| To hospital clients, friends and industry colleagues: Our firm does a great deal of medical practice valuation work, and
in the past couple of years we have been called upon to do a number of valuations of what
some people call "un-coupling" hospital-physician transactions. These are
transactions in which hospitals want physician employees—whose practices the
hospitals had previously acquired—to return to private practice, for a whole variety
of reasons that don’t require elaboration here. We’ve noticed inclinations on
the part of many hospital executives that may be natural, understandable reactions but
that can be risky from a regulatory standpoint, and we wanted to let clients and friends
know that there are potentially dangerous waters involved here….Please be careful
when you are a hospital, hospital-affiliated MSO which "owns" medical practices
and is "un-coupling" physicians who are employed—meaning that you and/or
they are wanting them to go back into private practice as owners of their own
practices—and this cautionary note applies particularly with respect to those whose
medical practices you acquired previously.
Look, we all make mistakes….you may believe that you
never should have acquired medical practices in the first place…you may think that
the physicians you acquired sweet-talked you and then after the deal was done coasted and
got lazy…you may think that your organization should never have gotten into the
business of managing practices…and, above all, you may be thrilled that the
physicians themselves want to go back into private practice and that now everyone is
saying "ok, let’s break up but still be friends"….
….but none of this means that you can necessarily
just "give the practice back" to the docs !!
The fact that the medical practice or practices which you
acquired a few years ago may not have been profitable by the hospital’s definition of
profit or by virtue of the hospital’s or MSO/s internal accounting and
cost-allocation system does not mean that the medical practice has no value and can be
"given back," especially if compared with the practice’s performance in
total receipts and other key indicators prior to the acquisition when the original medical
practice valuation and transaction were done. The fact that your internal accounting
department says "this practice is losing money" may or may not mean that the
practice is losing money when the profit/loss statements are adjusted for a real-world,
market-based practice independent valuation. Often, the definition of "making
money" or "losing money"—and, consequently, the conclusion that an
entity has or does not have value—depends upon whether one is looking only at
internal financials or taking an independent, market-based approach to reconstructing
profit/loss statements as if the physician were, in fact, in private practice.
This is not the place to get into technical discussions,
but please consider that as much as you and the physicians may want to de-couple in a
"relationship-enhancing" manner, giving back a medical practice can be as
dangerous from a regulatory standpoint as overpaying for the practice in the first place.
This is true especially with respect to the fraud & abuse and anti-kickback guidelines.
An inappropriate inducement to refer patients is just that, regardless whether a hospital
overpays for a medical practice in the first place via the original purchase transaction
or "gives a practice back" to a physician when the practice may, in fact, still
have market value.
There are circumstances, of course, when practices
have no market value, have totally failed, etc….but some careful analysis and
consideration of these issues needs to take place. Feel free to call any time at
800-423-5157 or email us at HealthCapitalGroup@yahoo.com
and, of course, do check with your own legal counsel on these matters. |