South Florida Hospital News
Saturday October 31, 2020
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August 2007 - Volume 4 - Issue 2
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Forming a Megagroup Still Has Advantages

Managed care companies (MCOs) consistently reduce contractual payment rates to physicians who are on their panels principally to maintain or to increase profits. They also usually structure the payments as a percentage of current Medicare rates. Those rates are scheduled to fall precipitously for physicians over the next several years. Thus, there is a double "whammy" driving physician MCO payments steeply downhill, while at the same time costs continue to rise.

Generally, it is futile for small practice or solo physicians to attempt to negotiate rates with MCO’s. It’s not a fair "fight". MCO’s offer these physicians "take it or leave it" contracts. Less than a decade ago Medicare rates for physicians were barely acceptable. Today, Medicare usually is the best payer for smaller physician groups and single practitioners in South Florida, especially with MCO reimbursement rates falling far below the Medicare rate and the manner and speed of payment not nearly the equal of Medicare.

Organizing a large, single or limited specialty, medical group practice is one strategy to be able to fairly negotiate with MCO’s. The medical group should include a significant percentage of the physicians in that specialty or specialties within a geographic area. Unlike being part of a small group practice, physicians in larger groups may share financial information and act collectively, putting them in a much stronger position at the negotiating table. The result often is better contracts with MCO’s, in terms of both economic and non-economic terms.

However, even with mega-groups, negotiations will not always be easy. As more large groups have become operational in South Florida, some MCO’s, fearful that higher physician fees will severely impact their profits and upset their investors, have become extremely recalcitrant, refusing to negotiate even when patient care could be adversely affected. In those cases, the group may find it necessary to terminate its relationship with the MCO. This can be financially painful short-term, but if the group is strong and remains firm, it can prevail.

There are additional advantages available with a large group. For example, the group can create profitable ancillary medical businesses; it can purchase or lease very sophisticated software, and, thereby, improve its billing techniques and structure an effective electronic data system; and it can afford to hire high-quality professional management in-house.

The creation of a mega-practice is not easy and requires a significant, continuing time commitment by the physicians. Typically, it takes a year or more from the time the physicians first meet until the time the group is ready to go "live." There will be difficult issues that must be resolved. During that time the physicians must raise seed money to hire an attorney and a consultant to lead them through the long process; create governance documents and form a legal entity; elect a Board of Directors and possibly an Executive Committee (the physician management usually meet several times a month); gather financial and other information about the physicians and their practices; hire a professional to run the day-to-day operations of the new practice; locate, lease and build out a central business office; either purchase or lease the new software system; obtain a new Medicare number; and negotiate new managed care contracts for the group.

If the new group is properly created, and its owner physicians are willing to accept the short term pain, positive results will be enjoyed.

Mike Segal is a partner in the Miami office of Broad and Cassel and is chair of the statewide firm’s Health Law Practice Group. He can be reached at (305) 373-9400 or msegal@broadandcassel.com.
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