Vertically integrated delivery system can be a boon or bust depending on the principles driving the process

L. Gordon Moore, MD

With permission from the author I post below a long anecdote about a high functioning solo primary care practice looking to link up with a local group.  This is supposed to be the way to a future state in which primary care practices operate as the front lines of vertically integrated Accountable Care Organizations.

The notion makes some sense on paper but the real world is a bit messy.  I post this example as a caution that even good intentions can go awry and leave both sides feeling burned.

We are in the midst of another wave of mergers and consolidations on the delivery side of health care.  With thought and care this can be done well.  Let the principles of high performing health systems guide this work. High performing health systems stand on a foundation of effective primary care.  Doing this well means working with the front lines, not just swallowing up practices with boiler-plate contracts and top-down management.

High performing primary care and vertical organizations are not mutually exclusive, but we need to consider the effect of organizational policy has on the ability of a practice to deliver on the promise of effective primary care.

This email is long and I know that some of you will yell “WHAT WERE YOU THINKING?!?!”  Please refrain from that, as we’ve already kicked ourselves in the head over and over about this.  If you don’t want to read it, I won’t be offended if you hit your “delete” button.

Background:  We were sharing our space & staff with another MD up until July, 2009.  At that point in time, we compensated for the lost overhead from the gentleman who does research in our office by charging him rent (previously we took only a % of what he earned, now we are supposed to be paid rent + a %).  Things were going OK, but Rob’s practice was not as busy as our current spending habits dictate, so he started working for a company called X which does concurrent chart review for hospitals to determine inpatient vs. outpatient status, mainly for Medicare patients.  He started there in February this year, and while it is a lucrative job, it is not personally fulfilling in the same manner that a clinical practice is.  Rob shared with our former practice management advisor about this position, in case the PMA knew of any other physicians who were looking to add income after hours.  The PMA shared with us that he was now working for a large hospital organization, and that they were looking to expand into our area.  Thus begins the saga….

Rob started talking to the Medical Group in April or May.  They were definitely interested in folding our practice into their group.  It required multiple interviews with multiple physicians, and at the outset, we thought this would be good.  The group would provide a stable income for the next couple of years, would promote the practice (thus increasing patients to the level needed to make the sort of income that they were offering while not being on a hamster wheel), and would give Rob what he thought he wanted back – a collegial group of physicians with which to practice, a say in how the office would be run, while at the same time allowing him some time “off” (not being on call while on vacation).  The group’s non-profit Foundation would provide everything that the practice needed – paying all of the bills, including rent, an EMR system, payroll, etc.  And the group’s Research Division would contract with the research guy in our office so that research could continue.  Talks with the Medical Group went well in May and the first part of June and then stalled out when the president of the group went away for a month.  At the end of July, agreements were made and a formal employment contract was sent to us the week before we left on vacation in August.  Mid-August, we came back from vacation and Steve signed the employment contract.  Things started to progress.

The next step involved the purchase of our assets by the Foundation.  Within 2 weeks of signing the employment contract, an appraiser was sent to our office.  We were told it would be about 2-3 weeks and then we would get the purchase offer for our assets.  3 weeks went by, and we then started calling on a weekly basis to inquire about the appraisal.  Foundation’s Legal department would NOT release the appraisal to us.  They were working on the purchase agreement.

Meanwhile, the Foundation computer and phone people started hounding us.  Multiple visits to our office were made so that they could look at where they would need to install “their” equipment.  There was to be a computer in every single exam room.  “What a waste!” I thought…..Rob currently uses a tablet and carries it from room to room and it works great.  They also wanted to put phones in every exam room…..ditto the wastefulness.  Our office is so small that one simple yell for help will bring the staff running from the farthest corner.  The phone lady was like a Border Collie; she really “needed” to have AT&T come out and do work in our suite.  We kept telling her that until we had a signed Purchase Agreement, that was not going to happen.  The other thing that was supposed to be happening during this time was the Foundation was to hire our LVN.  Even after coming and talking to her personally, no one bothered to mention to us OR HER that she was supposed to apply for her job online through their website.  It was only after we pushed and told the President of the Medical Group that it was unacceptable for her to start working for an employer without knowing what her salary and benefits were going to be that they even bothered to tell us that she would need to apply online “for any job – just tell us which one.”  She complied, did the online application and had many phone calls with confused HR people wanting to know why an LVN would be applying for an MA position.  Our first clue that the left hand of this organization does not know what the right hand is doing…

Move forward to the last week in October.  Three days before the end of the month, with Rob supposed to be starting to work for the medical group on Nov. 1, we finally get the purchase agreement.  Not only is the amount bottom-dollar for the Fair Market Value of our assets, but in it they state that he cannot continue to work for X.  We told them that this is a deal-breaker.  Back in August when we signed the Employment Contract, we specifically asked if his work at X would be a conflict.  We have IN WRITING that it would not.  (They made a HUGE assumption that it was an Independent Contractor type of employment and not and Employment Agreement when they answered that question.  That has now come back to bite them because it wasn’t until October that they even bothered to ask for a copy of his employment.)  Foundation’s Legal department is stating that anything that uses his medical license is a conflict of interest and all income must flow through them and be passed on to Rob.  We knew that X wouldn’t do an independent contractor agreement because we asked about that in January upon the advice of our CPA.  But their Legal Beagles wanted to try anyways.  So the start date was pushed back to Dec 1.

On 10/29, AT&T called to state that they were on their way out to do work in the suite.  I said NO WAY.  I had a password protection put on our account because the Border Collie was ordering things to our account without telling us and without authorization.  (She was told – in no uncertain terms –  that there was to be NO WORK done in our suite until we had a signed Purchase Agreement.  And I have Building Management on my side for this one.)

We gave them until Nov. 5 to work something out with X.  Nothing was worked out.  On Nov. 8, Rob send a “Dear John” email to the Medical Group and told them that he appreciated all of their hard work, but without him being able to continue his work at X, we could not progress with the deal.  Never mind the fact that a deal had not been worked out with our research guy and our LVN still did not have an offer of employment.  That got the Medical Group freaked out.  They called and asked Rob if he would consider an “administrative” position with the medical group to offset the income that we currently get from X.  He said yes.  They told him by the middle of this week that they would have something.  He told them that they had until yesterday to come up with an agreement for research and a written employment offer for our LVN.

Needless to say, no administrative position has been offered.  No offer of employment for our LVN.  No contract for research.  No Deal.  Rob called the Medical Group yesterday, said “Enough is enough, thank you for the offer.”  Oh, and I forgot to mention that meanwhile, we have learned that their EMR is 1990’s technology (way behind our current EMR system, which just got certified this week for Meaningful Use), that many physicians are unhappy with the Foundation due to the top-heavy management and inability to get things done (like repair holes in walls and fix non-working computers), and we have decided that it’s just not going to be a good fit for an entrepreneurial physician to work in this monster of a system.

The past 6 months have been an exercise in patience, but have also been a learning experience for us.  Although large organizations may be the only way to make it work going forward with Healthcare Reform in areas such as ours, we are going to make sure that we participate in an organization that is not top-heavy and where the physicians have a say in the running of the business.

What will we do now?  The future is uncertain.  We’re not sure that we can sustain a practice and live in the area that we do.  Our house payment alone is 65% of our income because we moved here right before the market peaked and then tanked.  We don’t really want to move – our kids are doing really well in top-rated schools.  They have lots of friends (which is hard for our son to do).  We love our community. We like our house (even if it is overpriced).  My mom lives close by.  We are looking at sharing our office space again with another provider.  Rob will continue with X and research, and we will try to get creative about marketing our practice. Our story will continue, but without a top-heavy, unorganized group.  We are looking at migrating our EMR system to an ASP, Rob is drooling over the fact that he might be able to use an iPad, we don’t relish him continuing to work 20+ hours per week plus holidays for X, but we see it as temporary, although it is a long-term “temporary.”

Lesson learned:  Solo is the best option for us at this time. Just say NO to the big groups when they come knocking on your door.  And really do your research if you think you want to not be solo any more.

Happy Saturday and thanks for listening to me vent!


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