method for recruiting (10)
Likely increased hospital leverage (8)
Size matters for stability and improved chance of success (10)

14. Merger (points represent level of likelihood)
Cons:
Not everyone will see things the same way;
One group is financially stronger than the other, so may not share (6)
Creates a fight over who the management team will be (8)
New compensation plans have to be agreed upon (8)
“Conservatives” vs. “Bonus Me” conflicts (8)
Agreeing on technology may mean one group pays more (8)
Does not remove past debt or guarantees (8)
Combined debt may make borrowing even harder (5)
May have a non-compete (6)
You may not get along with the executive team or all partners (6)
You keep your financial, operational and managerial responsibilities (9)
Will you have to “buy in” again? (3)

15. Conclusions
Size matters and many around you have or will size up. Should you do the same?
If so, how and who do you do it with?
Or is this just another fad?
Key Issues;
Hospital Employment – what happens when contract terminates? It will happen
Acquisition – can you fit in with them and what they do as a good soldier and no longer as the General?
Merger – do you believe you can become 1 Practice?

16. Q&A Thank You Jim Needham (904) 466-0267