Physician-Hospital Alignment and Compensation Models: The Second Generation, a Synopsis

The various options available for the affiliation of physicians can be overwhelming to potential participants, especially to those who are less familiar with the business aspects of healthcare management. Physicians, providers, administrators, and leaders across the healthcare spectrum are bombarded with possibilities for transactions. This book presents and describes the current and anticipated arrangements that offer physicians potential strategies in navigating the healthcare landscape. The best decisions can be made only with a foundational knowledge base.

Chapter One provides an overview of physician affiliation transactions with a 20-year review. The history encompasses all types of affiliations, including physician to physician, private group to private group, private group to hospital-health systems, private group to private equity/outside investors, and more.

Chapter Two offers an in-depth study of the financial terms and structures of the physician affiliation models that have evolved during the past 20 years.

Chapter Three details the reasons for affiliation as substantiated and supported repeatedly, especially relative to current strategies.

Chapter Four introduces current models and serves as the foundation for the subsequent chapters, which examine each model individually.

Chapter Five considers physician employment, which is the most traditional and historically based model. Considerations include practitioners in private practice and health systems, with key terms and conditions, compensation structures, and more.

Chapter Six addresses professional services agreements (PSA). PSAs are common and will continue to challenge the status of the employment model.

Chapter Seven explores joint-equity opportunities for both ancillary services and practice initiatives. This chapter focuses on equity-type structures and addresses future opportunities where physicians, hospitals, and private investors may partner.

Chapter Eight lays out the fastest-growing affiliation model between private and equity investors and physicians; private equity transactions. Emphasis is on the current and anticipated structures, terms, and conditions of these affiliations.

Chapter Nine considers private equity-like transactions, which is a newer concept. This model usually involves a physician (specialty) group and a health system, and it mirrors many of the features of private equity transactions.

Chapter Ten looks at clinical co-management alignment. Though it is not a standalone affiliation model, co-management is a part of other affiliation transactions, such as PSAs and employment. This chapter considers how it may apply going forward.

Chapter Eleven includes a review of several limited affiliation models, such as medical directorships, recruitment support, and others. Though these affiliations are waning, they remain popular and are worth addressing.

Chapter Twelve discusses clinically integrated networks (CINs) and value-based reimbursement (VBR) structures as a part of the transition from fee-for-service (or volume) to fee-for-value.

Chapter Thirteen addresses private groups merging in both single and multi-specialty settings, which are popular and will continue to be in the future.

Chapter Fourteen examines the role IT plays in sound decision making when healthcare entities merge. It speaks to the need for both the pre- and post-due diligence workaround information technology. Proper planning will enable both the buyer and seller to enter these transactions with full transparency and understanding of risk, including any lurking pre-existing cybersecurity threats. Discussion includes data migrations, system conversion, data archiving, application retirement, early termination, A/R burndown, reassignment of vendor contracts and support agreements, and critical success factors for achieving full IT integration.

Chapter Fifteen is devoted to various legal and regulatory compliance considerations that must be included when considering different affiliation models of the future.

Chapter Sixteen discusses options for capital procurement. While funding is primarily the purchaser’s responsibility, the decisions about the options depend on the preferences of both parties. Some transactions involve minor up-front funding; others entail the exchange of substantial monies at closing. This chapter addresses the sources of financing and capitalization of the transactions of affiliation.

Chapter Seventeen is devoted to the mechanics of putting together and ultimately closing affiliation models. The process can be slow and tedious, stressing the need for engaging transaction advisory services.

Chapter Eighteen wraps up the chapters, presents conclusions, and provides an overview of affiliation models and structures for the future.

The purpose of this book is to lay a strong foundation for making sound decisions about the numerous available affiliation options for physicians. The intent is to prepare the reader for the current and future healthcare practice environment.

Excerpted from: Physician-Hospital Alignment and Compensation Models: The Second Generation by Max Reiboldt, CPA, Justin Chamblee, MAcc, CPA, Ellis M. “Max” Knight, MD, MBA