Perspectives On What Is A "True" Group Practice

As reimbursement in health care stagnates and medical practice operating costs continue to escalate, many physicians are considering strategies to form group practices. As they engage in such discussions, they'll commonly ask: "What does it take to be a ‘true' group practice?" This articles assesses this question from legal, operational and practical perspectives.

The Legal Touchstones. The law has its own view of what constitutes a "true" group practice. The Federal physician self-referral or "Stark" law provides perspective on a group's essential characteristics. Those include of:

1. A single legal entity engaged in the practice of medicine;
   
2. Group physicians provide the vast majority of their professional services through the practice entity, and payment for their services is treated as group property;
   
3. The group has an internal governance system in which a governing body has effective control over financial, budgetary, and other matters, and the group has consolidated accounting, financial management and billing systems; and
   
4. The group has consistent contractual and other arrangements, including compensation practices.

Antitrust laws also echo many of the same themes by holding that a true group practice consist of an "economically integrated" group of providers who share the opportunity for profit or risk of loss through a common enterprise, rather than operating as otherwise separate economic units.

Essential Dimension of Structure, Power, and Money. The legal concepts referenced above can be distilled into the three key dimensions of structure, power and money.

The structural dimension requires the group to consist of a single, economically integrated legal entity. The legal form may be a professional corporation, a professional limited liability company, or another form that is directly or indirectly owned by individual physicians or other organizations. In all instances the single entity is used as the platform for medical services, and that entity owns the reimbursement for the services furnished the group's physicians and other providers.

The power dimension relates to governance and autonomy. A centralized governing body must have a true ability to make decisions. Group governance can be crafted to allow for substantial "local" operational autonomy, but major decisions related to the group are vested in the governing body, rather than being reserved such that each individual physician is entirely free to do his or her own thing.

The money dimension means that all true groups have a "common set of rules" governing financial management, the allocation of practice overhead and physician compensation. Those rules and systems reflect the group's particular political, cultural, and economic realities. In some groups, the entire business may be treated as a single economic unit with physician compensation dependent upon the success of the whole, while other groups will treat individual operating units as quasi-independent business units for financial management and compensation purposes as a means to allow for significant "local" practice autonomy. The group's centralized management expenses will typically be spread across the group as a whole. Ancillary service profits will be subject to the Stark law's mandate that physicians not receive direct reimbursement for the services that they order -- although profits from such services may be allocated directly to sub-sets or "pods" within the group comprised of five or more physicians, then indirectly among the physicians in each pod.

Operational Issues. Apart from the dimensions of structure, power and money, a true group has a host of operational characteristics including those relating to personnel. Each physician will become a party to standard contract(s) that define the relationships between and among group practice and its participating physicians. Non-physician support personal such as nurses, receptionists, and others also become group employees. Group-wide employee benefit plans, including health, life and professional liability insurance will also be implemented.

Retirement Plans. The prospect of making changes to a physician's existing retirement plan will often be viewed as a major barrier to a new group's creation because every retirement plan is crafted to address each physician's unique goals, desires, and preferences. As a result, any change to those existing practices (which are, by definition, the "best"), risks upsetting the apple cart. Yet the need for a common retirement program need not serve as a barrier to group formation. When transitioning to a new retirement vehicles, old programs are frozen, but plan assets are not distributed or lost. Moreover, the core principals of maximizing physician contributions while minimizing costs, providing flexibility on investment decisions and the like can still be promoted in a consolidated program. Although the transition will involve change, the vast majority of each individual physician's goals and preferences can typically be accommodated.

Practice Infrastructure. When a new group is created, the existing assets of the participating practices (i.e., leases, equipment, accounts receivables, etc.) must be addressed. Furniture and equipment may be transferred to the new group, or retained outside in a separate equipment company and leased-back for the group's use. Office leases will be assigned or transferred to the new group, or new leases entered into. Depending on the method of formation, accounts receivables will be transferred to the new group or more commonly, collected outside of the new group after the group commences operation with the proceeds paid to the physicians who generated them.

Any new group will also commonly require additional practice infrastructure. That may include a group-wide electronic health record ("EHR"), ancillary service facilities, equipment and personnel, and additional practice management staff. Such new assets will be planned for, and their costs will typically be treated as group-wide expenses for which the group's owner physician will bear the opportunity for profit and risk of loss.

Other Details. Third-party payer contracts must be assigned to any new group or new contractual arrangements entered into, and physicians must reassign of their right to payment to the new group's tax-ID. A conversion to a single billing system will commonly occur over the first year of operations. Under the single system, all group physicians will be on the same billing platform, but the billing and collection process can still allow for local charge entry and account follow-up, and other forms of "local" involvement in the billing and collection process.

Process. For physicians in a solo or small group practice, consideration of the known and unknown details in group formation can be intimidating. Yet, forming a group practice is very much like creating any new marriage. Like most marriages, group formation typically occurs through a process, not overnight. Experience shows that a structured process to group formation should involve three key stages:

1. Feasibility Assessment. During this phase the key goals, issues and concerns of the group's prospective participants are identified. A candid sharing of information occurs, and all parties make a candid assessment whether a "marriage" via group formation makes sense on business, cultural, economic, and other grounds. The assessment process also identifies the major issues and details that need to be addressed through a more formal planning process. At the conclusion of the feasibility assessment, a decision will be made whether to proceed with more active planning related to the legal, structural and operational details of the new group.
   
2. Planning. Assuming that there are valid business, cultural, professional and other reasons and a sufficient common "vision" to form a group, a formal planning process is undertaken. A planning committee comprised of a sub-set of all prospective participants will work through the major structure, power and money issues relative to group formation. The committee will make decisions that will strike an appropriate balance between group and individual physician interests. The outcome of the planning process will be a definitive list of decisions regarding the structure, power, money, operational and other key issues, and a decision whether to move to implementation.
   
3. Implementation. Once a final decision to from a group has been made, legal documents will be prepared, operating plans implemented, and other steps taken to bring otherwise separate medical practices into a single group practice entity. The new group must have the essential characteristics referenced above relating to legal structure, power and money. The group formation process (feasibility assessment, planning and implementation) will also typically help the participants to begin to evolve to a "group" rather than individual practice culture. If the three phase process is conducted efficiently, the entire process can be completed relatively short period of time (typically six to twelve months). If the process is conducted appropriately, there should be no eleventh hour issues or questions raised in connection with legal document preparation or implementation because these key issues should have been addressed in advance in the process.

Conclusion. A true group practice has clear legal, operational and other attributes. The Stark law and others do provide rules that can be looked to to provide the basic touch stones for group practice formation. Yet beyond the legal mandates, the underlying financial, economic, cultural and other characteristics of the enterprise will be more essential to any new group's long term success. Using a structured processes to assess, plan for and ultimately implement a new group practice will provide an effective means to that end.