MMCpodcast2_030411

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MCCpodcast1_030411

Instructions to download and listen:

1. Using your mouse, right-click on the link above
2. Select the option “Save Link As”
3. Save the file to an appropriate location on your computer
4. Once the file has finished downloading, open the file in its new location

If a hospital or physician group approached you today with an offer to buy your practice, would you know if it was a good offer? Do you really know what your practice is worth? If you do not, the difference in value can be anywhere from a decrease of 50% to upwards of an increase of 300% of its original value.

“That’s a lot of money,” says Ken Ducey, Jr., CEO of Fairfield Capital in Ridgefield, Conn. He stresses that it’s never too early to start planning to place a value on your practice.

“There are different issues in life that happens, and we’re forced to make decisions quicker than we expected; therefore it’s better to have a plan in place so if something does happen you can sell the practice quickly, and more importantly, get the right value for it,” Ducey advises.

Even if you have no intentions of selling, you should still perform a valuation. “Some buy-sell agreements will require a periodic valuation because some physicians in your practice group are either leaving the practice or you may have others who want to buy in,” says Rick Carter, CEO of Equation, a Salt Lake City-based healthcare analytics and consulting firm.

Ducey adds that everything you do to increase the value of your practice will also make it a better practice. “Even if you don’t sell, but you have a plan in place,” he says, “there’s a better chance than not that you will make more money as a result.”

Choose a Valuation Expert

When valuing your practice, it is suggested that you hire a financial consultant or valuation firm to determine its value. The firm will examine a range of factors including: your assets; accounts receivables; charts; workforce; and the contracts or employment of the physicians. It may even compare it to other medical offices.

Regardless, Carter suggests assigning this valuation to an expert. The purchaser will hire an objective firm to gather the financial data and may even bring in an equipment supplier to estimate the value of the equipment.

“Two times out of ten, the practice will also hire someone to do a valuation and will come to an agreement with the buyer in advance that they will take the average of these two valuations,” says Carter. “Ultimately, it comes down to whatever the buyer wants to offer for your practice.”

Below are some of the questions that are addressed during a valuation process.

How much risk is involved?

When you think about selling a practice, it’s all about risk. The less risk the ultimate buyer will take on, the more value you can put on that practice. The more risk that there is, the less valuable it’s going to be.

“One important factor is the financials,” says Ducey. “But all the factors that add or subtract from the risk to the success of the practice will be most important. To have a buyer place a higher value on your practice, you need to minimize the risk. Therefore things such as organized marketing system with historical results, up to date technology and client communications, and records of historical patient revenues all put a buyer at ease.”

To demonstrate minimal risk, one thing you need to do is prove that the revenue and the patients are not all about you. In other words, the buyers will want to know that the revenue and income will continue after you are gone. They want to be able to assure its existence beyond that of the original physician.

“Are the patients only coming because of the special relationship they have with the physician, or are they flexible?” asks Ducey. “You have to be able to show that the patients are coming to your practice, not just because of your name and seeing you, but other factors.”

The physician-owner needs to create and write models for how they market the practice, as well as communicate with and handle patients. A proven marketing program and proven assistants able to handle a large patient load will all add substantial value to the practice. On the other hand, a disorganized practice, that is run without processes, without a real marketing plan, without assistants, will drag down the value.

How well does your practice operate?

As a potential seller, you’re trying to pitch the fact that there is more value in this practice because it operates economically well.

“The focus is not on how much equipment you have or how new it is—because those hard assets tend to be a lower focus on the acquisition value,” says Carter. “Instead, the real thing to focus on is the performance of the practice as a whole—how productive are the doctors; how good and strong is revenue; is revenue performing well; are rates from payers good; how good is overhead; is the practice efficient—that’s what they buyer is buying economically.”

What are your ancillary services worth?

One element of your practice that could be attractive is your ancillary services.

“In physician practices, there really is no leftover cash flow because it tends to go towards physician compensation,” says Carter. “The only place we usually see cash flow is in ancillary services where there is some reimbursement, such as performing ultrasounds in an OB/GYN group. This actually creates a margin independent of the physician service.”

If you have ancillary services, Carter says you have to demonstrate that those services have had good margins and strong, steady growth over time.

Do you own or lease?

Location can also play a factor into the appraisal of your practice. If you can prove to the prospective buyers that patients are coming to the practice based on its location, it makes it infinitely more valuable for a practitioner because it proves that revenue will continue after you are gone. And of course, your practice is worth substantially more if you also own your facility.

“Having the right piece of real estate is essential in terms of passing the practice off to the next buyer, but a lot can depend on a lease if the real estate is not owned,” says Ducey. “Landlords can have more say during a negotiation than the physicians themselves if they have an expiring lease and a uniquely valuable location.”

Some of the different factors that come into play when appraising real estate include the type of practice you have, the location and accessibility, expansion possibilities, and the other facilities nearby. However, there’s no need to rush and start making repairs or making renovations to improve your practice’s value.

The fervor and buzz around electronic health records is mounting as federal legislation threatens fines for non-compliance by 2016. Ironically, the EHR adoption rate for medical practices remains relatively low, especially among practices with fewer than 50 physician providers.

The barriers in part are due to an abundance of myths and misinformation that lead to errors along the implementation path and drive runaway costs for EHR projects.

With thousands and even millions of dollars at stake for providers, we debunk 12 common myths that may doom your EHR efforts.

Myth #1 – EHR projects are IT projects
Implementing EHR is not a project for the IT department alone. EHRs are an enabling technology that is part of a larger initiative designed to help physicians demonstrate the improved value of the services they deliver by improving clinical quality and economic efficiency. This involves a cross-department effort. Healthcare providers who can successfully and demonstrably supply services of greater value to patients and other consumers of healthcare services will be in a better competitive market position. They can use this improved position to take advantage of government incentives, avoid government penalties, access pay-for-performance programs and gain market share.

Myth #2 – EHR software is useful out of the box
EHRs are usable, but not useful “out of the box.” Like all large scale software products, they require some end-user modification and customization. Providers need to pay particular attention to customizing certain visit templates, building useful patient registries and chronic disease management flow sheets, adding evidence-based decision support features and creating custom reports. Furthermore, in order to meet the challenge of building a health information exchange, the EHR must be customized to interface with other systems.

Myth #3 – EHR vendors will provide all the project management and assistance I need
EHR vendors may claim to provide “end-to-end” solutions.  However, EHR vendors will typically use this term in reference to their specific area of expertise. In reality, there are numerous aspects of an EHR project that fall outside the purview of the vendor.

Myth #4 – I can manage my own EHR project
EHR projects are complicated, time consuming and expensive. Unlike Practice Management Systems, EHRs require large software installations. Without an experienced implementation team, the project will likely take longer and become more expensive. Despite great efforts on the part of well-meaning individuals, many providers must contend with 1) insufficient understanding of the entire EHR project requirements, 2) inadequate capabilities and capacity to support this effort, and 3) significant upfront capital investment. As a result, many encounter slow and low adoption rates, and little if any return on investment.

Myth #5 – All EHR systems are the same
While on the surface EHRs may appear to have the same capabilities, they tend to function differently.  Choosing the wrong one for the wrong reasons may lead to prolonged implementation that increase costs and decrease adoption rates. The most effective systems that provide the greatest opportunity for return on investment have enterprise capabilities.  They accommodate multiple specialties, have an integrated practice management system and decent reporting capabilities, while also being easy to use, affordable and readily customizable.

Myth #6 – EHR systems can communicate with one another
EHRs seldom communicate with one another — at least until the mechanism to do so is built. In fact, even EHR systems from the same vendor rarely communicate with one another if they are of a different build or on a different database.

Myth #7 – EHR projects do not provide acceptable return on investment
Contrary to common beliefs, EHRs can provide payback in as little as 18 months with significant return on investment. In some cases, EHRs have resulted in recurring ROI as high as 124%. In order to maximize its success, providers must establish some type of provider organization that can govern the project, streamline the decision making process, and centralize select shared functions.

Myth #8 – I can wait to implement my EHR
There are several reasons why you should not wait.
1.    EHR projects are extremely complicated and require extensive time and resources. Expect to marshal even more time and resources when establishing a HIE. Providers must plan beyond the technical aspects of the process and factor those elements into the timeline.
2.    The government has legislated EHR use by the end of 2015.  Until then, the federal government is providing financial incentives through American Recovery and Reinvestment Act under the title: Health Information Technology for Economic and Clinical Health and funding for meaningful EHR use. These incentives are time limited and front loaded.
3.    If the carrot is not enough, the government also carries a big stick. When incentives run out in 2015, progressively increasing penalty fees begin if the provider’s EHR is not fully operational by end of 2016.

Myth #9 – The budget for the project is equal to the quote I received from the EHR vendor
There are numerous aspects of an EHR project that fall outside the purview of an EHR vendor. Providers will have expenses associated with networking, hosting, customization, training, deployment, chart retirement, support and maintenance. Failing to recognize the complete set of costs at the outset of the project may quickly lead to frustration.

Myth #10 – My practice can remain isolated from other practices in the community
The time of the isolated practice is over. Physicians and practices must exchange patient information and participate in care coordination in order to contribute to a safer, more effective, and more efficient patient care environment. Additionally, in order to be able to decrease cost, take advantage of economies of scale, establish market advantage and create new or enhance old streams of revenue, providers must form some type of provider organization in their community.

Myth #11:  Productivity in my practice will decrease to intolerable levels during implementation of an EHR.
One of the top barriers to EHR adoption is the fear of dramatic impact on physician productivity. While this can occur, it does not have to. A well-managed project can result in less than 5% loss of productivity with providers returning to 100% of pre-EHR productivity within four months of beginning EHR training.

Myth #12:  I can’t begin to implement until I know the exact definition of meaningful use.
Providers no longer have to wait for a definition. Meaningful use (Stage 1) is described in the final rule issued July 13, 2010, and while CMS may issue some minor revisions, they are expected to only to further clarify the final rule (as relates to Stage 1). Now the focus is on ensuring that an appropriate provider community exists with a governance structure to help physicians implement EHR technology in a way that provides significant ROI, fosters HIE and meaningful use, and helps physicians collect and report needed data.

Keys to EHR Success

•    Make it a Team Effort. Providers cannot go it alone for both clinical and economic reasons. They must collaborate as business persons and as clinicians to create and deliver greater value to patients and other healthcare consumers
•    Be in control. Know the myths, and understand what you can do to avoid becoming ensnared by these fallacies. Consider the way EHRs align with your strategic plans and what you expect to gain from them. Plan ahead.
•    Limit investment appropriately but do not skimp. An EHR initiative requires a substantial investment. Runaway costs are common without the proper due diligence.  This is not an area to cut corners.
•    Learn the best practices/ There are provider organizations that have succeeded in implementing EHRs. Search them out to learn from their mistakes and successes.
For more details regarding how to avoid the common pitfalls of EHR implementation, watch the following pre-recorded webinars from Ms. Waltko and Dr. Sprowl:

Part I : https://www1.gotomeeting.com/register/805140696
Part II : https://www1.gotomeeting.com/register/297403248

When it comes to acquiring physician practices, hospital boards have come a long way since the 1990s, during the first acquisition boom. During that time, it was common for hospitals to purchase medical practices at inflated prices, and then lose huge sums of money on their investment for a variety of factors including inefficient physician incentive systems. Hospitals would often end up selling the practice back to the physicians. Research has shown that an ever-increasing number of physician practices are owned by hospitals, according to the 2008 Medical Group Management Association’s annual Physician Compensation and Production Survey, and the trend continues. The difference this time around is that Boards are taking a more strategic approach to acquiring and integrating practices into their health systems. Continue reading→