Survey: Hospital/practice integration has challenges, rewards

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The decision for a cardiology practice to integrate with a hospital is an arduous task often laced with burdensome financial and business decisions to consider. However, the choice to integrate can result in an alignment of goals between the practice and the hospital, increased physician compensation and greater physician and patient satisfaction, based on results of a survey of cardiologists and cardiology professionals by MedAxiom, a subscription-based resource provider for cardiology practices.

Of the 310 cardiology practice members, 153 responded to the survey. At the time of the survey, 22 practices said they had recently undergone full integration, 70 were considering integration, 42 were not considering integration, eight said they would never consider integration and 12 were in a co-management agreement.

“Integration is a very powerful force in cardiology today,” Patrick White, president of MedAxiom, told Cardiovascular Business News. With financial worry and changes in the fiscal environment, more practices are considering integration as an opportunity, he said.

Interestingly, all 22 practices who had fully integrated with a hospital reported that they would recommend integration to their colleagues. “That’s a pretty powerful statement,” said White.

“Anecdotally, what some of the members said was that they entered the deal with much trepidation, but after a couple years, they saw increased quality of the hospital and an increase in hospital performance,” he said.

Of practices that had integrated, the three major problems they faced prior to integration were declines in physician compensation (86 percent) and testing revenues (59 percent) and the inability to recruit employees due to compensation issues (36 percent).

“In cardiology there are some pretty significant changes that impact the physician group from a financial perspective and then there are some regulatory and legislative issues to deal with as well,” White explained.

During the survey, the three top reasons for seeing the need to integrate from those who had already undergone the process was the belief that reimbursement trends favored hospital-based environments (63 percent), that they would gather better capital growth for the cardiovascular service line (CVSL) (54 percent) and have a better ability to reach goals (45 percent).

However, talks of integration moved beyond just financial concerns, and practices asserted that their decision spawned from beliefs that they would gain better protection from the competitive market.

Additionally, practices said that they had felt that integrating with a hospital would give them more influence over the CVSL, better cultural incentives (paid time off/vacation time) and better access to primary care physicians, while some practices reported feeling tremendous pressure from the outside market.

“Once people get into the negotiations, the far bigger issue is that of governance and management. How are we going to manage and govern our practice? Is it going to change the way we practice medicine? These questions become the much bigger issue,” White noted.

During integration talks, one difficult decision is deciding whether or not to sell stocks or assets or lease. Among the survey respondents who integrated, 55 percent sold their assets during the deal, 30 percent sold stock and 15 percent leased assets.

Figuring whether to use an employment model (sell stocks/assets), professional service model (lease arrangement for use of cardiologists at hospital) or business enterprise model (combines both aspects of employment/professional models) is also another difficult decision.

White said that the best way a cardiologist practice can complete this complex business deal successfully is to get professional assistance from outside consultants.

“The worst kind of ignorance is not knowing what you don’t know,” he said. “Getting professional advice will help identify issues that have to be dealt with and a professional can help you think through the pros and the cons, the risk versus the rewards, and the potential pitfalls.”

Most groups participating in the survey used external contractors (77 percent) to sync the deal, while the remainder relied on assistance from their own attorneys and accountants (22 percent).

Hiring an outside consultant can help a practice “come to grips with reality” during integration talks, said White. “It gives the group more realistic expectations going into the deal. If