Consolidation is transforming medicine: Here’s what every doctor needs to know

May 22, 2019

Sometimes it just isn’t worth going at it alone.

Whether it’s the buddy system at camp, starting a new business with some partners, or teaming up with the neighbors over the weekend to finally build that fence, there are often benefits that come with working together.

It’s the same in medicine, and it’s the reason that we’re increasingly seeing groups of like-minded physicians coming together and consolidating their practices. This is happening across the board, from major insurers like UnitedHealth, to university systems, to more localized and specialized physician groups, all working together to provide the right levels of care to their patients while also operating on their own terms.

Consolidation is in.

On the one hand, this trend makes sense. Every physician is trying to find a way to maximize quality of care without increasing costs. This means finding ways to upgrade and expand the availability of equipment and services, among many, many other benefits. Teaming up with other practitioners helps address these problems.

Consolidation in medicine, however, is complicated due to one inescapable reason that is never far from a physician’s mind: heavy regulation. 

There are decades of federal regulations around what medical professionals can and cannot do, often limiting them to their core competencies and nothing more. Participation on the business side, even to go so far as to create a partnership with another physician, is often out of bounds. 

However, there are a number of carve-outs and safe harbors that make this type of work possible, even if finding those inlets takes some complex navigation.

Here are a few things to keep in mind when considering this path in order to remain compliant with all federal regulations.

Remember, this may be a new legal entity: When practices combine, they don’t always keep using their existing business names, tax numbers, or accounts. We often see the historic entity stay around to simply collect trailing accounts receivable, but not to continue the physicians’ practice of medicine. Assuming a new legal entity means that even advertisements and communication to patients need to be analyzed and updated. This goes all the way down to basic steps like changing over the name on the lease, updating the internet service provider account to the new entity, and more. These are all important steps from a regulatory standpoint, but they’re typically not something that feels all that important to a practicing physician. Minor headaches, to be sure, but they exist to prevent the even bigger sorts of migraines that can only get resolved in a courtroom.

Making compliance a habit: There are elements in the structure and design of these partnerships that are important from a compliance standpoint, but it’s important not to ignore the long-term implications. You can have a great company with tremendous growth potential, but all it takes is one or two partners who aren’t following the rules to ruin compliance for everyone. Maybe they aren’t making centralized decisions, maybe they aren’t acting like they’re part of a group. Whatever the case, the risk of blowing up the entity’s safe harbor is very real and needs to be constantly monitored throughout the life of the organization. For that reason, consider yearly, perhaps even quarterly, check-ins with whomever is in charge of overseeing compliance.

Centralized decision-making isn’t automatic: One of the biggest challenges that doctors have to understand when becoming part of a group is the need to act as though they’re part of a group. They aren’t a one-person shop or operating out of a single location. If the group overall wants to do something that they don’t agree with, subject to the voting and control provisions of the group practice, that’s too bad. Above and beyond a name change and some paperwork, consolidation is more than anything a cultural shift away from individualism. That’s not easy, and it shouldn’t be assumed to be.

Personal conflict is very real: From situations like, “What do you mean I can’t use my own billing company anymore?” all the way down to, “Why do I have to change my email address?” consolidating physician’s individual or small group practices is a very personal process. Getting everyone to row in the same direction takes time. Don’t rush it.

Do your diligence: You know your friends well. But how well do you know their finances? If you can’t assume total visibility into the financial life of people you’ve known for years, you shouldn’t do the same for the people who are about to become your partners. Go in with your eyes wide open. Act like the life of your partnership depends on it, because it does. On a practical level, this means insisting on a review of your own and all of your potential partner’s leases, vendor agreements, and contracts. It’s important to look at everything and determine that your new partners have been running a business that you want to be a part of. 

The truth is, the whole point of joining as a group is not to do everything exactly as you have before. It’s something new for a reason. 

The challenge for physicians is to continue to provide a great service-a better one, in fact-but under a new set of rules, as part of a new entity. That way, you can enjoy all the advantages that come with joining forces, without worrying about running afoul of regulators.

Torben Welch is head of the Messner Reeves Utah office. He focuses on litigation prevention but serves as a trial attorney performing independent internal and external investigations or appeals hearings as needed. Maclain Joyce is a partner in the firm’s Denver office. He assists and counsels on matters of corporate formation and structuring, mergers, acquisitions, and corporate governance.