The Intersection of Managed Services and Financial Engineering in Healthcare

Ben H.

Hatched by Ben H.

Sep 07, 2023

3 min read

0

The Intersection of Managed Services and Financial Engineering in Healthcare

Introduction:

In the ever-evolving landscape of healthcare, physician practices face numerous challenges, from navigating complex regulations to dealing with reimbursement issues. However, two key trends have emerged as potential solutions: managed services and financial engineering. This article explores how these concepts intersect and their potential impact on the healthcare industry.

Managed Services for Physician Practices:

Interwell Health, a pioneer in kidney care, recently launched its Managed Services program. This program aims to assist nephrology practices in succeeding in value-based kidney care agreements, which aim to improve patient outcomes while reducing overall costs. The program offers a range of services, including practice review, debt cost insights, expense control, and payer analytics. By providing these services exclusively to network members, Interwell Health aims to support physician practices in optimizing their operations and enhancing their financial performance.

Financial Engineering in Healthcare:

Private equity (PE) firms have shown increasing interest in acquiring specialty clinics, driven by two primary factors. Firstly, the complex regulatory environment and the challenges of value-based contracts make it difficult for individual practices to deliver care effectively. Secondly, doctors often struggle with inadequate reimbursement rates from CMS, compounded by commercial plans slashing payment by up to 40% for out-of-network practices. PE buyouts offer relief from these challenges while providing physicians with financial rewards. The primary objective of PE firms in these acquisitions is to maximize EBITDA (earnings before interest, taxes, depreciation, and amortization) to ensure a higher multiple for sale in the future.

Navigating Corporate Practice of Medicine Laws:

PE firms face a unique constraint when acquiring physician practices: they cannot employ doctors directly due to Corporate Practice of Medicine laws. To circumvent this, they establish a management service organization (MSO) that enters into a master service agreement (MSA) with the purchased practice. The MSO takes care of various administrative functions, allowing the physicians to focus on patient care while maintaining their autonomy. This strategy becomes even more powerful when PE firms acquire multiple practices in the same specialty, enabling them to consolidate operations and leverage economies of scale.

The Benefits of Integration:

By bringing together managed services and financial engineering, physician practices can unlock numerous benefits. Firstly, managed services help practices identify operational inefficiencies, optimize productivity, and implement tactical recommendations, ultimately improving patient care. Secondly, financial engineering allows practices to reduce costs, streamline debt instruments, and analyze expense reductions, leading to improved financial performance. Lastly, the consolidation of practices within the same specialty under a single platform provides economies of scale and greater leverage in contract negotiations, driving higher EBITDA and potential future sales.

Actionable Advice:

  • 1. Embrace Managed Services: Physician practices should explore partnerships with organizations like Interwell Health to leverage their expertise and support in navigating value-based care agreements. By taking advantage of practice reviews and payer analytics, practices can identify areas for improvement and negotiate better contracts.
  • 2. Consider Financial Engineering Options: Doctors facing reimbursement challenges should evaluate the potential benefits of private equity buyouts. However, it is crucial to thoroughly understand the implications and limitations imposed by Corporate Practice of Medicine laws. Establishing an MSO can provide administrative support while maintaining physician autonomy.
  • 3. Seek Collaborative Opportunities: Practices within the same specialty should explore collaboration and consolidation opportunities. By joining forces, practices can achieve economies of scale, enhance their bargaining power with payers, and drive improved financial performance.

Conclusion:

Managed services and financial engineering present promising avenues for physician practices to overcome the challenges of modern healthcare. By leveraging the expertise and support of organizations like Interwell Health, practices can optimize their operations and navigate value-based care agreements successfully. Simultaneously, exploring financial engineering options, such as private equity buyouts and MSO structures, can provide relief from reimbursement issues while maintaining physician autonomy. By embracing these strategies and seeking collaborative opportunities, physician practices can position themselves for long-term success in an ever-changing healthcare landscape.

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