Thinking of linking with a PPMC?
Thinking of linking with a PPMC?
Read these pointers first
Despite recent skittish activity on Wall Street among the physician practice management company (PPMC) industry and the exodus of industry leader MedPartners of Birmingham, AL (see related story on p. 1), many practices find overtures from PPMCs attractive. Chicago-based consultant Elaine Scheye of The Scheye Group Ltd., a strategic advisor to physicians and hospitals, advises her clients to approach a bid from a PPMC very cautiously. Scheye gives practices the following advice:
• Don’t rule out your local bank as a source of capital.
"Banks have become more sophisticated in their lending packages," she says. "If they have a good business plan, I don’t think physicians necessarily need several million dollars [of capital] immediately to grow and compete effectively. Whenever you talk about access to capital, in the end you’re going to dance to someone else’s tune. He or she who has the gold rules, and PPMCs want a majority role in governance. With banks, you’ve got different criteria. Yes, physicians assume personal liability . . . but [they] are also essentially left alone unless or until they can’t make a loan payment."
• Do a cost-effectiveness analysis of your practice and for individual physicians in the group.
Have this in place before discussions with a potential PPMC partner begin. Determine how healthy the practice’s financials have been for the past few years and what the projections are for the next five years. How good are the current managed care contracts in place for the medical group (and for the individual physicians, if appropriate)? Are the physicians considered providers of choice for the leading managed care organizations in the immediate geographic area?
• Determine what services the practice needs.
As part of the cost-effectiveness analysis of the practice, determine what sorts of services the practice needs. Services can be purchased through a contract with local vendors for a specific need. For example, if your practice needs help updating management information systems and generating better financial data, a contract with a local management information services firm is far more reasonable from a cost standpoint than spending 15% of monthly revenues on a PPMC. Develop a request for proposal based upon a list of specifications, and obtain bids from firms that may be able to meet your needs. An added bonus is the service you get from a local vendor, whose best interest is in keeping you satisfied to continue the relationship.
• Negotiate an exit strategy as part of the affiliation agreement and include specifics in any contract you sign with a PPMC.
Many practices have signed contracts with PPMCs that have included non-compete clauses or costly buy-back provisions. Remember that a non-compete clause could force physicians in your practice to leave the community, set up shop again, and start from scratch — an onerous task for professionals who have invested time and money in developing a professional reputation and patient base.
Given the flurry of PPMCs that have filed for bankruptcy protection, physicians need to work closely with their legal counsel to draft contracts that take this worst-case scenario into consideration. Proper contract language, drafted with the help of an attorney, can ensure that legal safeguards are incorporated into all affiliation agreements that physicians and the practice may sign in their consideration of affiliating with an intermediary. Physicians need to be mindful that if the PPMC they affiliate with winds up seeking bank ruptcy protection, it is presently unclear whether the physicians would be able to collect on monies owed them because the intermediary contracts with the HMOs on behalf of its affiliated physicians, Scheye says.
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